Rubbish piled high in the streets - noughties version

I do wonder whether the last two years won't turn out to have been one of those pivotal moments. If so, this may be one of those defining images we look back on.

Yes and no

I generally like Paul Ormerod's stuff, but I'm not overly impressed by this para in his Comment is Free piece today:

And this is to say nothing of the massive social injustice which has been created by the huge gulf between public and private sector pension provisions. From an egalitarian perspective, this is a scandal even bigger than the bankers' bonuses. In the 1997 budget, Brown wrecked private pensions. Gold-plated public sector ones remain unreconstructed.

Yes, I'd agree that the disparity is a scandal, and actually it is a bigger issue than bankers' bonuses. The private sector has decided that it cannot handle the costs and, more importantly in my view, risks of defined benefit pension provision. Employers have massively reduced their commitments to pensions. This is something that does need to be addressed, and quite quickly, or a lot of people are going to be retiring on much less than their parents.

But to blame the current government for this state of affairs is way off target. The single biggest contributor to the collapse in DB pension provision is improved life expectancy, as is widely accepted. Stockmarket falls and new accounting standards brought home to companies what risks they were running. In all of this the level of dividend taxation is not a big factor. That isn't to say it didn't hurt, but to claim the changes in the 1997 Budget (which only took to completion a move initiated previously by the Tories) 'wrecked' private pensions is off the mark. The first big wave of DB closures started after the dot-com bubble burst - ie post-2000. If dividend taxation was the key factor why didn't the effect kick in earlier?

And it's incorrect to claim that 'gold-plated' public sector pensions have not been reformed. You might think that reform has not gone far enough, but to suggest that they haven't been touched is simply... err... wrong.

The killer (no pun intended) is life expectancy. Therefore if Labour seriously damaged the private sector pension system it did it in 1948 by establishing the NHS, not by reducing dividend income in 1997. It's just that we only really started grappling with the implications much later. And personally I don't think that the solution offered by the private sector - significantly reduce pensions - is the right one, or would be acceptable to the public if properly understood.

Disappointing stuff I'm afraid.

3 things

UKSIF/LAPFF/CIPFA study on local authorities and responsible investment is available from the UKSIF website.

Eurosif study on investment consultants is available here.

Good news for Kit Kat lovers.

Fidelity donates £125K to the Tories

Woah! Where did that come from? After a long period of relatively small donations (£25K or £30K a quarter), Fidelity gave the Tories £125K this September. Search for "FIL" under "donor name" here. Maybe it's a sign that they think the Tories have the election in the bag? Who knows.

According to a Bloomberg report it's because: "We see donations as part of our ongoing business activities... We live in a very highly regulated environment. Government has a big impact."

Fidelity has also been getting a few days out of MP Sir John Stanley recently. According to They Work For You he has spent about 3 full days (25 hours) "attending meetings as necessary and advising on business opportunities and risks" since July. To be fair, this might just reflect improved disclosure (he didn't used to disclose either the fee level or the amount of time spent working for Fidelity).

Bits & pieces

Apologies to my regular reader (hello Mum!) for the lack of posting. I have spent the past few days at the LAPFF annual conference in Bournemouth. Lots of interesting stuff on the agenda and I think at a day and a half it's probably the most comprehensive conference of its type in the UK.

I'll probably post up some thoughts over the weekend, but just to say that Bob Monks was very good as usual, and I hope I'm that intelligent, enthusiastic and engaged when I'm 76! He was also very positive about what Paul Myners has been trying to achieve.

Anyway, whilst I've been away obviously there has been quite a lot of noise about bonuses. Chris Dillow has a great post on the subject with lots of interesting links in it.

Also hat-tip to Duncan for alerting me to an interesting piece by Pesto on ownership.

And there's a good bit on the Other TPA about the Higher Rate TPA's public sector rich list. Interesting to see how the banks skew the results, yet they still use a year on year comparison.

Incentives and motivation

Just spotted this piece on Matthew Taylor's blog. One of the things that is most disappointing about the remuneration debate is that it hasn't focused on whether what we do currently actually works. I don't think it does (and by extension that means I don't think that remuneration drove behaviour that led to the crisis) and I think that we operate with incredibly crude assumptions in the governance world. Companies (mainly, but also some investors) often say that good structures don't make bad managers into good ones. True enough, but then why do we think that attaching a big carrot to some very broad metrics will achieve the same? Or turn good managers into great ones, or make people who do the job well because it gives them satisfaction work harder?

More thinking required?

FRC stuff

The FRC has released its proposed new version of the Combined Code, plus the results of the previous review. Obviously it is significantly influenced by Walker. Notably the FRC propose two options on director elections - either annual election of the chair, or of all directors. I reckon we could well end up with the latter, because the former feels like a tilt away from the unitary board, surely?

Some useful commentary from the FRC on this stuff too:

it was argued that voting on the board as a whole was more consistent with the concept of collective responsibility, but there were concerns that it might have a destabilising effect or encourage short-termism on the part of the board and shareholders. The FRC notes these concerns, although anecdotal evidence suggests that this has not been the experience of those companies that have moved to annual reelection of all directors. In those cases the majority of investors have used their votes responsibly.

As I blogged previously, investors who oppose annual elections are - in my opinion - simply taking their pro-management stance too far. So it's good to see the FRC look at the actual evidence of companies that have made the move, rather than taking for granted that the conservative position is the right one.