Saturday 31 July 2010

Supply, demand and art

From The Joyless Economy:
However similar the differences between producers' and consumers' tastes and between artists' and their public's tastes may be, our reaction to them is very different. We would much rather see consumers' tastes influence what producers sell them than the other way around; but many of us would hesitate to express a similar preference for the influence of the public's tastes on artists' products. The reason is that when we weigh the artist's stimulus enjoyment against the public's, we tend to give the artist the greater weight. For works of art are durable sources of enjoyment that can last for years, or even centuries. Since the specialist's judgment is believed to be a better predictor than is that of the general public concerning what posterity's judgment is going to be, we attach the weight to the specialist's judgment. This, of course, outweighs that of the single present generation. Hence the feeling that artists should not prostitute their art to please the consumer's passing fancy and make more money. By sticking to what they deem good, they may stay poor, but have a better chance of gaining recognition of posterity and of pleasing the more durable fancy of future generations of art connoisseurs.

Thursday 29 July 2010

Quick plug

For The Battle for Human Nature by Barry Schwartz, one of the most interesting things I have read recently. It was written in the late-80s but it's still very relevant. Basically he argues that economics, sociobiology and behaviour theory have converged on a theory of human nature that is driven purely by self-interest. He then goes on to argue that, whilst this theory explains only part of human nature, it may lead to policies that encourage the behaviour that the theory expects to see. Will post up some chunks shortly.

Another thought on annual elections

It struck me t'other day that the two principal arguments against annual elections for directors are contradictory. One is that investors already have the tools they need to remove directors if necessary, the other that annual elections will create short-termism. These can't both be true if taken at face value, can they? I mean if investors can already achieve what annual elections are intended to enable them to do (hold directors accountable, including removing them is necessary) then presumably the short-term pressure resulting from such accountability must already be present?

Now one can make the case that annual elections would make it too easy to remove directors, compared to existing rights, and thus it would increase short-term pressure on boards. But that is to concede that existing rights grant less power to shareholders than the proposed reform (ignore for now whether more power is a good or bad thing). Alternatively one can claim that really the existing system is just as good as annual elections, in which case the potential for directors to be removed is already in place and presumably therefore already resulting in a short-term mindset.

In fact, if one accepts the 'we already have the necessary rights' argument, then it's difficult to see why annual elections would make any noticeable difference to board behaviour. Investors have demonstrated that they don't use the rights they have irresponsibly, so what's the problem with making the right to vote out directors a standing item.

The argument might come back that actually yes the existing system is more of a pain for investors to use than simply voting against a director, and as such prevents people making mischief. But then, again, we circle back to an argument in favour of restricting shareholder power. And it also leaves unanswered the question of why investors who currently don't act irresponsibly would start doing so if they were granted an annual vote (this also looks like a version of Hirschman's 'jeopardy' argument).

The arguments don't seem to stack up to me. Happy to post up a response from anyone who disagrees.

Govt responds to BIS committee on takeovers

Via Corporate Law & Governance

Wednesday 28 July 2010

The post where I defend exec pay

I think this piece by Tracey Corrigan is basically right. I don't think there is a huge amount to quibble about in respect of Tony Hayward's pay-off, at least anything that is specific to BP. He's getting one year's salary, which is standard. The BP pension scheme has 1/60ths, not rapid accrual like some execs get, so the £600K pension he will get is basically the result of long service (almost 30 years) times high salary. Certainly getting it early and unreduced is a bit galling, but it's not really like the Fred Goodwin case (is Tony Hayward culpable for what has happened to BP in the same way that Fred drove RBS into a wall? I don't think so).

The more important and broader point is whether the level of remuneration on offer in general is justified. As you might expect I think not, in part because I just don't see how one indiviudal can really exercise control over such a large organisation and as such require such rewards. And this is without getting into motivation. But that's a systemic issue, not a BP one.

PS. Hayward's salary is only a bit more than Marc Bolland at M&S.

Tuesday 27 July 2010

Private equity - a force for fees

The buyout debate had gone a bit quiet before this hadn't it? Tony Jackon's comment piece on it worth a read too.

AFSCME etc report on mutual fund voting

Worth a read, here (PDF).

Monday 26 July 2010

More polling

Some interesting stuff here and here. The real story may well be the fact that the Tories are regularly polling 40% plus. It's early days, obviously, but they have done well out of the coalition so far.

