Policy Network/LFIG report on takeovers and public interest

Now this is interesting, as it advocates both the introduction of a public interest test and a new Takeover Code. Will read and properly blog soonish.

On the trail of a big Tory donor

Readers of long standing may know that I've blogged a fair bit in the past about the financial and political relationship between asset manager Fidelity and the Conservative Party. On the Peter Cruddas scale, Fidelity are a "Premier League" donor. For example, they gave the Tories £300,000 in the year running up to the 2010 general election. Last year they gave them £100,000. They also employ the MP Srir John Stanley as a consultant. (They also chucked £50,000 at the No2AV campaign in 2011).

Oddly, over the years the way that Fidelity donates to the Tories seems to have changed. So up to 2008 they were listed as "Fidelity Investment Management" with the company reg number 2349713 or sometimes 02349713. 

But from 2008 to the start of 2012 they started appearing as "FIL Investment Management", again using the same company reg number. Then, for the remainder of 2012 (three donations of £25,000), they appeared as "FIL Holdings", using the company registration number 6737476. 

Since the start of 2013, however, there have been no donations have been reported using any of the previously used names or company registration numbers. Maybe they've stopped, or maybe they are reporting under a different name and company registration number? Or maybe they just didn't donate in Q1? Anyway, I'm keeping an eye on it.

Justin Fox vs shareholder primacy

This is worth a read, in light of previous blogs on shareholder primacy and the banks.

"mandatory rotation" is "costly and disruptive"

Another quick post in my series of examples of the use of common lobbying lines. People with long memories may recall that a few years back I blogged (here, here and here) that the phrase "a force for good" was being used with surprising regularity by private equity people. I speculated that there might be a bit of media coaching going on, though maybe, in retrospect, it was more lobbying.

The recurrence of a popular lobbying line is also going on in respect of lobbying against reforms to the audit market. I picked the phrase "costly and disruptive" out from the Institutional Investor Committee policy document on audit (in part because I know that the IIC paper has caused a bit of a stink) and stuck it into Google with "mandatory rotation" (a policy the IIC paper has been used to lobby against).

It turns up a few interesting hits, including some papers issued by the investor trade bodies. As you might expect, both IMA and ABI docs use the phrase "costly and disruptive" (this is not that surprising, as both are, of course, members of the IIC). The interesting question is which came first. The earliest use (1st March 2011) of the phrase seems to be in the text of a verbal IMA report to the Committee on Legal Affairs of the European Parliament. In this context, what the IMA put in its annual report a couple of years back is also worth noting:

 “We issued a statement under the auspices of the Institutional Investor Committee, questioning the potential effectiveness of the proposals and their detrimental effect on audit quality, and have given evidence at a hearing in the European parliament.”  

The ABI also used the phrase "costly and disruptive" in its response to Competition Commission investigation into the audit market this year. In fact it's worth a fuller quote from the response, as it shows how lobbying text has been recycled over a few years:

Mandatory rotation would be likely to be costly and disruptive. Companies could be forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit, such as when there is a major acquisition or merger.

By comparison here is an excerpt from an IMA letter to the EU Commission in December 2010:

Mandatory requirements could mean that companies are forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit such as when there is a major acquisition or merger.

So the same policy position (opposition to mandatory auditor rotation) has been advocated using the same text, by two different organisations, and sent to two different recipients (with different geographical reach) two and a half years apart. And the chronology suggests the IMA created the text that has been reused.

But in a way that's the easy stuff, look at the range of other uses of the phrase "costly and disruptive" in relation to auditor rotation -

The Investment Company Institute (lobby group for mutual funds I think?)
US Chambers of Commerce
E&Y (which suggests to corporate clients what they might like to think)
PwC
KPMG 

A bit like the private equity example a few years back, my initial reaction to this would be to conclude that it's just a good lobbying line that is getting mindlessly recycled. But the more I see of this kind of stuff (and I think I'm still just scratching the surface) the more I wonder.

Shareholder primacy and the PCBS report

I'm a bit surprised by the lack of a reaction to the PCBS report recommendation that shareholder primacy be removed from the Companies Act, at least in respect of banks (see previous blog here). Although I've argued that this really only reflects the underlying reality (given the role of regulators etc) it's still quite a big deal, and obviously once the principle is conceded for banks why should it not be questioned elsewhere?

So far the only organisations that really seem to have appreciated the significance of this bit of the PCBS report are the FRC and the TUC, with interestingly different takes on it. The FRC and TUC both see the significance, but are the former are worried by it, the latter more encouraged by it.

The FRC says:

An amendment to the Companies Act to remove shareholder primacy could have a profound bearing on investors willingness to commit capital and might set precedents for other sectors.

The TUC says:

This begs the question, however – why just the banks? While the consequences of bank failures have been particularly stark, there is no reason why shareholder primacy should work well for every part of the economy except for the banks. 

Worth keeping an eye on. 

Incidentally, perhaps this bit of the PCBS report shouldn't be a surprise. When the Commission was taking evidence there were a couple of times when John Thurso MP in particular challenged the idea that greater shareholder engagement with the banks was necessarily a good thing (see here and here). It looks like his scepticism had an impact on the final report.

Against performance pay

Great Reuters blog here arguing that exec pay should be far more about salary and far less about variable reward. Again, I do think opinion is starting to shift on this one. Love this para summing up what's wrong with current approach-

In sum, the usual arguments for complicated remuneration packages are all specious. These arrangements do not motivate. They do not encourage long-term thinking. They do not align executives’ interests with anything helpful. They do not make pay rewards more just. Rather, they are misleading to outsiders and distracting to insiders.

Another case of cut n paste PLC lobbying

I've been looking at responses to the Competition Commission's provisional findings and proposed remedies in relation to audit. Have found some very similar text again.

Here's what GSK said about mandatory rotation of audit firm:

Our audit committee wishes to appoint the best firm for GSK and its shareholders. If having conducted a formal tender process it happens to be the incumbent auditor who can deliver the best audit, it makes no sense to appoint an alternative, especially given the length of time and resources required in the early years following a new appointment. This proposal also undermines the role of the Audit Committee which as noted above had developed hugely in recent years and which is now the dominant influence in tendering decisions and the final arbiter in appointing the auditor

Here's what SABMiller said:

Our audit committee wishes to appoint the best firm for the company having completed its necessary review. If the outcome of a tender process confirms that the incumbent auditor is best qualified for the role, it makes no sense to appoint a second best alternative given the length of time and resources required in the early years following a new appointment. The proposal also fails to give due recognition to, and undermines the role of, the audit committee which, as noted above, has developed hugely in recent years and which now is the dominant influence in tendering decisions

And here's what the GC100 said:

Audit Committees will wish to appoint the best firm for their company having conducted a formal tender process and if that happens to be the incumbent auditor, it makes no sense to appoint an alternative given the length of time and resources required in the early years following a new appointment. The proposal also undermines the role of the Audit Committee which as noted above has developed hugely in recent years and which now is the dominant influence in tendering decisions.

As I blogged previously, I think the generic PLC responses may take the GC100 text as their inspiration in some cases.

More to come on this one...