Monday 31 May 2010

Annual elections - a few thoughts

A few more thoughts on the FRC's decision on annual elections last week. I know there is more in the revised Code than this proposal, so it's a shame to focus on it alone. However it was one of two key reforms that I know a few people were looking for (the other being vote disclosure), so I think it's worth spending a bit of time on.

1. Is this is victory for the mainstreaming of governance within investment institutions? It is notable that of those investors and related organisations that opposed the introduction of annual elections, many were those that have been most active on governance in recent years - USS, Railpen, Hermes, Governance For Owners etc. In contrast a number of those that were in favour of the reform were big mainstream investment institutions who haven't been noted for their burning interest in governance issues in recent years.

Ordinarily one might expect the FRC to listen more to the former and less to the latter. Is this a sign that the mainstream is finally getting governance and starting to do something about it? It's also worth noting that despite the opposition from those already active on governance, those in favour of annual elections are waaaay bigger. Put simply, if L&G and BlackRock are in favour that accounts for a large % of UK PLC. Perhaps that mattered a lot more this time.

I would be the first to criticise mainstream institutions for not doing enough in this area, but there does seem to be something of a change going on. A year or so back I saw Mark Burgess from L&G do a presentation on their engagement (in the broadest sense) the banks in the run-up to the crisis. It was a much more self-critical review than I have seen come from many of those in the governance community. Maybe something has shifted.

2. Simple point, but perhaps this was seen as a necessary quid pro quo. After all, investors are going to be expected to now adhere to their own best practice Code - the proposed Stewardship Code. Regardless of whether one thinks this will make a difference or not, this development makes sense within the context of an analysis of the crisis which pinpoints a lack of shareholder engagement as a significant contributory cause. If the way to address this is improved shareholder oversight, then shareholders need the right tools. No again, people might argue that annual elections aren't the right tools. But personally I think there is a lot of sense in granting shareholders a further extension to their rights at the same time as codifying their responsibilities.

3. Momentum. Again, a rather trivial presentational point, but I suspect it would have felt a bit odd if there wasn't some significant policy shift in the Code, given the scale of the crisis. That is obviously unfair to those non-financial firms who weren't anything to do with it, but you see the point. Maybe it was important to be seen to be doing something.

4. Maybe big names mattered. We know that David Walker, who took a much more in-depth look at the governance of banks and other financial institutions than any of us are likely to, came round to supporting annual elections. I would be surprised if Lord Myners wasn't of the same view. And I know there are other senior folks who supported this reform in private (and may have communicated as much to the FRC) but weren't able to say so publicly because of the nature of the organisation that they work for.

5. There was some daft "anti" lobbying. To repeat myself, I think the nature of the arguments used by opponents of this reform were the wrong ones and lacking in evidence. I don't expect annual elections to be a magic bullet, but nor do I expect the sky to fall in. Some of the argumentation against annual elections was knowingly over the top IMO.

But ultimately I think the direction of travel probably made some change of this type inevitable anyway. And as such personally I simply wouldn't have gone into bat on this one. If this reform is going to be a minor irritation (if that) to companies resulting in slightly more notional accountability to shareholders, then was it really expending reputational capital trying to fight it?

Based on research we did at work I have no doubt that most companies did not support this change, but even many of those who told us they opposed it clearly weren't that bothered. I think that was probably the best course of action - have a grumble, but take it on the chin because it could have been worse. In contrast making a lot of noise about this has made vocal opponents look ineffective and out of step with the current mood, whilst also calling their analytical powers into question if the predicted disaster doesn't come about.

As the man says, you gotta know when to hold 'em, know when to fold 'em.

Wrong turn

I recently bought this book, as Carol Dweck references it in the rather ace Self-Theories. Though I find psychological stuff interesting, this is way off my normal terrain. The book itself is just three chapters of a two volume theory, and much of what I have read so far goes into a lot of detail about the nature of psychological hypotheses. I guess this is really a book for propah psychologists.

Still, the central concern - the interpretive frames that we develop to understand the world - is quite interesting, and there are odd bits in it that leap out:
Sometimes the notion of the world as an orderly development of events seems downright threatening to a person. Particularly is this likely to be true when he deals with psychological events. If he sees orderliness in the behaviour of a friend or in his own behaviour, it seems to preclude the possibility of seeing the actions of either as being free... If [he] perceives himself as an orderly succession of events, he feels trapped by his own structure or by the events of his biography. Yet if he sees himself as deciding each moment what he shall do next, it may seem as though one false step will destroy his integrity.

