My David Cameron

Via Tom, a really easy Cameron poster generator. Here are two of mine.

Excellent article

By John Plender in the FT, here. This sets out a lot of the problems with relying on shareholders to address issues like remuneration. What I really like about it is that it doesn't end with some bullet points for 'what needs to change'. We still have a long way to go on that score.

Unite on Kraft/Cadbury

Long overdue plus for this. There's a shareholder briefing available for any investors wanting to hear the employees' perspective.

Select committee snippet

I’ve managed to get hold of the transcript of Stephen Hester’s evidence to the select committee earlier in the week. Having had a read through, I have to say that he comes across much better than the media coverage would have suggested. The ‘holidays’ comment was right at the end, when the session was winding down and, as such, where he might have expected to get away with a slightly less serious comment. Still a bad approach IMO...

Anyway this little exchange between Hester and John McFall is interesting.

Chairman: Yes, but you have a fair idea what is happening at the moment as you come to us. Have institutional investors raised concerns or given you directions on bonuses?

Mr Hester: My summary of the position as I understand it from our institutional investors is that they are all highly conscious of the very difficult challenges that exist in turning RBS around successfully and making them money. They believe that we need highly qualified and motivated people to do that and to compete against people, and they want to make sure we have that. Subject to that, they would like the biggest profits possible and therefore the lowest bonuses.

Chairman: So the answer to my question is they have not raised concerns or given you directions?

Mr Hester: They want us to optimise the balance between having the lowest possible expenses---

Chairman: I think it is a very simple question, Mr Hester. Have they raised concerns or given you directions? That is all I want. Just a simple answer.

Mr Hester: They have raised concerns about our ability to keep and motivate good people. They have raised plenty of concerns
about that, and the institutional shareholders all continue to have rules as it relates to remuneration on the other side.

So McFall is basically asking whether institutions are giving RBS a hard time over bonuses. And the answer seems to be ‘no, they want us to pay a lot’. Right? In other words their principal concern seems to be that RBS doesn’t pay bonuses that are too low.

Fred's got a new job

Fred Goodwin - former chief exec at RBS - now adviser to RMJM

And the rest...

Adam Applegarth - former Northern Rock chief exec - now an adviser at private equity firm Apollo Management

Andy Hornby - former HBOS chief exec - now chief exec at Alliance Boots

Tom McKillop - former chair of RBS - now a director at UCB

Steven Crawshaw - former chief exec of Bradford & Bingley - ill-health early retirement

Motivation & pay

I can't tell if it's just me looking for something I want to see or whether there is a bit of interest developing in non-financial motivation. I've been thinking since the financial crisis hit home that an opportunity exists to have another look at whether big piles of cash (or shares) actually work as incentives. It's why I think some of the Left commentary about bankers' bonuses misses the point.

The amounts paid matter to some extent, but surely more so is whether they actually drove the 'wrong' behaviour or not. Your answer to this second point matters quite a bit and unfortunately much of the focus on restructuring bonuses and other incentives (which I agree is necessary, but for other reasons) is built on the implicit assumption that this form of incentivisation does work, for good or ill. So those on the Left arguing for bonus reform need to be aware of this.

Personally I'm sceptical bonuses drive behaviour, as I've said many times before, and it's notable that the FSA, or at least Adair Turner wasn't that convinced either. And this is quite apart from the question about whether it is possible to effectively tie the reward to the right targets in the first place. If we start from this point we could have a much more interesting discussion about bonuses and other incentives.

Anyway, as I say I think I'm picking up a bit of nascent interest in broader questions about motivation. A couple of people in the governance world do seem to be sniffing around this stuff. The Daniel Pink book I referred to recently could be a useful way to popularise this debate. But it would be really good to get some decent research done in the investor world.... here's hoping.

Mandy again...

Well today is the day of the summit between various govt ministers and institutional investors to talk about the ownership agenda. To tie in with it Mandy has an article in the FT. The end to it is quite nice:

A healthy approach to mergers and acquisitions needs to reflect the same commitment to good management in both the long and short term. Nobody denies that a change of ownership can be a good thing for a company. There can be economies of scale or the possibility of technology synergies. It can create new value over time.

But the open secret of the past two decades is that through poor valuation or aggressive cost-cutting, too many mergers fail to create additional long-term value in the merged company. For this reason, companies making acquisitions should set out an objective analysis of the potential gains and be entirely open about their intentions for the workforce, while shareholders on both sides have to be genuinely critical.

Directors should expect to run the gauntlet of public and shareholder criticism if they have done their homework poorly, plan to load companies with heavy debt, are motivated chiefly by the desire to strip assets or simply want make a quick profit off the share price with little respect for the workforce or local interests.

Free-market true believers will no doubt say that any distinction between types of share ownership in publicly owned companies is irrelevant. Most people buy a stake in a business to make money, and they will take a short-term profit over long-term investment. It is not at all clear this must be the case.

It was Keynes who first likened share trading to the superficiality of trying to guess the outcome of a beauty pageant. Britain’s industrial future depends on it being something more than that. It is time to restart the debate.

Spot on.