Their proxy materials are out, with the AGM taking place on October 16th.
A few interesting nuggets. The company is facing three shareholder resolutions - to appoint an independent chair, to eliminate dual class share structure, and to introduce majority voting.
Both James and Rupert Murdoch pick up big bonuses - reduced in light of 'events' but still big.
Andrew Knight is coming off the board.
Wednesday, 5 September 2012
Monday, 3 September 2012
Olson, Hirschman and shareholder activism
Something that can seem quite odd on first glance is why shareholders expend any effort on issues like executive pay. After all, as I bore on quite frequently, there are a variety of reasons why we might expect them either to not bother, or to be ineffective if they do try. One argument I realise that I personally rarely invoke for shareholder reluctance to get stuck in is the classic collective action problem.
In fact Mancur Olson directly referred to this in relation to shareholders:
The reason I don't use this argument is because I rarely run up against it when dealing with people in the the corporate governance microcosm. The nearest you get is that some people will sometimes tell you that they don't want to take the lead in engaging with a particular company because they have a very small holding - meaning a fraction of a percentage. But even then they are typically still voting. In practice, then, quite a lot of the time asset managers with relatively small holdings (certainly small enough that they would derive a very marginal gain from any uplift in value) do bother to engage. But why?
Of course some people will suggest we can discern some other interest. Certainly in a few cases assets managers and other providers offer shareholder engagement as a service, so you could argue that they simply do it because they are paid to. But, again, I don't think that captures it. Why the upsurge (as limited as it might be) in shareholder opposition this season? It is clearly not the result solely of the activism of those paid to be activist - they don't have enough power to do it alone (and were presumably doing it already anyway) and in any case we know that some mainstream investors are involved.
One of the best responses to Mancur Olson came from my old fave Albert Hirschman in the book Shifting Involvements. Again focusing on individual motivation, Hirschman says that at certain times the model of cost/benefit analysis changes:
For what it's worth I think the current round of activism is taking place in no small part because some investors at least believe that it is a good thing that it does so, regardless of whether they can show a real financial benefit. Their views about the merits of shareholder engagement are more important than any notional financial returns. One of the things I like about Hirschman is that he looked at how ideas develop over time (The Passions and the Interests being the stand-out example) and the impact they had in practice. I think that at least currently he can offer us some better insights into what shareholders are up to than Olson.
In fact Mancur Olson directly referred to this in relation to shareholders:
Why, then, do not the stockholders exercise their power? They do not because, in a large corporation, with thousands of stockholders, any effort the typical stockholder makes to oust the management will probably be unsuccessful; and even if the stockholder should be successful, most of the returns in the form of higher dividends and stock prices will got to the rest of the stockholders, since the typical stockholder owns only a trifling percentage of the outstanding stock. The income of the corporation is a collective good to the stockholders, and the stockholder who holds only a minute percentage of the total stock, like any member of a latent group, has no incentive to work in the group interest. Specifically, he has no incentive to challenge the management of the company, however corrupt or inept it might be.To be fair, Olson was referring to individual shareholders, rather than institutional investors. However, given that even large institutions rarely hold more than a few percent the point still holds. In straightforward cost/benefit terms shareholder activism doesn't seem to make any sense, or rather it doesn't seem to make sense to lead it, you should free ride.
The reason I don't use this argument is because I rarely run up against it when dealing with people in the the corporate governance microcosm. The nearest you get is that some people will sometimes tell you that they don't want to take the lead in engaging with a particular company because they have a very small holding - meaning a fraction of a percentage. But even then they are typically still voting. In practice, then, quite a lot of the time asset managers with relatively small holdings (certainly small enough that they would derive a very marginal gain from any uplift in value) do bother to engage. But why?
Of course some people will suggest we can discern some other interest. Certainly in a few cases assets managers and other providers offer shareholder engagement as a service, so you could argue that they simply do it because they are paid to. But, again, I don't think that captures it. Why the upsurge (as limited as it might be) in shareholder opposition this season? It is clearly not the result solely of the activism of those paid to be activist - they don't have enough power to do it alone (and were presumably doing it already anyway) and in any case we know that some mainstream investors are involved.
