Friday 31 July 2009

Centre-right defeated in Moldova!

The ruling Communist Party has lost its majority in parliament in Moldova in a defeat for the centre-right:
The ruling Communists (in reality, a centre-right party)

Thursday 30 July 2009

Union pensions stuff

1. The TUC has produced a rather useful response to some of the guff talked about public sector pensions. You can download it here.

2. GMB pensions supremo Naomi has issued the latest communique from the Worple Road command bunker. Full text below:

Sun hats and waterproofs at the ready and welcome to the summer edition of the Pensions Q&A. A little pension based sunshine in an otherwise grim world. This month some thoughts on what to do when you reach 65, presuming you don’t have the Latin to become a judge.


1. Retire
Well it’s an idea. Not necessarily possible if your pension proves itself to be insufficient to fund even the most frugal of existences. You may of course have no choice in the matter. At the moment with six months notice your employer can say “Happy 65th birthday, don’t come into work again” – but this could be changing, see below…
At retirement of course you will be expecting your employers (old and new) and the state to throw money at you so you can enjoy the fruits of your labours. When you wake up you’ll realise there are a bunch of financial decisions to be made and which yacht you’re going to buy isn’t one of them. If you have a defined benefit pension (either from the company you’re retiring from or an earlier job) you will have a statement saying how much annual pension you’ll receive, whether you’ll get any cash automatically and if you can get more cash by trading some of that annual pension. If you have a defined contribution scheme you may need to buy an annuity (anorak word for pension). Either you’ll be pointed towards one or be able to choose from all the products those lovely insurance companies have to offer. Usually good to shop around when in this situation, you wouldn’t get a mortgage from the first bank you find on the high street, treat your pension the same way. You’ll need to decide what sort of pension you want, one with survivor benefits if you die, one that keeps pace with inflation? These will reduce the annual amount of pension at the outset but in the long term might well be worth it – your choice.
If you’ve got a full national insurance record, the government will pay out £95.25 a week to you. If you’re on a low income you should also claim Pension Credit, your taxes pay for it, if you qualify you should claim it. Too many people don’t (two million at the last count).

2. Work
If you’re a creature of habit and don’t see any reason to stop setting the alarm clock each day you may want to carry on working. There may not be much option if your watered down defined contribution pension hasn’t built up enough money to buy a decent pension or your defined benefit scheme has been so diluted that decades of saving has resulted in just enough cash to stop you qualifying for Pension Credit.
Fortunately, and not before time, the government has realised that having a default retirement age, that is an age at which you can be forcibly ‘retired’ (or sacked in normal language) isn’t such a good idea. They’ve announced that the review (removal) of the default retirement age will happen next year instead of in 2011. The government’s stated reason for this is the current economic climate, seemingly the catch-all justification for anything these days. Clearly removing it because that’s the right thing to do completely escaped them as a course of action.
GMB has been arguing for its removal since it was created in 2006 (the default retirement age I mean, not the union – 1889 since you ask). A two-tier workforce based on age is as bad for the economy and society as one based on gender or race etc. The default retirement age has allowed employers to offer worse terms and conditions to older workers, to dismiss older workers and to refuse to hire older workers. The sooner it goes the better.

3. Emigrate
Denmark apparently has the most content population, they also have a basic state pension of £139 a week which probably helps. Before you all make a dash for the land of beer and bacon I should warn you that you have to live in Denmark for 40 years to qualify (there’s always a catch).

Before you get to 65, perhaps it’s worth thinking about where you’re spending your money today. One of the more suspicious/interesting surveys in recent times examined the amount people save for their pension compared with the amount they spend having affairs. Apparently, and the mind boggles how they worked this out, your average unfaithful partner spends £291 a month on their affair but puts only £59 a month into their pension. Of course if their expression of wish form isn’t up to date, the spouse/civil partner could at least be in line for some death benefits…

So there you have it, more amazing information and news on the pensions page of GMB’s website:

Wednesday 29 July 2009

I'm feeling brain dead

So in lieu of writing summink myself, here's a nice bit from the preface to a short primer (so really the most basic, simpleton's précised version of his ideas possible!) on Pierre Bourdieu that I bought because of this post.
[L]inguistic and cultural production, despite what they might claim to be, are not concerned with truth or reason (or the sublime, or beauty) . What is at stake is primarily belief, the consecration of utterances as legitimate and/or true. The criterian of argumentation of proof that are invoked during this process are arbitrary - defined within and by the field in question - and only apparently disinterested. The legitimation of utterances is a product of the power, authority and reputation of their author(s) in the field in question. This epistemic power is both means and end in the competitive struggles - analogised by Bourdieu as games - which characterise any field, and is constructed using a range of capitals: economic, cultural, linguistic, symbolic and social. These varied forms of capital are similarly means and ends in strategies that carry forward the pursuit of distinction within the field.

I'm only about a third of the way through this, but it clearly looks like it will get into the issue that I briefly blogged very briefly about (a bit more here) last year - the legitimation of ideas.

Tuesday 28 July 2009

A few snippets

The FRC has issued its progress report on the Combined Code review which you can download here. There are some questions in there that go further than Walker, will post examples later.

That led me to a report on shareholder engagement here, which looks like it could be interesting.

Sir David Cooksey has been appointed as the new chair of UK Financial Investments. No I don't know who he is either.

Interesting Pesto piece on markets.

An attempt to use the Interweb to disintermediate investing. (Hat-tip: Paulie)

Monday 27 July 2009


Interesting post from Nigel.

Two inaccurate things before lunch

This is off-topic, but I'm currently reading Six Impossible Things Before Breakfast which has been a massive disappointment given the potentially fascinating topic. There's no coherent argument sustained throughout it, it's more like a stream of consciousness, and whilst there are some interesting individual bits of research referred to in the text the lack of footnotes (though there are endnotes) adds to the feeling it has been thrown together. In short, I don't like it.

But there are also a couple of examples given in the text that I think are actually plain wrong. So I'm posting them up to check if I'm being a dumbo or not. First up (and I notice this one has been picked up by an Amazon reviewer) is on page 6:
No unhealthy food have cholestorol.
Some unhealthy foods are fried foods.
Therefore no fried foods have cholestorol.