A regulatory turn, part 2

A couple of potentially related points that are worth a look, and once again hat-tip to Responsible Investor which has bundled the two things together. First up, the Treasury consultation document issued today contains the following:
5.21 The Government believes, however, that the functions of the UKLA could be merged with other regulatory functions relating to companies and corporate information, notably those of the Financial Reporting Council (FRC). This would have the benefit of bringing the UKLA’s regulation of primary market activity alongside FRC functions relating to company reporting audit and corporate governance. The Government is therefore considering whether the UKLA should be merged with the FRC under the Department for Business, Innovation and Skills (BIS), or whether it should remain within the CPMA markets division.

5.22 The Government believes that, within the proposed new regulatory architecture, there is a strong case for a powerful companies regulator established with responsibilities for regulating corporate governance, corporate information and its disclosure, and the stewardship of companies by institutional shareholders. This is a matter on which BIS will bring forward detailed proposals for consultation in due course, but the merger of the UKLA and FRC would be an important step towards such a reform.

5.23 The Government is also seeking views on whether there are other aspects of financial market regulation in which the links with companies law are sufficiently close to warrant consideration of transferring them to the potential new companies regulator.

On the face of it this makes sense, for the corp gov stuff. It would bring together relevant bits of the architecture - the listing requirements and the Code itself, for example. But it's interesting, isn't it, that the document talks of 'regulating corporate governance' (admittedly this is part of a longer phrase). I don't think anyone in the UK currently 'regulates' corporate governance, do they? I mean the comply or explain regulatory requirement is about disclosure, not governance itself (and notice disclosure is mentioned separately as part of the new regulator's role).

It's probably just a drafting issue. And yet... look again for references to shareholders, they are pretty thin on the ground. Shareholder engagement does not appear to be given anything like the same weight within the reform package that Myners would have given it. In addition, if we did have a companies regulator, would the temptation be to simply extend its remit a bit? If companies should split chair and chief executive, why not mandate it etc? I'm just saying that creating a companies 'regulator' must increase the likelihood that it will... errr... regulate.

Secondly it's also worth looking at the IMA's annual survey linked to in the Responsible Investor piece. There's a section on engagement in there which is very interesting, as it is based on asset managers' views. The IMA says that managers fall into three broad camps - a small group that see engagement as very important, the large majority who acknowledge its role but believe there are important limitations, and a third group - size unspecified - who doubt the benefits and aren't very interested. It also includes a run through of various arguments asset managers put forward for why engagement is difficult/has limits.

The thing that interests me about this rather honest picture, is that I am genuinely unsure which way the asset management industry will face on things like the EC Green Paper on governance. The public debate around such issues tends to be dominated by those who believe governance is important, but apparently that isn't necessarily where the industry as a whole is at. And if many managers aren't that bothered, will their trade bodies go into bat for the UK model? Maybe a more regulated approach to governance would enable them to shrug off all this 'ownership' stuff that clearly isn't to the liking of many. It might even save them the basis point (if that) they currently expend.

Notably one of the quotes from an asset manager used to illustrate the report makes the point that if things go wrong at a financial institution that neither the board or the regulator had spotted in advance, what chance would an outside investor have of doing any better? Similarly the argument is made that investors find it difficult to co-operate, for competitive reasons, because of different objectives, or because of fear of falling foul of concert party rules. All reasonable points, but might this not, then, point you down the road of seeking to strengthen regulatory rather than market oversight?

The more I think about it the more I think that the asset management industry is not necessarily going to worry too much about a drift away from the 'shareholder as owner' model. Interesting times and all that.

Friday 23 July 2010

Status & human nature

There's a good little discussion going on at Stumbling & Mumbling here.

Thursday 22 July 2010


From The Joyless Economy:
When profits or earnings are all a man has to show for his work, he transfers to them his pride of achievement and regards them as the symbol and measure of society's appreciation of what he does for society. Such was the interpretation the Puritan ethic put on money income, and it has been reinforced by the economist's theory of the competitive market, which holds that the market price of a man's services reflects the value of his marginal contribution to the national product. We use money not only as a medium of exchange, but also as the measuring rod of a man's worth, and we value income not only for the goods it will buy, but also as the proof of our usefulness to society. Being useful to society is a source of satisfaction and comfort; money is a token of such usefulness and therefore becomes itself a source of satisfaction and comfort.