One of the best responses to Mancur Olson came from my old fave Albert Hirschman in the book Shifting Involvements. Again focusing on individual motivation, Hirschman says that at certain times the model of cost/benefit analysis changes:
[A]t some stage in our cycle, the benefit of collective action for an individual is not the difference between the hoped-for result and the effort furnished by him and her, but the sum of these two magnitudes! And a further surprising consequence follows immediately: since the output and objective of collective are ordinarily a public good available to all, the only way in which an individual can raise the benefit accruing to him from the collective action is by stepping up his own input, his effort on behalf of the public policy he espouses. Far from shirking and attempting to free ride, a truly maximising individual will attempt to be as activist as he can manage, within the limits set by his other essential activities and objectives.It's important to be clear that Hirschman's book is about how commitment to public versus private activities goes through waves as punters become disappointed with one, then turn to the other, then back again. Therefore, according to Hirschman's theory, it's only at a given point in the cycle when activism might be its own reward. Nonetheless it does put a rather different spin on how shareholders, and specifically those individuals undertaking engagement activity, might approach it. I don't think this by any means captures the range of motivations, but it does at least point us away from the assumption of a bottom line cost/benefit approach (where activism is a cost) which does not reflect what we see in practice.
For what it's worth I think the current round of activism is taking place in no small part because some investors at least believe that it is a good thing that it does so, regardless of whether they can show a real financial benefit. Their views about the merits of shareholder engagement are more important than any notional financial returns. One of the things I like about Hirschman is that he looked at how ideas develop over time (The Passions and the Interests being the stand-out example) and the impact they had in practice. I think that at least currently he can offer us some better insights into what shareholders are up to than Olson.
Wednesday, 29 August 2012
Barclays pay vote updated
Fidelity and Henderson opposed too.
FOR - Goldman Sachs, Standard Life
ABSTAIN -
OPPOSE - Aberdeen, AXA, F&C, Fidelity, Henderson, Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows
I think that's about all the voting data there is out there for now. Obvious big one missing is BlackRock, which has no 2012 data available yet. But if you look at the list above it's pretty clear that mainstream UK institutions largely voted against. So maybe US & other overseas investors swung this. Given that ISS recommended in favour it seems likely that there were quite a few US votes in favour.
Monday, 27 August 2012
Decline of the ownertariat
The whole time I've been interested in share-ownership there have been competing views about what we are actually faced with and what can be achieved. Depending on how seriously you take the word 'ownership' in respect of shares, or rather depending on what you think you own, your view can be quite different. Obviously I'm most interested in how the Left, and the labour movement, can respond and even within that subset of the responsible investment world there seem to be two different conceptions. These are greatly simplified below -
A more defensive/tactical approach - there is influence in the shareholder-company relationship that can affect working people one way or another. If we get organised we can counter some of the negatives, and even utilise that power in support of other objectives.
A more optimistic/strategic approach - ownership of companies via shareholdings is important and can be democratised. Through systemic change we can reconfigure financial markets to take account of ESG issues in a socially and financially beneficial way.
I suspect that many people shift from what I've called a tactical approach to a strategic one over time. For example, you might start off thinking about some specific employers, and how you can work on the company-shareholder relationship to influence them. From there you start thinking about whether we can broaden out the way that 'ownership' works, and how to ensure that all such relationships take account of employment issues.
Personally, though, I've gone in the other direction. I have shifted from quite an expansive view to a more limited one, and this tends to inform how I see ideas and activity within this field. I find it difficult to see much share-ownership as being ownership in a real sense, and I struggle to see how this will change in a way that can be channeled in a progressive (barf) direction.
For example, it's notable that one idea currently doing the rounds is that of more concentrated portfolios with bigger stakes. The arguments for this seem to be a) that diversification only reduces risk up to a point (a few dozen stocks I think?), after which it tails off b) oversight declines with larger portfolios (obviously) and c) a smaller number of larger stakes increases the financial self-interest in picking the right companies and ensuring they do well.
This is all sounds alright doesn't it? It does, of course, rather undercut the Universal Owner theory that has been very influential over recent years. This claims that since really big investors own everything they can't escape externalities, so they need to be concerned about all companies. But if we going down the route of concentrated 'ownership' portfolios this is no longer the case, right?
It also looks like a case of Back to the Future. When I first got into this stuff (as a journo, a million years ago) taking large active positions was the reason that bog-standard (ie non activist) asset managers would give for not focusing on corp gov. We know the company really well, if we had concerns about the board we wouldn't invest etc etc etc.