Valid or not? My guess is that your left frontal and temporal lobe belief system was activated, and so the conclusion seemed invalid. But it is valid logically.
Errr... no it isn't, is it? Based on the premises the conclusion is not valid. You can say 'some fried foods have no cholestorol' because it is stated that 'Some unhealthy foods are fried foods'. But it is not stated that 'all fried foods are unhealthy foods'. So how can you reach the conclusion that no fried foods have cholestorol? Am I missing something, or has he got it wrong? There are certainly examples of logic puzzles like this where we tend to accept or reject the logic depending on what the conclusion is - but this isn't one as far as I can see.

Similarly on page 96 I think he gets the 'four card problem' wrong. He says:
In Peter Wason's classic experiment, subjects are asked which card to turn over to test the rule that if there is a vowel on one side, there is an even number on the other. The four cards are Ace, King, 2 and 7. Most turn over the ace, just trying to confirm the rule. But then they can try one more card, and most turn over the 2, which tells us nothing; only 4% turn over the 7, which could falsify the rule.
There is something wrong with his version, surely? In the original experiment two cards had a letter facing up, one with a vowel and one with a consonant (say an A and a B), and two had a number facing up, one odd and one even (say 2 and 7). So the correct way to approach it is to turn over the vowel and the 7.

In his version you can't disprove the rule from the letter perspective, since no cards are letter-up. So effectively by turning over the Ace and 7 you are trying to disprove the rule the same way twice. So it's not the same as the orginal experiment, where people tend to turn over the A and the 2, because they wrongly seek only to confirm the rule. By turning over just two odd numbers you may well end up still not having disproved it if both cards have a consonant on the other side.

But that's assuming he thinks the Ace is an odd number card (which it always is, isn't it?) Actually, and more fundamentally, he seems to think an Ace is an even number card ("Most turn over the ace, just trying to confirm the rule.") and in doing so I think he demonstrates that he hasn't grasped the point of the experiment in first place. Because turning over the even number card can't disprove the rule (whereas turning over the A and the 7 can).

Innit? Or have I missed summink? Is the point that "Ace" and "King" are spelt out rather than being the card itself, and as such both contain a vowel in the word on the card? But then there's no consonant only card.

NB - the headline is slightly misleading as I actually posted this after eating my lunch. I was thinking of going with the alternative 'Dude, where's my proof-reader?' but hey.

Sunday 26 July 2009

Last week's votes

There were a couple of interesting (honest) AGM votes last week. First up Tory-funding investment trust Caledonia Investments once again passed a resolution authorising spending shareholders' money bankrolling Conservative campaigns in marginal seats. The resolution attracted over 18% against (AGM results available here as a PDF), plus marginal abstentions, which was slightly up on last year. But the important thing to remember is that the Cayzer family have a controlling stake of (from memory) about 50%, so a sizeable proportion of the free float voted against. However still a large block voted in favour, so I will be posting up the names of fund managers backing Tory donations once some data is available. As I pointed out previously, it's possible that a part-state owned asset manager supported this...

Secondly, I had to have a bit of a chuckle at the result at Yell where almost 30% voted against the remuneration report. Yell had been telling journos last week that investors were behind the remuneration policy. The interesting point to note is that under one of the harsh diktats laid down by the Walker Review, if the remuneration report at a BOFI gets more than a 25% vote against then the chair of remuneration committee should stand for re-election annually. And this is one of those recommendations where there is no good reason why it should not apply more widely, so I expect to see it in the FRC's next announcement on the Code. Which would mean Yell's rem chair will have to face an annual vote (unless they 'explain' why they aren't complying with this guidance of course).

UPDATE: Actually I made a mistake on Walker, the report doesn't say rem chairs should face annual elections if the report gets under 75% (of "total votes cast" btw, which might imply abstentions don't count), it says they should stand for re-election the next year. And having looked at Yell it seems that the current rem committee chair is already on an annual re-election cycle.

Gut instinct

I recently finished reading Drew Westen's The Political Brain, which is an attempt to apply knowledge about how the brain works - and in particular the relative importance of emotion and rationality in making decisions - to political campaigning. It's a very interesting book, though I have some significant reservations about the message. 

First, though there is a lot of research behind the book, sometimes it feels like the advice being given is very much simple common sense, whilst at others it feels like he is drawing some pretty significant conclusions from limited research. There were a couple of points where I felt a bit like a did when I read the rather disappointing Don't Think Of An Elephant. Lakoff has also written some excellent stuff (the non-political Metaphors We Live By for example) but I find his forays into politics unconvincing.

Secondly, though some of his suggested ripostes to Republican attacks are top-notch, and feel very convincing, they are written with the benefit of hindsight. What I mean by that is that it can be very difficult to deliver an (emotionally) pitch perfect response on the spot. Some people can do it, others can't. The given examples of some Democrats bumbling their responses to Republican attacks might in some cases simply be cases of people being caught out. I should point out though that this is a minor criticism, as his general argument about the failure of Democrats to respond to Republican attacks effectively (emotionally) is very compelling.

Thirdly, and this is more a general point that applies to others advancing simple solutions to electoral problems, we have to acknowledge that it isn't all about the candidates, what they say and how they say it. Whilst books like this provide useful insights, I don't know to what extent applying everything it says would stop Labour getting a hammering next year. I accept the general argument in the book - we don't really rationally weigh up the policies of Party A versus Party B when deciding how to vote - but events, broader societal trends etc also clearly have a significant impact. Labour's failure is about more than Brown's inability to charm the voters. (This is a bit of a straw man, as Westen's argument is obviously more sophisticated than I've suggested, but the broad point needs making).

Having said all that, I did really enjoy the book, and it reinforced a number of points to me that Labour ought to take on board (though I'm sure the party is already much aware of this kind of stuff than I am). 

First, lefties don't win by presenting a shopping list of policies, a point also made by Geoffrey Nunberg. Lefties have a tendency to try and win elections by presenting good ideas about how to solve perceived problems, whereas righties (more so in the US obviously) go for values. Clearly this isn't to say that we shouldn't talk about policy, but the way we do so should make clear the 'why' and tie it to what we stand for. IMO this is an area where Labour is very weak currently. Again I'm saying nothing new, but it is hard to get an overall feeling of what we stand for based on the initiatives undertaken by the Government. (PS. The Walker Review sends out all the wrong signals to me).

