Running out of road on exec pay

For a variety of reasons, I've felt a lot less like blogging recently. Some of it is due to the intrusion of real life, but latterly I've realised it's also because I'm not sure what I think. When I first started writing this blog I had a pretty good idea of what I thought needed attention and what I thought some of the solutions might be. As I've blogged before, my orientation within the Corp gov/RI has always been a pretty pragmatic one - I might prefer another economic model, co-determination or whatever, but you have to act within the framework that faces you (whilst pushing for change to it).

As is no doubt obvious, a mixture of the experience of the financial crisis and some further reading, particularly of older Left perspectives on Corp gov, has altered my views quite a bit. I've always thought that the nature of the financial system (especially the delegation of 'ownership' to asset managers) has made effective shareholder oversight difficult. What I didn't grasp was just how reluctant many managers are to challenge management, even when it clearly could be beneficial. Status quo bias is endemic.

Reading further back in Corp gov history it's notable that the idea that shareholders are owners, or should be afforded primary position in terms of influence, was not taken seriously until very recently. As I've blogged previously, Crosland, in his own pragmatic way, says it's not even worth making legal or structural changes since the notional ownership role of shareholders has no serious application in reality. Fast forward and the unions no longer provide the same kind of countervailing power within companies that they did when Crosland was writing, and corporate power generally appears to have strengthened. Therefore some on the left have seen developing the concept of shareholding as ownership as an alternative way to restrain that power.

Labour developed this idea in government, and a common thread can be traced through initiatives such as the Company Law Review, Myners Review, DRRR etc. To reiterate this was a break from previous theory on the Left about corp gov, an arguably stakeholder theory provided a potential alternative in the mid 90s, but a 'shareholders as responsible owners' conceptual approach has dominated since.

In particular it has dominated in the executive pay debate, where a number of difficult problems have been shoveled into the 'shareholders can deal with it' box. Hence the repeated suggestion that the principal problem is 'rewards for failure', and the principal solution put forward is better performance linkage. It has been argued by some on the Left that executive pay is only an issue for shareholders and boards. And it's been argued that shareholders have a particular interest in policing pay, as poor policy and practice can be a proxy for poor governance generally.

There are a number of problems with such an approach, and they are now beginning to make themselves felt. Most obviously, many asset managers don't really care about scale of rewards. They may push on performance linkage but even achieving this means that execs can still push up the size of reward, and that's exactly what happens in practice. Simply stating you are against rewards for failure means you fail to tackle rent extraction, which (IMO) is what happens in practice. And it happens across the board too, so if you are bothered about the pay gap it simply isn't true that poor policy is a proxy for poor governance generally, because most are at it.

We are now in an environment where there is growing concern about the gap between rewards for the executive class the rest of us. I fundamentally believe that if any Government wants to address this they either need to find a way of getting shareholders to change their approach, or they need to make a break with recent policy. Most institutional investors and their representatives at the moment simply won't go into bat to address the pay gap. So either they change, or something else does.

So, to come full circle, I think this is why I am struggling to write on governance stuff currently. I have a sense that any attempt to address executive pay excess may start to pull away at the policy consensus that has existed for some time. But I don't know where we go next. It should be a creative time, really, but my brain isn't quite up to it, yet.

News Intenational statement on hacking, July 2009

This is seriously worth a read. Blogger still not wanting to link, so URL here: http://news.sky.com/home/uk-news/article/15335532

Clive Goodman's letter, moaning that he was being punished for what everyone else was doing (hacking), was sent in 2007.

Also notable that News Corp is making similarly unequivocal statements currently about who knew what and when.

News International has delayed making this detailed statement until all relevant facts have been analysed and checked internally and externally.

News International has completed a thorough investigation into the various allegations made since the Guardian story broke on Wednesday.

This investigation augmented a similar process here following the arrest of private investigator Glen Mulcaire and News of the World journalist Clive Goodman in August 2006.

Perhaps more significantly, the police investigation into Glen Mulcaire and Clive Goodman began in 2005, nine months before the two men were arrested.

Prior to arrest the police conducted live monitoring of both men's activities and also kept the News of the World activity in this area under investigation.

The raids on Mulcaire's premises, on Goodman's premises and on the News of the World office seized all relevant documents and all available evidence.

The police investigation continued after the arrests and all relevant activity was studied and analysed in the context of identifying unlawfulness/criminality.