And, more generally, doesn't this model also look a lot like mainstream activist funds? Particularly if part of your big strategic aim is to argue all this stuff from a business case perspective, I don't see what is new? From a strategic perspective of trying to get the market to work better this might make sense, but it might make the life of those taking a tactical approach more difficult. Odey Asset Management has a big, long-term slug in BSkyB - how useful were they in trying to get the board to take the hacking stuff seriously?
Finally, these days I am also less comfortable with suggesting that pension funds and other savings represent a way for the public to 'own' companies. Leaving aside the point about whether shareholding = ownership, it's important to recognise that a) many working people have never been in pension schemes and b) of those that are many are in unfunded ones - NHS, Teachers, Army etc. In the private sector DB schemes with trustees (many of them union members) are in long-term decline. The DC schemes that are replacing them have the opposite effect to that of DB ones on shareholding - atomising rather than aggregating it. In addition most are contract-based rather than trust-based, so member oversight, weak as it often is in DB schemes, is non-existent in DC schemes.
In light of all that, I think that - at least for the time being - Lefties who are interested in this stuff are better advised to focus on the tactical rather than the strategic. When all the stars are in alignment, shareholder-focused activity can be very effective, however equally there are times when you can achieve little. It's not obvious to me that redesigning the pension system, corporate governance, company reporting etc to make shareholder challenge more effective is a good use of limited resources. This is particularly the case if a) 'shareholders' are NOT analogous with working people as a whole and b) as a result we can't rely on shareholders to do the right thing.
A more defensive/tactical approach - there is influence in the shareholder-company relationship that can affect working people one way or another. If we get organised we can counter some of the negatives, and even utilise that power in support of other objectives.
A more optimistic/strategic approach - ownership of companies via shareholdings is important and can be democratised. Through systemic change we can reconfigure financial markets to take account of ESG issues in a socially and financially beneficial way.
I suspect that many people shift from what I've called a tactical approach to a strategic one over time. For example, you might start off thinking about some specific employers, and how you can work on the company-shareholder relationship to influence them. From there you start thinking about whether we can broaden out the way that 'ownership' works, and how to ensure that all such relationships take account of employment issues.
Personally, though, I've gone in the other direction. I have shifted from quite an expansive view to a more limited one, and this tends to inform how I see ideas and activity within this field. I find it difficult to see much share-ownership as being ownership in a real sense, and I struggle to see how this will change in a way that can be channeled in a progressive (barf) direction.
For example, it's notable that one idea currently doing the rounds is that of more concentrated portfolios with bigger stakes. The arguments for this seem to be a) that diversification only reduces risk up to a point (a few dozen stocks I think?), after which it tails off b) oversight declines with larger portfolios (obviously) and c) a smaller number of larger stakes increases the financial self-interest in picking the right companies and ensuring they do well.
This is all sounds alright doesn't it? It does, of course, rather undercut the Universal Owner theory that has been very influential over recent years. This claims that since really big investors own everything they can't escape externalities, so they need to be concerned about all companies. But if we going down the route of concentrated 'ownership' portfolios this is no longer the case, right?
It also looks like a case of Back to the Future. When I first got into this stuff (as a journo, a million years ago) taking large active positions was the reason that bog-standard (ie non activist) asset managers would give for not focusing on corp gov. We know the company really well, if we had concerns about the board we wouldn't invest etc etc etc.
And, more generally, doesn't this model also look a lot like mainstream activist funds? Particularly if part of your big strategic aim is to argue all this stuff from a business case perspective, I don't see what is new? From a strategic perspective of trying to get the market to work better this might make sense, but it might make the life of those taking a tactical approach more difficult. Odey Asset Management has a big, long-term slug in BSkyB - how useful were they in trying to get the board to take the hacking stuff seriously?
Finally, these days I am also less comfortable with suggesting that pension funds and other savings represent a way for the public to 'own' companies. Leaving aside the point about whether shareholding = ownership, it's important to recognise that a) many working people have never been in pension schemes and b) of those that are many are in unfunded ones - NHS, Teachers, Army etc. In the private sector DB schemes with trustees (many of them union members) are in long-term decline. The DC schemes that are replacing them have the opposite effect to that of DB ones on shareholding - atomising rather than aggregating it. In addition most are contract-based rather than trust-based, so member oversight, weak as it often is in DB schemes, is non-existent in DC schemes.