Secondly, we do need to think very carefully about people's visceral reaction to candidates. This should not matter, it should be about what they do, but unfortunately we just don't work like that. People have a gut level response to candidates. As Westen demonstrates based on just a few seconds of footage, or a photo, people form a view about a candidate that can be hard to shift. They are also pretty good at predicting whether a candidate will be successful or not based on these short snatches of body language etc. It doesn't need spelling out that Labour has a big problem here.

Thirdly, don't let attacks go unanswered. This is an area where Labour is actually pretty good I think, but the response should also be an opportunity to set out how we are different. I think we should have gone to town on the Tory white paper on financial reform - focus on the Right blaming the regulators because they can't face blaming the City, the disruption caused by scrapping the FSA, and dress the whole thing up as the Tories making a political point, not being serious about reform. The fact that these (entirely predictable IMO) reactions have emerged anyway shows we would be pushing at an open door. 

The final point to make here is that whilst we have a problem of our own in terms of punters' reactions to our candidate, the Tories have weak points too. I am still unconvinced that Cameron has the same kind of rapport with the voters as yet that say Ken Clarke has. He is clearly not repellant, but I would say he's a bit neutral in terms of an emotional response (I could be off-target here because of my own partisan feelings, but am trying to be objective). 

But more importantly I think Osborne is a definite negative. He comes across as a bit slimey, as if he isn't quite telling you the full story. I suspect even photos of him signal this a bit. I hear this reaction when I talk to non-political family members so I think there is something in it worth exploring. In addition he has made some serious mistakes in policy terms - initially described taking banks into public ownership as going back to the 70s, had his nose firmly up the backsides of the private equity industry right until the end, wrongly predicted a run on the pound, the botched White Paper etc. I think we should make an active effort to make the punters consider what they think of putting this bloke in Number 11. 

And doesn't it make it bloody obvious why we won the last three elections, and now lag miles behind in the polls?

Friday 24 July 2009

Because they're worth it

What the Government - via the support of UKFI - will provide to Stephen Hester at RBS as a cash allowance in lieu of a pension - 35% of salary*.

What the Government will require employers to contribute to Personal Accounts (the new quasi-compulsory DC pension scheme) for their employees after 2012 - 3% of salary.

* Taken from yesterday's LC&P report.

Thursday 23 July 2009

Directors' pensions

Lane Clark & Peacock has put out its latest survey of pension provision for directors of FTSE100 companies. You can download it here. A few bits and bobs -
  • Most directors still have DB pensions - though this is declining because schemes are closed to new members.
  • The odd externally-appointed director is being offered DB, but the large majority are getting DC, cash in lieu of pension, or nothing at all (though probably bigger basic salary).
  • Median contribution to a director's DC scheme is... 20% of salary (typical employee can expect about 6%)
  • Median payment in lieu of pension is... 29% of salary.
  • Not data on extent of rapid accrual rates (1/30ths etc)

Wednesday 22 July 2009

Investor voting on pay resolutions from 2002 to 2008

Average votes against remuneration-related resolutions

Remuneration reports

2002 - 4.5%
2003 - 6%
2004 - 6.3%
2005 - 5.1%
2006 - 4.3%
2007 - 3.9%
2008 - 3.54%

Long-term incentive plan (LTIP)

2002 - 9%
2003 - 6.8%
2004 - 4.5%
2005 - 4%
2006 - 4.2%
2007 - 3.5%
2008 - 4.9%

Executive Share Option Scheme (ESOS)

2002 - 9.8%
2003 - 5%
2004 - 3%
2005 - 4.51%
2006 - 4.4%
2007 - 5.04%
2008 - 3.9%

All data is from PIRC. Not easy to get the sense of shareholders putting pressure on companies over remuneration is it? The slight jump in votes against LTIP resolutions is notable, but these were still being passed easily last year.

So far this year four companies - Bellway, RBS, Provident Financial and Shell - have lost the vote on their remuneration report. That isn't even a record, as the same number of companies were defeated on remuneration report votes in 2005. No companies lost the vote in 2008.

Tuesday 21 July 2009

Conservative white paper

It's been trashed by a lot of people, mainly beause of the way scrapping the FSA would create uncertainty in the short-term. The FT doesn't like it, nor does the CBI, and, most importantly, my own personal bellweather Mrs P said she thought it looked like they were just trying to do 'something' rather than really having a clear idea of what.

I think the general reaction has to be a bad result for Osborne politically. I would add that making the FSA the prime target does suggest that the Tories are still in thrall to the idea that everything would be just peachy if it wasn't for interfering bureaucrats. It's notable that they have very little to say about governance, you have to wait until page 35 for a mention, and then it's relegated to a box which basically says 'we don't know what we think yet'.

Still, Labour continues to lag miles behind in the polls, so presumably this stuff that no-one seems to want will happen anyway.

Employee Free Choice Act

There's a useful piece about the EFCA on the TUC website here.

Monday 20 July 2009

Just a thought

Imagine if the economic crisis had been caused by trade unions, by constantly pushing for higher wages and using industrial action in support of short-term objectives, regardless of the long-term consequences. Imagine if at every stage in the run-up to the crisis when government or regulators or the public had tried to curb their behaviour, or urged restraint, they had simply responded with threats to withdraw their labour (in the traditional sense, not by relocating overseas...). Imagine if that behaviour had left the country saddled with debt that would take years to pay back, with related cuts in public services.

Do we really believe legal curbs on their behaviour wouldn't be introduced? Do we have any doubt that legislation would be enacted to hamper their ability to do such damage again in future? Do we seriously think society would be satisfied with voluntary codes of conduct which they could choose to comply with, or explain why not? 

Quick plug

For the Demos Open Left project which kindly links to me.

Odds and ends

A few bits worth a read...

Great piece by Roger Bootle on pay. "The structure is a worthy subject, the smart people say, because a bad structure may encourage inappropriate risk–taking and result in people receiving significant rewards for "performance" which turns out to be illusory. The level of pay has no such relevance and should be left to "the market"." How many times have I heard this argument over the years... and as he says, Walker has just ducked the issue again.

Two critical takes on the Tory 'white paper' published today. Alphaville (via Duncan) and Citywire.

Finally, Tom Freeman explodes a sickening conspiracy in the world of football.

Sunday 19 July 2009

Governance fatalism

Final post on Walker. Honest. Probably. For now at least. 