The police investigation was incredibly thorough.

Apart from matters raised in the Mulcaire and Goodman proceedings, the only other evidence connecting News of the World reporters to information gained as a result of accessing a person's voicemail emerged in April 2008, during the course of the Gordon Taylor litigation.

Neither this information nor any story arising from it was ever published. Once senior executives became aware of this, immediate steps were taken to resolve Mr Taylor's complaint.

From our own investigation, but more importantly that of the police, we can state with confidence that, apart from the matters referred to above, there is not and never has been evidence to support allegations that:

:: News of the World journalists have accessed the voicemails of any individual.

:: News of the World or its journalists have instructed private investigators or other third parties to access the voicemails of any individuals.

:: There was systemic corporate illegality by News International to suppress evidence.

It goes without saying that had the police uncovered such evidence, charges would have been brought against other News of the World personnel.

Not only have there been no such charges, but the police have not considered it necessary to arrest or question any other member of News of the World staff.

Based on the above, we can state categorically in relation to the following allegations which have been made primarily by the Guardian and widely reported as fact by Sky News, BBC, ITN and others this week:

:: It is untrue that officers found evidence of News Group staff, either themselves or using private investigators, hacking into "thousands" of mobile phones.

:: It is untrue that apart from Goodman, officers found evidence that other members of News Group staff hacked into mobile phones or accessed individuals' voicemails.

:: It is untrue that there is evidence that News Group reporters, or indeed anyone, hacked into the telephone voicemails of John Prescott.

:: It is untrue that "Murdoch journalists" used private investigators to illegally hack into the mobile phone messages of numerous public figures to gain unlawful access to confidential personal data, including: tax records, social security files, bank statements and itemised phone bills.

:: It is untrue that News Group reporters have hacked into telephone voicemail services of various footballers, politicians and celebrities named in reports this week.

::It is untrue that News of the World executives knowingly sanctioned payment for illegal phone intercepts.

All of these irresponsible and unsubstantiated allegations against News of the World and other News International titles and its journalists are false.

The Guardian has been selective and misleading in its coverage of the report and investigation by the Information Commissioner.

There has been and is no connection between the Information Commissioner's investigation and the allegation of hacking into telephones or accessing telephone voicemails.

The report concerned the activities of a private investigator who, between April 2001 and March 2003, supplied information to 32 newspapers and magazines including, incidentally, the Guardian's sister newspaper, The Observer, which according to the Information Commissioner was ninth worst "offender" out of the 32.

The information supplied was deemed to be in breach of the Data Protection Act 1998.

When Les Hinton gave evidence to the Select Committee in March 2007, the evidence which emerged during the Gordon Taylor litigation in April 2008 was not known to Mr Hinton or any other senior executive within News International.

Furthermore, we are inviting the Guardian to supply the Metropolitan Police with any new evidence they claim to have.

Since February 2007, News International has continued to work with its journalists and its industry partners to ensure that its journalists fully comply with both the relevant legislation and the rigorous requirements of the PCC's Code of Conduct.

Finally, we would like to make it clear that despite the Guardian suggesting otherwise, the departure of Managing Editor Stuart Kuttner has no connection whatsoever with the events referred to above.

The Guardian were informed of this position from the outset and chose to mislead the British public.

Andy Coulson's legal fees

According to the FT this morning, Coulson's legal fees "to date" have been paid by News International. So presumably that means during time at Number 10 (if there were any)* and since his arrest in July?

More to come, no doubt.

* UPDATE: Been a bit thick here - just remembered that News Intl already confirmed they paid his fees in the Sheridan trial.

Hacking, again

Just a few quick thoughts on the latest Coulson story. It looks like it was just his severance pay, paid out in chunks. I think the timing of the payments is odd (don't you usually get your payoff in one lump, straight away?) and it certainly doesn't look good.

Coulson appears to have given a rather misleading impression to the CMS committee of his financial relationship to NI. Evidence from NI execs is also under scrutiny. See Tom Watson's site - www.tom-watson.co.uk (Blogger being a git about links tonight) - for details on both.

The odd thing is, the rumour that NI had being paying Coulson whilst working for Cameron has been circulating for some time. Kevin Maguire ran a bit in the New Statesman in mid July (see column dated 18th July on NS website). So someone, somewhere, clearly did know this was happening and was trying to get the info out.