In light of all that, I think that - at least for the time being - Lefties who are interested in this stuff are better advised to focus on the tactical rather than the strategic. When all the stars are in alignment, shareholder-focused activity can be very effective, however equally there are times when you can achieve little. It's not obvious to me that redesigning the pension system, corporate governance, company reporting etc to make shareholder challenge more effective is a good use of limited resources. This is particularly the case if a) 'shareholders' are NOT analogous with working people as a whole and b) as a result we can't rely on shareholders to do the right thing.
Tuesday, 21 August 2012
Votes on remuneration reports this year
Some very quick observations, based on having compared changes in voting results at specific companies.
Average oppose vote is definitely up by a fair bit, but the average abstention % is slightly down. It's a small shift but may confirm a) what I've heard from people that some managers have reduced/stopped abstaining and b) what I've seen when looking at voting records of UK institutions comparing 2010 and 2011.
Most of the big defeats do not seem to reflect long running concerns, in the sense that in the previous year the level of opposition was low. The exception is WPP, where there was a big vote against last year. Still the increase in opposition to tip it to a defeat this year was pretty big, but not in the same league as the others.
Flipping it around, two of the defeated companies last year saw big drops in opposition this year. One of last year's losers saw the biggest drop in opposition in the group of cos I looked at.
Average oppose vote is definitely up by a fair bit, but the average abstention % is slightly down. It's a small shift but may confirm a) what I've heard from people that some managers have reduced/stopped abstaining and b) what I've seen when looking at voting records of UK institutions comparing 2010 and 2011.
Most of the big defeats do not seem to reflect long running concerns, in the sense that in the previous year the level of opposition was low. The exception is WPP, where there was a big vote against last year. Still the increase in opposition to tip it to a defeat this year was pretty big, but not in the same league as the others.
Flipping it around, two of the defeated companies last year saw big drops in opposition this year. One of last year's losers saw the biggest drop in opposition in the group of cos I looked at.
More performance pay/motivation stuff
Hat-tip to Ciaran for this one, right up my street
And another interesting paper from John Hendry (who has done some great stuff previously on investor and executive conceptions of shareholders as 'owners')
Abstract:
Modern remuneration systems for executive directors include substantial elements of performance based pay. The idea behind this is that by rewarding executives for performance their interests become aligned with those of the company’s shareholders, thus bridging the principal-agent gap. Executive remuneration through performance based pay has become an explicit corporate governance tool that is supposed to improve the governance of companies. Others have argued that the governance and design of performance based pay system is often poor, as result of which the principal-agent problem actually increases. This paper argues that even if we can improve the governance and design of executive performance based pay, it cannot be made to work because people behave differently than performance based pay assumes. Research revealing our bounded rationality, bounded awareness and bounded ethicality shows that we simply cannot handle executive performance based pay. Regulation will not solve the problem, what is needed is a paradigm change, a refocusing of attention by shareholders, non-executive and executive directors. Such a paradigm change requires a deconstruction of the current myths surrounding performance based pay and the creation of new remuneration narratives.
And another interesting paper from John Hendry (who has done some great stuff previously on investor and executive conceptions of shareholders as 'owners')
ABSTRACT
Informed by agency theory, the dominant theory and practice of CEO pay both exclude non-monetary incentives and treat money itself as pure exchange value. Drawing on the economics of non-monetary incentives and the sociology of money, we use qualitative evidence from UK FTSE100 CEOs, to challenge and supplement this perspective. We conclude that for these CEOs even incentive pay acts more as security than as incentive and that the monetary (exchange) value of pay matter less than its symbolic values and significantly less than peer group recognition and respect, personal achievement, job satisfaction, and the challenge of beating corporate competitors.
Wednesday, 15 August 2012
Barclays pay vote round-up
Being the sad man that I am, I've been collecting asset manager voting decisions on Barclays' remuneration report at this year's AGM.
Here are the scores on the doors so far -
FOR - Goldman Sachs, Standard Life
ABSTAIN -
OPPOSE - Aberdeen, AXA, F&C, Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows
Will update when I get more data. Interesting thing to note is that some hefty UK institutions voted against. So where did all those votes in favour come from?
Here are the scores on the doors so far -
FOR - Goldman Sachs, Standard Life
ABSTAIN -
OPPOSE - Aberdeen, AXA, F&C, Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows
Will update when I get more data. Interesting thing to note is that some hefty UK institutions voted against. So where did all those votes in favour come from?
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