Friday 28 May 2010

FRC sticks its neck out

Well the rumours were true, the Financial Reporting Council has backed annual election of all directors, though only for the FTSE350. Quite a reasonable decision IMO since the threat of an entire board getting vote out has some validity in smaller companies. But to be honest I suspect they will move to annual elections in time too.

It will also be interesting to use this reform as a test case for future governance changes. Remember, opponents have argued that it will lead to more short-termism. Well, they've put forward the hypothesis and now we get to try the experiment. If, as I expect, there is no noticeable shift of this kind (nor numerous directors getting booted) this will be useful ammo for next time we hear these kinds of reactionary arguments.

To be honest, if I were lobbying against annual elections I would have used the futility Hirschman Special - it won't make any difference. You could back this with the stats showing how little opposition directors face to suggest that investors don't really use the power they have, so why extend it. I don't agree, but it's more plausible than the "Giant snakes will roam the land" taken line by companies (and some investors) opposed to the change.

Thursday 27 May 2010

The ownership metaphor

I read John Kay's new book recently. It's clearly a newspaper column strung out into a book, but as always some interesting thoughts in there, and well written. My general reaction was "meh" until he touched on my favourite topic. So below is a short excerpt that chimes with me
"Hume understood that the social contract was a metaphor, not an historical description of how government came about. Like all good metaphors and models it was instructive, but not factual. There was no social contract, but the concept of a social contract was emphasising that legitimate modern government rests on the broad consensus of the government.

And so it is with the closely analogous idea that the modern corporation is a contract between shareholders and managers. The model is a metaphor, not an historical description of how the corporation came into being. As with the social contract metaphor, the perception of the corporation as the creation of a contract among its shareholders recognises that a successful corporation depends upon the support of those who own its shares. But anyone who fails to recognise that this is a partial and incomplete description of the nature of the corporation understands little about business reality."

He also goes on to critique the idea that profit is the defining purpose of the corporation, will post that up later. Again I found this insightful, and this is an area where lefties often get themselves confused. I thought that book The Corporation that came out a few years back took a very literal view on this point for instance.

Tuesday 25 May 2010

Iain Dale shops a commentator on his blog

Maybe he could submit this post to next year's Orwell Prize?

Good blogs are not written by orthodoxy-sniffers, as the man himself might have said.

Dan Ariely at the SEC

Dan Ariely spoke at an SEC Investor Advisory Committee meeting last week, the video is available here. An interesting invitee on the SEC's part, though apparently Dan Pink spoke to some UK govt policy wonkers earlier this year.


Thursday 20 May 2010

A big corp gov win on annual elections?

According to the Torygraph the FRC has bitten the bullet and will make annual election of directors part of the Corporate Governance Code. I assume this will be a 'comply or explain' thing, rather than a tweak to the Companies Act or something, though the report does not make this clear.

This is a big win for investors, most of whom wanted to see the reform enacted. Personally I think it's a sensible way forward, and some of the arguments deployed against were Hirschman Specials, as well as lacking any evidence. I'm quite encouraged!

Hat-tip: Corporate Law and Governance

Wednesday 19 May 2010

ISC - the remix

Yesterday's announcement from the Institutional Shareholders Committee (the investor trade body collective) is interesting, if a little unclear. The ISC confirms the heavily trailed inquiry into the fees paid on rights issues.

But the ISC also announces that it plans "to establish a new senior body, the Institutional Investor Council (IIC), to build a single voice for the institutional investor community and strengthen its profile." ooerr that sounds quite a bit like the Council of Institutional Investors, the US investor body. Thing is, the CII is driven by pension funds and asset managers are non-voting members. In contrast 3 of the 4 bodies in the ISC represent asset managers of one form or another.

I don't want to be cynical about this, as a genuinely independent IIC could be great. But that will require the role of trade bodies being much diminished, a recognition of the inevitable conflicts (AIC members are listed companies, as are many ABI members and some IMA members, plus the sponsors on NAPF members) and some new blood. I am a bit concerned that the New ISC may end up drawing on the usual suspects. Here's hoping I'm wrong.