Inputs, outputs and incentives

I was reading a discussion on a blog somewhere recently and I read someone make the apparently uncontroversial point that obviously we need to reward people for out outputs not inputs. This is a mini version of the idea that often too much emphasis goes into what we put into a system (be it money or whatever else) without considering whether it is making the delivery better. This is of course a regular argument of people on Right about public spending.

But just in the more scaled-down version of incentives, I think the argument put forward (focus on output) is wide of the mark. In fact it might be much better to tie rewards to inputs in some cases. I blogged previously about Roland Fryer's work on educational incentives, and this is exactly the conclusion he came to. If you try and reward kids for grades it doesn't work (he argues that this might be because they don't know how to get the results). But if you reward them for inputs - read a book and you'll get $5 or whatever - then you can improve performance.

The conclusions to Fryer's report are pretty clear:
Remarkably, incentives for output did not increase achievement... Conversely, incentives can be a cost-effective strategy to raise achievement among even the poorest minority students in the lowest performing schools if the incentives are given for certain inputs to the educational production function.
From all the stuff I have read over the past year or two on incentives and motivation, one message about their success comes across clearly. The task needs to be well-defined, measurable and pretty basic. That suggests to me that incentives simply aren't that useful for many jobs, where quantifying 'good' performance would be difficult (and this is without even going into motivation crowding theory). But if we really do want to use incentives, it might actually be worth seeing what inputs correlate with good performance and applying them there. It may still not work, but tying rewards to results is not actually the no-brainer people assume.

Worth a read

This article by Simon Wong of Governance for Owners. A good run through of some of the trends affecting shareholder engagement. Similar in places to what Paul Myners had been saying (for example on the impact of diversification).

Hat-tip: Responsible Investor

Wednesday 21 July 2010

Labour 'n' brains

Interesting post on Labourlist here. My own thoughts on this stuff from this time last year are here.

Blog plug

Dunno how I have missed this one before.

Tuesday 20 July 2010

I must stop posting about the Lib Dem implosion but... this.
Among those who voted Lib Dem on May 6, opinions are divided: just 40% approve of the coalition’s performance, while 36% disapprove. No wonder Lib Dem support has slumped since the coalition was formed. Indeed, of those who voted Lib Dem on May 6, just 46% would vote for the party if an election were held now, while 18% would vote Labour, 9% Conservative and 5% for other parties; 22% are ‘don’t knows’ or ‘won’t votes’. To be sure, the Lib Dems have picked up some support from voters who like their involvement the coalition, but there are too few of these to offset the deserters. Overall, Lib Dem support is down by one-third since the election.

Cuts strategy

Nigel has a great post on the strategy for addressing public spending cuts here.

Monday 19 July 2010

Behavioural trade unionism

The unions have a massive job on their hands to try and mitigate the damage the coalition is about to inflict on the UK. I suspect (if a couple of recent conversations with non-union types are anything to go by) that a fair number of people who haven't previously been sympathetic to unions will be showing an interest as the cuts start to bite. In terms of recruiting and organising people I wonder if any of the unions have taken a look at any of the stuff from social psychology and behavioural economics? A few random thoughts spring to mind:

1. Social proof is an important factor. People are more likely to join/become active if they think that others like them are doing the same. The suggests that union recruitment material ought to be as specific as possible - pictures & testimonials from people who work in that office/on that site will be more effective than general ones.

2. Loss aversion has a strong pull. As I blogged long ago, on one level unions have already understood this point, but it deserves re-emphasising. A lack of action/acceptance of the status quo presented as resulting in a guaranteed loss may make people more likely to take action.

3. Keep it optimistic. Like it or not (I do!) people are more likely to respond to an optimistic message than a pessimistic analysis. See Martin Seligman's work for details.

But as a very simple starting point I would recommend spending a few on this. It can't do any harm!

More wonky logic

From t'Indy:
So, is there anything different this time? Well there seems to be an appetite for genuine pension reform and a realisation that allowing people to do what they want with their long-term savings cash is the way to go. If Mr Hoban is thinking along the lines of a lifetime savings account or an ISA "plus"– with further tax incentives but retaining the flexibility which makes the straight cash or equity ISA so popular – then this time it could work.
Eh? What could work? This isn't another attempt to argue that the reason that people aren't putting more into a savings vehicle that is supposed to provide an income in retirement is because they can't access the money before retirement, is it? It's a bit like saying that the reason that more people don't go on diets is because you can't eat what you want.