Having spent most of Friday reading through it properly two things strike me. First, there isn't much discussion of the ideas sitting behind it. We were, in retrospect, spoilt by the Turner Review, which had a whole section on theoretical assumptions behind regulation (and market operation) in the past and now. Now I'm a bit of a geek, and like this stuff, but I do think it also serves a valuable purpose. For one, your understanding of how a system operates should help you identify what went wrong, and also what type of reform might be necessary to prevent it happening again. Secondly, you have these assumptions buried in your brain whether you like it or not. As Keynes famously said we're all under the spell of some defunct economist whether we're aware of it or not. Therefore taking a bit of time to explore the theory makes your assumptions explicit (including to yourself).

That leads me on to my second point. Although Walker does not spend any time exploring the underlying theory behind governance, the Review is actually shot through with a particular perspective. And to me it comes across as a very conservative/fatalistic mindset. There are several occasions where he (briefly) explores a reform suggestion, only to argue that it wouldn't make any difference, or would make things worse. The implication being that the system that we have has evolved into its current form because it broadly works, therefore taking things off in a new direction would be dangerous. 

Now as a lefty clearly one of my basic assumptions is that things can be improved, and that we shouldn't just assume that what exists is 'natural'. But I am open to the idea that you have to think carefully about reform, and that often well-meaning initiatives can have unintended consequences. But - in my opinion - that should be a corrective to the way you approach reform, not, as I think many conservatives in all parties believe, a fundamental assumption in its own right.

A couple of examples. First, as I posted previously, Walker knocks back the idea of any kind of 'stakeholder' representation on banks boards. This was clearly quite a radical reform idea, and would have drawn fire if even taken forward as an issue on which comments were sought. Walker brushes it away with the argument (but no evidence) that this would disrupt the focus of directors on the job in hand (including focus on shareholder value one assumes). The implication is (excuse exaggeration) that any kind of stakeholder director would just take up the board's time asking if the annual report was being printed on recycled paper, rather than being interested in this serious banking business. I think that underestimates what such a post could bring to board discussions (and again makes unspoken assumptions about which stakeholders would be represented, how that representation would be achieved etc) but also contradicts earlier parts of the report where he defends the importance of NEDs with non-banking experience because they are less likely to fall into industry groupthink. The existing system works, don't mess with it.

Secondly he also knocks back the idea of making the vote on remuneration reports binding in some way by arguing that this would be difficult because contractual entitlements are involved. This is an argument that I've heard over the years from several sources including the conservative end of the investor community. But once again there is no evidence provided for why this would not work, it's taken as a given that this would be the case. The existing system works... Yet a couple of markets already have a binding vote on remuneration. Some investors in the UK - not just the usual activists - believe that something along these lines could be introduced. And theoretically it is easy to see that there is scope for change. After all votes approving (or not) incentive schemes are binding already. The issue just looks like it has been ducked.

I could go on (and on). The idea of greater disclosure of pay across the company given such short shrift (apparently because it's not a 'risk' issue it's not really what the review is about). The recommendation on directors' pensions is focused purely on one case that is unlikely to be repeated at the exclusion of several other genuine issues in terms of executive retirement provision. And the section on shareholder engagement doesn't require much more than best practice. 

So where is the focus of reform? Effectively it's all on individuals, hence the need for more time commitments from NEDs and chairs, and more industry experience. And in fact in this area Walker argues that if it's a toss-up between experience and independence, go for the former, even if it tilts the balance of the board. Actually there is some sense here, but isn't it just stating the obvious, and wouldn't you expect bank boards to be taking these kinds of steps in any case now? 

But more broadly this focus on individuals is more evidence of the sort of conservative fatalism I mentioned earlier. As the commonly heard argument goes, you can't legislate for good character. Therefore, by extension, you need to focus on getting the right people. Again there is a bit of truth here, but using this as your sole basis for framing governance reform looks increasingly weak the more we understand about how people and groups operate. Maybe this focus on dispositional factors is actually quite dangerous? Maybe we need to focus more on how groups interact and can fail to assess information effectively (something that affects all of us). Yet there isn't even reference (as far as I can see) to trying to explore the way that boards operate from a behavioural perspective. Not even to set up a straw man and knock it down.

Unfortunately Walker's failure to really probe what makes good governance has two significant implications. First, it makes it unlikely that the FRC will do anything radical with the Combined Code. Not that I was expecting it to, but clearly it will have an impact ('Walker already looked at this, there isn't an issue' etc). Secondly, and much more importantly, this was a big opportunity to reform governance. The banking system nearly failed, and the response is a bit more of the same. That reform opportunity is now probably gone. And looking ahead what scale of crisis will it require before a really fundamental review is undertaken? 

Friday 17 July 2009

The impact of selling shares

Another Walker snippet (page 61). It has some implications for divestment as a strategy of seeking to achieve change:

Depending on the nature and terms of the relevant fund mandate, it may be the fiduciary responsibility of a fund manager to sell stock in a particular situation, and the greater the liquidity of the market, the greater will be the availability of this option. The signal of any associated fall in the stock price and of change in the share register is one means of transmitting a message from owner or investor to an investee company of doubts about its market valuation, strategy or leadership.

But in many cases such a signal may be disregarded or will be relatively ineffective as an influence. Even if it is seen as conveying a strongly negative message, it is more likely to be a blunt instrument than one targeted at a specific change in company leadership or direction. If the new holder of stock that has been sold is not ready or in a position to promote change, the combination of the sale and purchase transactions will have achieved little or nothing in terms of owner influence on the behaviour or policies of the investee company beyond an increase in its weighted average cost of capital, and possibly an increased vulnerability to takeover.

No revolution in banks boards...

From Walker, page 31
"To dilute the primacy of the duty of the BOFI director to shareholders to accommodate a new accountability to other stakeholders would risk changing fundamentally the contractual and legal basis on which the UK market economy operates. It would introduce potentially substantial new uncertainty for shareholders as to the value of their holdings and would be likely to lead to shareholder exodus from the sector and a rise in the cost of capital for BOFIs. Broadening the range of board responsibilities and, to take one suggestion, statutory provision for addition to the board of a representative of a particular stakeholder interest (such as that of employees or of minority shareholders) would distract and dilute the ability of NEDs to concentrate in the boardroom on the most important strategic matters."