Motivation explained in animation

From the RSA.

Hat-tip: Paulie

Monday 17 May 2010

New HMT team

Are listed here. As you all probably know, the only Lib Dem is David Laws who takes the chief secretary position. Laws is an Orange Book-er I believe (actually I think he edited the Orange Book), not that necessarily means anything. I can't see a direct equivalent the role previously held by Paul Myners, though Mark Hoban (financial secretary) has represented the Tories on that brief.

Damn shame to see Myners out of there too. I think we went through a period of more discussion of the whole company ownership issue in the last 2 years than had happened over the past 10, and it was largely down to Myners in my opinion. Let's hope he maintains an interest in this stuff in the Lords.

Stewardship Code responses

Well, the ownership agenda continues. The FRC has rather helpfully posted the responses to its consultation on the Stewardship Code (which was an initiative that came out of the Walker Review). Some interesting stuff in there - I quite liked the IoD responses actually. Doesn't say anything particularly new, but it's good to see a response from the company bit of the governance world that doesn't just moan about 'box-ticking' (the corp gov world's equivalent to complaints about media bias). Instead it highlights the deeper problems on the investor side - like the fact that portfolio diversification means that shareholders' attention is divided.

Anyway, you can read them all here.

Friday 14 May 2010

Back to business - AGM results

The shareholders are revolting. Well, some of them.

Yesterday saw SIG lose the vote on its remuneration report, big-style, with a 66% vote against. It looks like the crunch issue was a 15% increase in salary for the chief executive.

A very near miss was Cookson, where the rem report scraped through with a vote for of just under 51%. Worth checking out the RNS statement on the result too - Cookson's IR people don't seem to be able to do percentages (the vote against was a bit more than 32%!). Hat-tip: AM.

Looking back to last week, Xstrata saw a majority of non-Glencore (controlling shareholder) votes go against the rem report. I also think the votes against and abstentions on the chair's election are just over 50%. One to keep an eye on.

Lloyds meanwhile has done the worst of the banks (so far) in terms of the vote on the rem report (8.5% against) which I find a bit surprising. There were bigger issues at Barclays IMO.

If anyone spots any other interesting results, let me know and I'll bung them up.

Thursday 13 May 2010

An index of irritation

As of today Googling 'Yellow Tories' gets 491,000 results. Wonder how quickly it will rise.

Wednesday 12 May 2010

Last political post for a bit (probably)

I feel much, much lower today than I expected to. A pigeon very nearly crapped on my head as got off the bus stop this morning – so much for a ‘new politics’! Maybe it’s an omen of things to come. I’m tempted to be all “up and at ‘em” today, and personally I do feel compelled to get more involved with party stuff in the future. Realistically this may be restricted in the near future to grumpily mumbling “Yellow Tories” next time a Lib Dem canvasser appears on or near our (new) doorstep.

But despite my desire to take away the sting of losing, we do need a long, hard look at where we are. And pretty it ain’t. For example, Charlie is right to point out that Labour lost big time in terms of C1 and C2 voters, something that seems to have gone curiously without comment elsewhere. I’m less in agreement with him (natch!) that Labour is the party of public sector managers!

I’d also caution against the idea that a revival in our vote is somehow going to fall into our laps. Paul Waugh does a good job of skewering this argument here. I do think that the coalition will lead to some kind of revolt/split in the Lib Dems, but it might not be a biggie, and they might just fashion a lasting Liberal-Right tie-up.

I also think that people will get used to the new Government, and this will inevitably benefit them. Hopi is right that this could be a big problem in terms of the Lib Dems’ distinct identity, but equally it will destroy the argument that they will say anything because they know they won’t get elected. I’m sure they will grow in stature in the eyes of some voters.

On the plus side, I don’t get too worked up about the nightmare scenarios described (and hoped for in some quarters) for Labour. When I first got interested in politics (mid 80s) people were still asking if Labour could ever win again. Then from the late 1990s they asked the same thing about the Tories. It may well be that coalitions are the way of the future. It may also be that the Lib Dems disintegrate and the two big parties’ shares of the vote strengthen a bit (and memo to Green voters – look at how long Respect’s parliamentary representation lasted). Political commentary should also come with the warning that past results are no guide to the future. I believe it is in Labour’s hands to turn things around.