Saturday 17 July 2010

Coalition strengthens the Right

As always, it's worth keeping an eye on UK Polling Report. The numbers suggest an interesting story - so far being in coalition with the Lib Dems has been good news for the Tories. Based on current polling support for the Tories has risen post-election to the point where they could win a majority outright. The Lib Dems in turn would probably lose half their seats. And this is without even thinking about regional variations (Lib Dems in the North and Scotland may have an even harder time). Add to that the fact that in terms of Lib Dem voters, supporters and activists the drain away will be from the Left. That will leave a party whose Right-wing is further strengthened. I'll leave it to others to speculate whether another group of Liberals will end up in the Tory party.

For the Tories, as someone put it to me the other day, the Lib Dems are simply body armour.

Friday 16 July 2010

challenging music

One of the books I have on the go at the moment is Tibor Scitovsky's The Joyless Economy. From what I've read so far it fits very well with some of my own ideas about work and motivation. It was also what seems like a fairly early attempt to properly reforge the link between psychology and economics. It's quite interesting to read a book that takes issue with the rational economic man ideal that has no references at all to Kahneman and Tversky!

Anyhow, well worth a read if you share my interest in this kind of stuff. As an aside one thing I liked was his reference to different types of music. Part of his argument is about our need for challenges (though not too much challenge...) and how this complicates the understanding of work within economics. But he also applies it music:
In music, a melody never before heard and not fitting into any musical tradition we are familiar with is likely to leave us puzzled and uncomprehending. Some redundancy is already provided when a piece of music is written in (and recognised as written in) a given key, since the tones belonging to that key can be expected to occur with greater frequency than others, with the tonic and and dominant of that key occurring with even greater frequency. If, in addition, the piece belongs to a certain period the listener is familiar with, there is even more redundancy, enabling the listener to predict even more; and if he can also guess the composer, there is more redundancy still. Very much the same is true of painting, dancing, and any other artistic production. Usually, to enjoy such work, we have to recognise it as belonging to an artistic school or style we are familiar with, because that provides the necessary redundancy.

In short, some redundancy is essential to render anything new pleasantly stimulating, and the degree or amount of redundancy has much to do with how pleasant it is. Just as perfect originality or no redundancy is unpleasant because it is bewildering, so perfect banality or full redundancy is unpleasant because it is boring. The pleasant lies in between...
That sounds a lot like how I think I relate to sitar music!
I am aware, dimly, that sitar music involves a great deal of thought and structure. But to my untrained ears what is great about it is its complete difference to much of what I'm used to. Pieces start off slowly, have a mad fast bit, and then slow down again. And some of them go on for 25 minutes. And when there are tablas involved it's a similar story - they don't just mark time, or hold a steady beat, there are great surges and solos. I know there's plenty of non-sitar music that does the same kind of thing, and I like electronica in the same vein, but sitars have a bit of a hold on me. So what I really like about this kind of music is that it stubbornly refuses to fit into a structure that my mind expects/wants. (In sharp contrast I can remember ruining a track once by managing to identify the beat structure. After that I couldn't hear anything but the beats when I listened to it, and it destroyed the track for me).

Wednesday 14 July 2010

Some reading material

Good article from John Plender on where shareholder engagement may go. The shareholder-as-owner model is not guaranteed to triumph.

And Financial Secretary to the Treasury Mark Hoban has been giving a number of speeches, which you can access here. Not a lot about governance in there so far, tho in this speech to the ABI in June he said the following:
as one of the most important groups of institutional investors in the UK, insurers also play a critical role in the oversight of the companies in which they are investors.

I therefore welcome the recent establishment of the Institutional Investor Council to help establish a stronger voice for institutional investors. A strong voice will be critical with the Financial Reporting Council creating the Stewardship Code for Institutional Investors to sit alongside the updated UK Corporate Governance Code.

I also look forward to the investigation that the Council is carrying out on fees paid in respect of rights issues, due to report by the end of the year. And I hope it will play an active role in responding to the recent Commission consultation on corporate governance in financial institutions.
Note the EC Green Paper rears its head again...