Stupid bankers

Dumb reaction to the Walker Review so far:
One senior British banker at an American investment bank equated proposals in the Walker Review, published on Thursday, to the provisions of Sarbanes-Oxley legislation in the US, which imposed strict new governance requirements on listed companies in the wake of the Enron scandal and the era of dotcom excess.

“There are real echoes of the Sarbox syndrome here,” he said.
“This is the dead hand of bureaucracy.”

I can only assume this senior British banker hasn't read the report properly - it's nothing like Sarbox.

Similarly -
“What purpose does this actually serve?” the CEO asked. “It is fundamentally wrong to whip up this hatred of bankers.”

Eh? What planet are you living on if you think this report is some kind of populist assault on bankers? Higgs was arguably more radical than this.

Thursday 16 July 2009

So, Walker...

My initial reaction, having had a decent read through, is that it isn't that great. To be honest, even though I thought his job on private equity wasn't that great either, I didn't write off the potential for this to be a significant report. But in reality I am somewhat disappointed.

There is nothing - and I mean nothing - radical in this report, and many of the recommendations are basically statements of existing or emerging best practice. In addition, given that it is largely pitched in terms of a flexible 'comply or explain' approach there is little for banks to worry about being compelled to do. (I'm not saying that making banks worry is the way to judge whether the report is effective or not btw).

Most of the newspaper coverage this morning went for the idea of disclosing pay info for highly-paid individuals below board level. But actually this isn't intended to identify individuals (though I'm sure you could work a few of them out if you know the banks concerned). And more broadly the idea that rem committees have responsibility for sub-board pay might sound radical, but already some institutions are taking this much more seriously (see last year's UBS special audit for example).

The recommendation on directors' pensions is particularly poor. It is clearly designed to avoid a repeat of the Fred Goodwin example but a) is any company really going to be dumb enough to try and do that again (early retirement pay-off for a disastrous chief exec) and b) by making that the sole focus it misses several other issues like rapid accrual rates and big payments in lieu of pensions. And these are issues for banks specifically - look at the payments in lieu at HSBC for a particularly extreme example.

And what about the idea that rem consultants draw up their own code of conduct? Why do they get to do this whereas the Combined Code and proposed new Stewardship Principles for investors get to be reviewed by the FRC? It doesn't make sense - especially given the low opinion many investors have of consultants.

There is decent stuff in there about beefing up boards - requiring non-execs and chairmen to devote more time to their positions, much more emphasis on relevant experience and so on. And there is much emphasis on a greater appreciation for risk. But to be honest, isn't that the sort of stuff you would expect the banks to be doing anyway in light of what has happened?

Notably about a quarter of the recommendations relate to shareholder engagement, which gives you some idea of who is expected to do the heavy lifting in terms of policing governance. But yet again we are looking at a lot of best practice being regurgitated. A lot of fund managers will, not unreasonably, think that they already make pretty clear statements about their policy on engagement. The idea of giving the FRC responsibility for a sort of Combined Code for investors is all well and good - but who is going to police it? For the Code itself it's obviously investors, who have well-defined, timetabled (AGMs etc) and regularly exercised enforcement rights - what are the equivalent mechanisms to hold investors to account?

I see nothing in the recommendations in respect of investors that I think would make a typical fund manager act any differently. So what's the point? If the Review doesn't believe that shareholder engagement would make any difference to governance standards maybe it should just say so. But if they do they need something much more serious than this. These proposals are considerably less likely to bring about change than some of the ideas Myners has floated for example.

Maybe I'll find more to like about it on another read through tomorrow, but currently my view us that this does not look like the sort of document that reform-minded investors would have been hoping for.

Walker snippets

Recommendation 22
Voting powers should be exercised, fund managers and other institutional investors should disclose their voting record, and their policies in respect of voting should be described in statements on their websites or in other publicly accessible form.

TUC response:

Responding to the publication today (Thursday) of Sir David Walker's interim review of corporate governance in banks and financial institutions, TUC General Secretary Brendan Barber said:

'There is much to welcome in this review, in particular the call for more voting disclosure by fund managers and investors which will help pension trustees and unions to find out how workers' pensions are being invested.

'We support moves to curb the short-termism and excessive risk taking behaviour that bankers' remuneration has encouraged. But by focusing solely on risk, the review has not considered the wider problems with bankers' pay. The growing gap between executive and employee pay has a damaging impact on staff engagement and has created a new class of super-rich that float free from society.

'It is clear from some of the decisions approved by non-executive directors in the run up to the financial crash that a greater understanding of banking is needed. But many experienced bankers also showed terrible judgement. People from outside the world of finance must be brought on to company boards to ensure that the consumer voice is heard and avoid repeating the groupthink that contributed to the financial crash.

'The proposal for new Principles of Stewardship, ratified by the Financial Report Council, will help set a higher benchmark for standards of shareholder engagement.'

Walker Review

The consultation doc is out. Will post up some thoughts later, but from a first scan are (unsurprisingly) some good bits, and some places where he seems to have bottled it.

Best blog on Andy Couldson EVAR


Wednesday 15 July 2009

Voting, engagement and disclosure

One of the most recurring arguments that I’ve had to deal with in the years I’ve spent looking at how institutional investors vote at company meetings is the idea that votes don’t actually mean that much. Lots of fund managers have told me over the years that just looking at their voting doesn’t tell you much, because actually they engaged with the board behind the scenes and got some results.

I’ve always been a bit unsure about this argument, but, principally because I hadn’t been involved in much interaction with company boards directly myself, I took it largely at face value. However the more I’ve been involved in talking directly with companies, including trying to influence them over specific issues, and the more research I’ve done into voting trends the more I think it’s fundamentally wrong.

For one, I have absolutely no doubt that many boards are very interested in how shareholders plan to vote when there is a large pool of dissent. And the threat of voting against them does carry some weight. But in order for companies to be influenced there has to be a credible threat that you may vote against. Those managers that routinely support management are simply not credible in such a negotiating environment.

Having researched manager voting in one way or another for about 6 or 7 years now, I have a pretty good idea of how various fund managers are likely to vote on given issues (I wasn’t surprised by some of the votes against the shareholder resolution at M&S for example). I can’t believe that a smart investor relations department doesn’t know this too.