And how does the rumour finally get confirmed? - by Pesto. It has to make you suspicious that this means someone at NI was involved which suggests they are really hanging Coulson out to dry. But why?

The politics of phone hacking

It's interesting to note that, before the recent revelations about hacking emerged, it was a common belief on the part of many right-wingers that the allegations against Andy Coulson etc were a) a journo-on-journo obsession and b) politically motivated. Some people were even dumb enough to argue that the whole thing was politically motivated, cooked up by Labour and The Grauniad, which looks very stupid in retrospect. Boris.

Now that I've got my partisan jibe in, I thought I'd relay my own views on this one. Over the past couple of months I've followed a lot of the detail of the hacking scandal. In all of this I can honestly say politics, in the partisan sense, isn't a factor. I'm not bothered if the scandal does damage to David Cameron, regardless of what I think about his judgment in hiring Coulson. I didn't celebrate the closure of The News of the World, with innocent employees given the boot, though nor did I join in the collective misremembering of what was, in large part, a comic. I don't hope the knock-on effects will damage Fox News - I don't like or watch it but am totally comfortable with others doing so. Nor do I want to see Sky damaged, otherwise how will I watch humiliating 7-1 defeats... I would even go a long way defending journos on public interest grounds, even, maybe, employing hacking. But in this case we clearly see that the practice went way beyond that.

I don't deny that some of these factors may have affected others' views of the hacking scandal, but I can honestly say that isn't why I have got interested. For me the issue is the misuse of power and a lack of accountability. News International has had a corrupting influence on politics and the Police. Through the select committee process, we have seen that this is a company that will do anything to avoid accountability. It is only in the last month and a half, when faced by a serious crisis, that it has given any ground. And even now it maybe the case that the company is not playing with a straight bat. In the broader sense of politics, regardless of which parties Murdoch papers and channels support, this is behaviour that any self- respecting lefty should be concerned about.

I am a strong believer that the fish rots from the head down, and that corporate norms are hugely influenced by executive behaviour. If any former or existing NI employees are shown to have misled parliament they need to be made to face the consequences. I am not the sort of lefty that believes in the 'evil-global-megacorp' view of corporate influence on politics. I don't believe that most companies behave like NI. But in order that people do have a degree of trust in the system an example needs to be made in this case.

extremists vs the present

I took a punt on The True Believer by Eric Hoffer recently. It's a series of reflections on how movements like communism and fascism attract adherents, and what kind of people are drawn to them. It's not great as it's very speculative (no underlying research) amd I suspect if it were written today it would vanish without a trace. Analysis has moved on a great deal since the 50s!

Still, it does hit the target quite a bit too (though maybe that's just because it confirms my prejudices about extremists). For example:

Not only does a mass movement depict the present as mean and miserable - it deliberately makes it so. It fashions a pattern of individual experience that is dour, hard, repressive and dull. It decries pleasures and comforts and extols the rigorous life. It views ordinary enjoyment as trivial or even discreditable, and represents the pursuit of personal happiness as immoral. To enjoy oneself is to have truck with the enemy - the present. The prime objective of the ascetic ideal preached by most movements is to breed contempt for the present. The campaign against the appetites is an effort to pry loose tenacious tentacles holding on to the present. That this cheerless individual life runs it's course against a colourful and dramatic background of collective pageantry serves to accentuate it's worthlessness.

The very impracticability of many of the goals which a mass movement sets itself is part of the campaign against the present. All that is practicable, feasible, and possible is part of the present. To offer something practicable would be to increase the promise of the present and reconcile us with it...

And:

The radical and the reactionary loathe the present. They see it as an aberration and a deformity. Both are ready to proceed ruthlessly and recklessly with the present, and both are hospitable to the idea of self-sacrifice.. In reality the boundary line between radical and reactionary is not always distinct. The reactionary manifests radicalism when he comes to recreate his ideal past. Hs image of the past is based less on what it actually was than on what he wants the future to be. He innovates more than he reconstructs. A somewhat similar shift occurs in the case of the radical when he goes about building his new world. He feels the need for practical guidance, and since he has rejected and destroyed the present he s compelled to link the new world with some point in the past. If he has to employ violence in shaping the new, his view of man's nature darkens and approaches closer to that of the reactionary

Another hacking arrest

And another Grauniad scoop. Any suggestions for a collective noun for "rogue reporters"? A Coulson?