M&S vote

An easy win for M&S today, with a combined oppose and abstain of about 16% (equally split). That's above the norm for the season to date, with an average vote against rem reports of about 6%, with 3% in abstentions. But it's not a major revolt by any means. Clearly some investors backed the remuneration policy because they were happy with Marc Bolland's appointment and that was more important than concerns about golden hellos and/or buying out long-term incentives at the existing employer.

Ho hum.

Tuesday 13 July 2010

Monday 12 July 2010

The meejah and shareholder voting on pay

I've had a steady stream of media calls over the past week or so, mainly in response to the large vote against Tesco's remuneration report. That one AGM seems to have rekindled the never-very-dormant meejah interest in executive remuneration, and shareholders' role in respect of it. The questions I always get asked about this subject are as follows:

* What happens if a company loses the vote on their remuneration report?
* How many companies have lost the vote this year/last year/etc?
* Is shareholder voting on pay working?

Given that the default meejah narrative is one of cynicism about both motives and outcomes, they find what I tell them in response to these questions quite pleasing - losing the vote doesn't compel the company to do anything, very few companies lose the vote, and overall exec pay has kept going up. Great! It's a crap system, and the people supposed to make it work are rubbish at it. Write your own op-ed....

Notably, this sort of cynicism seems to have seeped into the market too, with a number of participants very sceptical about the value of shareholder voting in general, and on remuneration reports in particular. I can accept that on one level - it's not impossible that shareholder oversight is a poor model for addressing exec pay (though a genuinely workable alternative isn't as obvious as you might think). However I do think we should be a bit wary, for the simple reason that I don't think investors have ever really tried to make the system work as expected.

What I mean by this is (based on my own geeky obsession with voting records) it's clear that there are many institutions who only vote against a handful of remuneration reports a season. Across the whole market that translates into dissipated pressure on remuneration. Add to that the fact that most investors seem to only take a firm line on notional performance linkage, not scale of rewards, and you have a situation where you can't really blame companies for concluding that - as long as they genuflect to performance linkage - they can pay their execs pretty much what they please.

There are two points to draw from this. First, there is a danger that there will be institutions who go straight from doing little to concluding what little they do makes no difference. This is what frustrates me about the whole 'voting doesn't make any difference' line of argument - I don't think we have given it a proper try. So second, why not give it a try? Why don't institutions simply turn the level of opposition on remuneration up a couple of notches and see if they can make a difference? Why not start taking a position on 'quantum' or pay differentials and see if we can draw a line in the sand?

At the very least it would give me something new to say in interviews....

Friday 9 July 2010

Coalition stealth raid on pensions part 2

Look here, and even the Torygraph doesn't like it.

GMB pensions Q&A

The latest communique from GMB pensions centreforward Naomi:

Well the sun is shining so what more do you want? Dignity in retirement? Any retirement at all? A decent England football performance? Sorry, none of this looks likely in the new world order. In this month’s laughter filled edition we have the cuts the government told us about, the cuts the government didn’t tell us about and the cuts the government haven’t even realised they’ve made.

After agonising over the decision not to tax the rich through a dramatic increase in Capital Gains Tax, the unholy alliance took a quick swipe at public sector pensions just in case anyone thought the independent commission they’d set up a couple of days before was actually going to be allowed to do the job it was set up to do. Changing the indexation of public sector pensions from an RPI link to a CPI link is likely to save the government close to £1bn over the next few years (by save the government I really mean cost pensioners).
But don’t worry folks, if you can afford to delay taking your pension you won’t be forced to turn your retirement savings into a pension until your 77 (up from 75) a policy that’ll help the very rich avoid some inheritance tax which is after all the cornerstone of a progressive budget.
Finally, in case it slipped your notice, the Liberals have forgotten about all their opposition to a rapidly rising retirement age and are now proclaiming the wonder of a higher state pension age from the roof tops. So a state pension age of 66 in 2016 is on the cards as is ultimately a state pension age of 70. It’s just as well there are so many jobs around for everyone to do for those extra years…hang on, we’re looking at around a million job cuts and no-one making or buying anything for the next five years. Presumably everyone will become pundits, there never seems to be a shortage of those.