Secondly, I think it’s only human nature that some managers are more likely to vote for whatever management puts in front of them than others. Confirmation bias is bound to be at play. So managers that are generally supportive of management will no doubt search for information that allows them to justify a vote in favour (and the reverse is no doubt true for more confrontational managers). Although voting guidelines clearly play a role in determining voting outcomes, it can’t explain everything since most institutional investors claim to uphold the Combined Code, yet they reach very different decisions when looking at the same companies. So my view is that actually individual positions and viewpoints are a greater explanation of votes than engagement activity taken alongside.

This leads me, unsurprisingly, back to the conclusion that public disclosure of voting records is a necessary reform. There are without question variances in manager voting that would not be suggested by comparing their voting guidelines, or stated policies on governance issues. But fund manager clients don’t have a hope in hell of seeing this at present because there is so little comparative data available. And to be clear here there are some managers with undeserved reputations for activism if you look at how they actually use their voting rights.

A mandatory disclosure regime would get all the data out in the open and enable proper analysis that would show where managers sit in the voting spectrum. If some clients aren’t interested they don’t have to use it, but those that are would have a useful guide to how managers act in practice, rather than just what they put in their policy documents.

Let’s hope Walker has a look at this tomorrow.

Tuesday 14 July 2009

Brains and politics

From The Political Brain by Drew Westen:
"[I]rrational commitment to rationality has rendered Democrats less, rather than more, likely to speak the truth. If you think about voters as calculating machines who add up the utility of your positions on 'the issues', you will invariably find yourself scouring the polls for your principles. And as soon as voters perceive you as turning to the opinion polls instead of your internal polls - your emotions, and particularly your moral emotions - they will see you as weak, waffling, pandering and unprincipled."

Monday 13 July 2009

Quote of the day

My stepdad told me this one over the weekend, which I'd never heard but rather like:
“If a man empties his purse into his head, no one can take it from him.”

UKFI annual report

Is available here, Pesto has blogged about it here. Interesting comment about John Kingman's pay -
Perhaps the most striking disclosure in the report is that the annual remuneration of UKFI's chief executive, John Kingman, is £143,000.
Of course, that's a lot of money by almost all standards - but not, of course, by the standards of those he employs to run Royal Bank and Lloyds.
Their annual remuneration, including incentives, is as much as 20 times as great.
It's also about half as much as the remuneration of some local authority chief executives.

It's going to be quite a bit less than the salary of your typical chief investment officer at a fund manager too, innit?

TUC Member Trustee News

The latest issue can be downloaded here.

Don't blame it on the hedge funds...

I can't help feeling that Will Hutton's piece in the Observer yesterday missed the target a bit when he had a pop at hedge funds. As I've argued before, I think hedge funds are such a broad asset class these days that it's almost a waste of time trying to say anything about them as a group. The range of strategies employed varies so much that you can't really pin much on them as a group. But that also means that you can pin everything on them:
hedge funds do represent the unlovely priorities of Anglo-Saxon capitalism. They were an important factor behind today's financial crisis.

a) Plenty of your bog standard long-only managers have exactly the same mindset. b) But was there anything unique about hedge funds in terms of their role in the crisis? Some of them bought stuff that they mispriced and took a pounding, some of them were leveraged up to the hilt and therefore caused serious problems to others, when unwinding positions. But couldn't you say that about some of the banks too?

In fact, as he points the hedge funds that really caused the trouble were those linked to major institutions -
It was the collapse of two Bear Stearns hedge funds and three BNP Paribas hedge funds in July and August of 2007 that triggered the paralysis of the interbank markets in New York and London.

And this bit is just cheeky -
Along the way, Bernie Madoff's hedge funds were shown to be a $50bn rip-off.

That's a bit like describing those emails you get from Nigerian oil company executives offering to transfer $10m to your account as an investment opportunity. Ultimately it's just a scam, whatever it claims to be. Madoff was basically running a ponzi scheme dressed up as an investment vehicle. Trying to use this as a stick to beat hedge funds with actually misses the rather bigger point about the failure of due dilligence on the part of those 'professional' investors who stuck their clients' money in Madoff's scheme.

And finally -
A few hedge funds do bring innovation to investment management; most are an economic cost.
I totally agree, but once more what is unique to hedge funds about this? In my humble opinion most 'investment' is an economic cost because the fixation on the short-term results in increased trading which just eats up your cash. And I'm not convinced that increased trading leads to more 'efficient' pricing, or whatever the supposed market benefits are.

None of this is to take issue with his broader point about the fixation on trying to defend hedge funds, and keep them in the UK, or the potential need for regulation (though to be honest I'm not sure what the answer is here). But to be honest the surprising thing about hedge funds, in terms of their role in the crisis, is that they didn't do the damage many (including me) expected.

Thursday 9 July 2009

HMT white paper on financial markets

Downloadable here. There's some discussion of governance in there:

Corporate governance
3.4 In well-functioning businesses the self-interest of different stakeholders imposes discipline to avoid excessive risk-taking without commensurate compensation. However, recent experience has shown that market discipline has failed to prevent a number of deficiencies in corporate governance in the institutional investment chain. Firms’ senior management must carry primary responsibility for their actions and resulting consequences. Large investors also have a responsibility to reward institutions which are following prudent and profitable long-term business strategies and to punish those with excessive risk and inadequate business models.

3.5 There were failures of senior management to question higher returns robustly and to take into account the risk of low-probability but high-impact events materialising. There were also widespread failures of governance by some bank boards in several areas, including:
• understanding and probing overall risk-management reporting;
• understanding how affiliated vehicles imply ongoing exposure; and
• how remuneration policies encourage risk-taking that may prioritise the short term at the expense of the long term.

3.6 Similarly, there were failures on the part of some owners, in the form of institutional shareholders, to recognise the extent of these deficiencies and to constrain their agents’ actions through effective monitoring of and engagement with bank boards.

Wednesday 8 July 2009

Institutional investors should 'do something', just not sure what

This piece by Jeremy Warner on the M&S vote and investor engagement is interesting, if only for the complete confusion about what exactly shareholders should be doing as owners. First up he seems to argue that institutional investors have been asleep at the wheel (he does after all use the words 'sleep' and 'slumber'):

There's to be a new set of proposals next week from the former City regulator, Sir David Walker, on how to improve governance in the banking sector, Sir Christopher Hogg, chairman of the Financial Reporting Council, is beavering away at improvements to the Combined Code, and as if finally awakened from a long sleep, institutional shareholders are flexing their muscles. All a bit late, I'm afraid.