Finally, people have talked a lot in this election about tribalism, not just the unthinking way that some people vote, but also the way that some people feel left behind by their tribes. No doubt lots of Labour members and supporters have felt left behind in recent years, and we now have a bit of time to address that. I guess it is the turn of the Tory Right and Lib Dem left to feel that too.

Media-wise I feel that whatever vague loyalty I felt towards The Guardian has been extinguished once and for all. The decision to plump for the Lib Dems and some of the commentary since the election crystallised my feelings that it's not a paper I actually agree with that much. I'd rather read the Telegraph most days!

But in properly political terms in the last few days of the campaign, in the aftermath of the result and, most sharply, yesterday and this morning (particularly looking at some of the last pics inside Number 10) I have felt properly back at home with Labour.

Time to regroup on the ice planet Hoth.

This 16,000 votes nonsense

I've seen a few people using this line about the Tories only being 16,000 votes short of a majority. True, maybe, but meaningless. After the election there are quite a few new Con-Lab marginals. In several of them the majority is in the hundreds of votes. Perhaps someone should crunch the numbers and see how many votes Labour was short of being the largest party?

Tuesday 11 May 2010


No time to blog properly, so here are some good links (all politics for now)

1. The unelected David Cameron.
2. Hopi's analysis here and here is some of the sharpest stuff I've read.
3. One of the unexpected delights of the election - Murdoch's news empire loses its grip a bit both politically and.. err... mentally.
4. Don Paskini on Lab-Lib on Lib-Con.

PS. Cards on the table - I'm leaning to the view we are better off letting a minority Tory govt in and rebuilding. Their room for manouvre is much diminished, we need to regroup.

Saturday 8 May 2010

Lots of London borough wins for Labour

Southwark (my new location)
Waltham Forest

Some really big swings in there too (21 gains in Brent for example), and I believe a certain Labour blogging stalwart has been elected. And of course the BNP were wiped out in Barking & Dagenham.

Friday 7 May 2010

Look who got the most votes in Norn Iron

Sinn Fein. Combined nationalist vote isn't far behind the combined unionist vote either.

One thing it isn't is 1997

Clearly no landslide for the Tories. No majority. No Portillo moment. No seats gained in Scotland (where they have one) and still way behind Labour in Wales. They look like they will get between 36% and 37% of the vote - good but certainly not a 1997 style mandate for change.

Labour has done badly, very badly, but not as badly as some of us feared. It's not as bad as 1983, more like 1987. And we we weren't displaced by the Lib Dems. Labour remains the predominant centre-left party. Today is a big setback, but the fact that we weren't given a 1997-style drubbing personally gives me I lot of hope.

And the Lib Dems... they must be gutted - less seats and no big surge in their vote. Just seen Clegg's statement where he suggested that the Tories should be given a chance to govern. Left of Labour eh?

PS. Seen two Tories this morning inexplicably try to claim that this result is on a par with 1997. Just a reminder - Labour just 13.5m votes in 1997. Tories seem to be heading for under 10.5m. Perhaps they meant 2001?

Tuesday 4 May 2010

Self-interest as a norm

A common response from those who seem to dislike the idea that people aren't rational, self-interested maximisers is to focus on the way that people learn.

For example, I've seen someone somewhere use this as an argument against the endowment effect. Their argument was that, yes, maybe people do put a higher value on something once they own it, but that may change with experience. So second-hand car salesman won't experience the endowment effect in the same way (if at all?) in respect of a car they've just bought at auction compared to a regular punter. The point seems to be that people learn to value things more rationally the more they trade.

That all sounds ok. But I wonder what is really going on here. Is it that rational self-interested 'core' is exposed through repeated transactions? All that cranky irrational stuff gets worn away with experience. Or could it also be that to some extent we internalise a new norm and act in accordance with it?

Clearly I'm not discounting the idea that people do act in a rational and self-interested way. But to what extent is that actually resulting from an internal drive which might be uncovered through experience, and to what extent is it a norm that people behave in line with?

I reckon there's something worth thinking about here, and having googled 'Self-interest as a norm' I found this paper, which looks like it might be worth a read.

UPDATE: That paper is well worth a read. Lots of interesting stuff and useful refs in there.