What's more, these calls to action rarely last longer than the downturn itself. The codes soon become irrelevant, or ignored, and institutional shareholders rapidly slip back into slumber.

But then he says that shareholders expressing concerns about governance is 'grand-standing':

Wednesday's vote at Marks & Spencer instructing Sir Stuart Rose to split the roles of chairman and chief executive amounted to no more than completely pointless corporate governance grand standing.

In fact he says that the Combined Code is pretty much a waste of time:

As for the narrow point of corporate governance concern around Sir Stuart's combined position as chairman and chief executive, this is basically just a lot of officiously driven nonsense prescribed by the City Code....

Now we've had another, very much more serious series of corporate failures, this time chiefly in the banking sector, and the Code duly proved powerless to prevent them. As far as the Code was concerned, both Royal Bank of Scotland and Halifax Bank of Scotland were paragons of virtue, with all the prescribed checks and balances and a star studded board of non executives.

But the problem with these banks is that shareholders didn't... err... engage enough:

Yet shareholders did nothing. Worse, they allowed Sir Fred to push ahead with his disastrous top of the market acquisition of the worst parts of ABN Amro even as the banking system was imploding around him. It is a problem that Lord Myners, the City minister, has characterised as that of "the ownerless corporation". When fund managers sense trouble, rather than try and fix the problem, as a private equity owner normally would, they instead just vote with their feet and sell the shares. Remuneration structures in fund management tend to be set in a way that deliberately or otherwise encourages such behaviour.

And the answer is... err... to beef up the Combined Code:

There are twenty pages of rules and regulations governing the conduct of boards in the Combined Code and not a blind bit of difference did it make as RBS and HBOS. Yet there is only one on the duties of shareholders. In the interests of the health of our economy, as well as the safety of our money, it is about time this deficiency was rectified.


I'm really not sure what the point of this piece is. Shareholders are castigated for not engaging, for engaging, and then for not engaging again. The Code is portrayed as pretty worthless, but also as the solution to the lack of engagement.

Obviously I have sympathy with the argument that shareholders don't act like owners. I also have sympathy with the argument that governance issues can be a bit abstract. But in thrashing around like this he attacks shareholders for both doing nothing and doing something, blasting the Code but also calling for it to be increased in length. I'm really not clear what he thinks shareholders should be doing. And he doesn't even attempt to get into the meat of the M&S argument - why are the combined roles necessary at all.

ho hum

M&S shareholders register major protest vote

Well, 37.7% vote in favour, and abstentions probably take the total over 40%. The one bit I got wrong was that the abstentions were actually a pretty small chunk in the end. Stuart Rose said at the meeting that by winning a majority the board took that as an endorsement of its strategy. I'm not sure many shareholders would agree.

In addition if the total is about 40% then this poses some interesting questions for LAPFF. Afterall, one big institution abstaining, or voting in favour of the resolution, might have meant that the board did not win a majority. I can think of one institution in particular which opposed the resolution, whose % holding was indeed enough to have reversed the result.

Remember again that this resolution was really only seeking that the company revert to compliance with the Combined Code by this time next year. So the explanation for oppose votes will be interesting.

Tuesday 7 July 2009

M&S vote tomorrow

The M&S AGM is tomorrow, and there is a lot of speculation about what sort of vote there might be on the LAPFF resolution seeking the appointment of an independent chair. Just to recap LAPFF filed this resolution in order to address the issue of Stuart Rose combining chair and chief executive positions, in breach of the Combined Code. Its stated reason for doing so is to enable shareholders to demonstrate concern about the company's governance with having to vote against Rose himself. LAPFF has called on its members to back Rose's re-election at the AGM, making clear that this isn't a personal issue.

It's also worth remembering why M&S said that the combined roles were necessary - apparently in order to succession plan. I say apparently as I can't think of another company ever having used this argument, and literally not a single shareholder I have talked to about this issue says that they accept that as a valid argument.

All of this info is in the public domain, and has been for weeks, so it's a bit disheartening to read in a few places that LAPFF is seeking to oust Sir Stuart. Even Robert Peston gets it a bit wrong today -
So it is possible to characterise the LAPFF position as a preference for finding a chief executive in panicky hurry rather than in a methodical and sensible fashion (the LAPFF would of course say that it wouldn't want Rose to evacuate the building immediately).
Not really, since the LAPFF resolution is about the role of the chair, not the chief exec. Rose giving up the chair's role need not have any impact on the hunt for the new exec.

Equally it appears that the company has talked a few investors round by arguing that a big vote on the resolution might mean that Rose walks, rather than simply gives up the chair and reverts to just chief executive... within 12 months!

As to what kind of level of support the resolution might attract, it's impossible to say. The support of RiskMetrics is pretty significant, as it will inevitably swing a chunk of the vote. And a sizeable number of institutions look set to vote in favour. But equally some fund managers would rather bite their own hands off than vote for a shareholder resolution. I suspect that the real story will be, like last year, a large number of abstentions.

Monday 6 July 2009

Caveat emptor

At home sick today, so in lieu of proper blogging here's a rather cynical snippet from this:
"Wall Street makes a lot of money selling stocks, and it prospers by having a set of highly paid individuals whose primary role is to make public statements to the effect that the prices of the shares of individual firms will increase; they're like the shills in front of the side-shows at carnivals whose role is to persuade the public to buy tickets to see the sword swallowers and the hermaphrodites. Stocks increase in price twice as often as they fall in price, so that even without any special skills the odds are that the 'market strategists' will be right twice as often as they are wrong. The market strategists typically are reluctant to indicate that stock prices as a group will decline and very rarely suggest that the stock of an individual firm will decline (because the top executives of that firm would become furious and threaten to never bring any underwriting business to the investment bank again). If stock prices decline when the pitch has been that they will increase and the touts become an embarrassment to their employers, well they've been well paid and they're expendable and, hey, it's business. It's not had to find replacements."    

Friday 3 July 2009

Great result for Unite at Tesco

Unite's shareholder resolution at Tesco got over 11% in favour plus about 7% abstentions. This is quit a bit better than a lot of folks would have been expecting I suspect. Release here, let's hope this encourages other unions to explore investor activism.

UPDATE: Calvin @ Connected Research has also blogged about the resolution.

That John Denham speech again

Just one more time... By all accounts, and Nigel also has a good take on it here, The Grauniad put a rather simplistic spin on the speech, to the extent that I'm not sure the quote I fixed on is really indicative of the general argument at all. Which happily allows me to regain my faith in John Denham.

My generalised moan about the way the party tends to communicate its message to supporters stands though. I don't think I fall into the camp of people for who symbolism and rhetoric, and misty-eyed appeals to TIGMOO, always trump actual results. I also like to think I know a bit about communication myself. So if the language and positioning adopted is making someone like me a bit apathetic then we have a problem.

UKFI and Tory donors

I blogged previously that Caledonia Investments has its AGM coming up later in July where it is seeking authority to fund the Tories in marginal seats. It struck me that actually UKFI might have an indirect interest in this. The Lloyds Banking Group, in which UKFI has about a 43% stake from memory has two asset managers under its umbrella - Insight Investment and Scottish Widows Investment Partnership. If either of them have money in Caledonia they will have a vote on whether the company donates to the Tories.

Wouldn't it be a bit odd if they voted in favour?

Thursday 2 July 2009

A bit more on the Denham speech

From Sunder Katwala and Luke Akehurst.

Interview with ISC chair

An interesting interview with Keith Skeoch by Hugh at Responsible Investor. A snippet:
“I think Paul Myners has done a pretty good job in creating polemic. The interim Walker report will add to that discussion over the summer and when it is finally published, I hope, a step forward on the road to significant cumulative improvement. The one thing that I worry about in the report is that I would hope it doesn’t have proposals that are proscriptive and bureaucratic. The fund management industry remains a diverse and fragmented industry on some issues, partly because people run money in very different ways with different philosophies and processes and we don’t want to see anything that’s heavy-handed.”


I'm not in the habit of beating up Labour, because I'm still convinced that it is the most important progressive force in politics, and my own politics are more labour movement oriented than anything else. But I feel an extended whinge is overdue.

Yesterday a mate of mine emailed me this excerpt from a speech John Denham (who I have actually always thought to be a decent and sensible bloke) gave:

'The left needs to stop holding up egalitarianism as the ideal. If we continue to believe that the egalitarian approach is really the right one, and we somehow have to find more cunning ways of getting there, we will fail.'

Of course the context in which his remarks were made may change the meaning somewhat, but the message is pretty clear. And it's a message that I find thoroughly depressing.

Being rather more pro-market than many other party members, I consider myself to be a fairly moderate Labour supporter. But this incessant drumbeat seeking to deny the ideals that motivate many of us to be involved with Labour at one level or another is dispiriting, and personally I think in the long-term does us no good. I have heard plenty of arguments over the years about the need to win on the centre ground, to pitch to the swing voters etc, and there is a lot of sense in them. But to deny that we are interested in a greater equality of outcomes either means a) I'm in the wrong party or b) we have lost our way.

Whilst I'm a bit ambivalent about the 50% top rate tax - on tactical grounds mainly - it was no surprise to me that Stephen Byers was straight out of the blocks to attack it. And this time it hammered home a thought to me that I should have had more often. Maybe the Right of the party is simply wrong.

It's easy to fall victim to the halo effect when considering senior politicians' views on a given policy. Just because Byers has been around a long time, and has demonstrated that he isn't attached to ideas for ideas' sake (hence the journey from Left to Right of the party), doesn't mean he has any particular insight. He also pushed for 'reform' of inheritance tax - something Labour duly embraced to a limited degree but to no advantage I can see except for the limited number of very rich people affected. In post-crisis world does it really look like this was a pressing concern?

Equally Labour's pitch to the aspirational voter is sensible provided that it doesn't overlook those lower down who simply need our support, or those who are motivated by fairness. I would argue that at present it is these latter two groups that Labour has problems with. The decline in support for Labour amongst, for want of a better term, the white working class is a big part of the problem. So is the desertion of the lefties who want a society that's a bit fairer, whether to the Greens, the Trots or to apathy. (Obviously there is a big overlap in these two groups).

My own personal low-point was the appointment of Digby Jones as trade minister. However politically 'clever' this must have seemed to someone somewhere I can't see it as anything other than a disaster. For one he queried government policy on the tax status of foreign nationals whilst a minister. I also bet it had precisely zero impact in terms of appealing to those swing voters. But to anyone in the trade unions it was a slap around the chops. In union terms the CBI has had bosses who are half-decent (Turner), bad (Diggers) and largely invisible (Chistopher Lambert or whatever ths current guy's name is). Diggers was a piece of work though, never missing an opportunity to stick the boot into the unions. What message did appointing him send to those of us who still think unions are a pretty good idea actually?

The weird affect of all this on me as a party member is that I almost feel I'm not welcome. I almost feel like my fingers are being prised off the pencil in the voting booth each time I read an unnamed minister come out with some guff about the need to not appear 'Old Labour' or anti-aspiration or whatever. And I can't believe that this is a feeling that isn't shared by others who aren't particularly on the Left of the party.

Wednesday 1 July 2009

Hat-tip: Neilski

SHARE report on mutual fund voting

The excellent Canadian labour-friendly shareholder activist group SHARE has issued an analysis of mutual fund voting in association with the ace Info here.

BBA conference speeches

A quick plug, you can find all the speeches from the conference at which Paul Myners was speaking here.

Sorry, I just noticed that the link was knackered, should be ok now.

How IPOs worked in the dot-com bubble

Another snippet from Manias, Panics and Crashes. Quite interesting to read that in some IPOs there wasn't a lot of interest in actually... err... raising capital for the company:

[I]nvestment bankers appeared to set the price for IPOs so as to maximise the price pop on the first day of trading - and not maximise the cash received by shareholders who were selling. From this point of view a lower price for the IPO might be preferable to a higher price, for the demand for the stock would increase - at least for a while - as the pop increased. The entrepreneurs sold only a small part of their total shares at the IPO; they calculated that the larger the pop the greater their wealth. They were more interested in the apparent value of the shares they owned at the end of the first day's trading than they were the amount of cash they may obtain from the IPO.

On some IPO days the number of shares traded was three or four times the number of shares that had been sold at the IPO. Since many of the buyers at the IPO had been told to hold their shares, the float was much smaller than the number of shares sold, and so those shares in float might have been traded five or six times in the course of the day.

The efficient allocation of capital eh?