The earnings link for the basic state pension is back – let joy be unconstrained! Except of course that it isn’t. In April 2011 the basic state pension will go up by RPI as usual and there’s no mention of a guarantee that if earnings or 2.5% is more than RPI pensioners will get the higher amount. But don’t listen to me, I just read the Budget, I’m sure if Mr Osbourne says they’ve restored the earnings link then that’s what they’ve done (makes you wonder why he didn’t tell the number crunchers though…). When it does arrive in April 2012, the ‘triple guarantee’ will only guarantee a state pension increase which is the highest of 2.5%, average earnings and CPI. So while RPI is projected to increase to significantly more than CPI over the next few years, pensioners will once more be pinning their hopes on dramatic increases in average earnings (some hope) to get a decent increase.

Again the taxation of the highest earners is being agonised over, this time in the field of tax relief on pension contributions. The last government set about limiting the tax relief enjoyed by those at the top of the income scale (the top 1% of earners take 25% of the pension tax relief in the UK), obviously this doesn’t fit in with the current government’s definition of fairness so they’re going to ‘look at it again’.


Possessed with all the vision of a Uruguayan linesman it’s perhaps not surprising that the demolition government don’t acknowledge the long term cost (financial and social) that they are storing up for the British taxpayer.

Increased welfare spending – as increasing the state pension age in the absence of sufficient jobs and aggravated health inequalities mean more people on unemployment and other benefits and greater pressures on the NHS.

More pensioner poverty – the government claim that CPI is a more appropriate means of increasing benefits as it better reflects individuals’ spending, nothing to do with the fact that CPI is generally notably lower than RPI. I’m all for an appropriate index being used for pensions increases, the Daily Torygraph found out a couple of years ago that pensioners’ inflation was running at three times the standard RPI or CPI measure, perhaps the Chancellor would like to consider using that index instead (and yes I know I haven’t even mentioned the impact of the VAT increase).

Less pension saving – as a result of the Budget and other government announcements people will have less money to be able to save for their futures (is now a good time to mention the VAT increase?). Less saving means less money in the future to fund social care etc. again forcing reliance on local authority provided services. On top of this, the move towards worsening pension provision in the public sector will continue to undermine people’s confidence in saving. The coalition government has consistently promised public sector workers that their accrued rights would be protected, yet it is profoundly unclear from their announcement of the change in public sector schemes’ indexation that they’ve honoured that promise. This should sound alarm bells for workers in the private sector…

So that’s the bad news, now for the good news…oops, sorry, I’ve run out of space, well the sun’s still shining, will that do?

Thursday 8 July 2010

Pointless work

This week I started Dan Ariely's new book (and given that it's in business book double-spaced, lots of white space stylee* I'll probably finish it by Saturday) and it's got lots of interesting stuff in there about work and motivation. There's more info, for example, on the experiments on the impact of bonuses on performance that have been picked up elsewhere (short answer: biggest bonuses led to worst performance).

Some of the most interesting stuff is about our need for meaning in our work. In one experiment he got the subjects to build models out of Lego for money. They could choose how many to complete. One group was told that models would be disassembled later on, for the next batch of subjcets to use. In the other group they actually saw the models being disassembled as they worked. So in the latter case the pointlessness of the task was really driven home. Unsurprisingly (to me anyway) the latter group chose to build significantly less models.

He carried out a similar task in which subjects had to identify pairs of letters on pages of type in return for payment. But when one group of subjects handed in their sheets the experimenter shredded them without looking, so they knew that their work was pointless. Once again those in the 'pointless' group spent less time trying to earn money.

On one level this is just common sense. Obviously if you see that a task is pointless your motivation will drop off, right? But these were hardly particularly compelling tasks in the first place. And as such why wouldn't the prospect of more money keep pushing you on, regardless of the pointlessness of the task? It seems like the need for meaning is actually at the core of out attitude to labour.

* This actually annoys the hell out of me, since it makes the book feel more superficial than it is, and a bit of a con. Personally I would have prefered a slim book that surprised me by how much it had in it. Bit of an own goal for a behavioural economist?

Commons homeopathy

Dunno why, but I find it genuinely shocking that an MP is promoting something so stupid. See here.

Monday 5 July 2010

The Lib Dem future

Just a few thoughts on the future of the Lib Dems, not sure if I'm saying anything particularly new.

First up, going into coalition will inevitably drag them to the Right. I don't just mean the compromises that they have had to make to reach a deal with the Tories. This coalition has clearly strengthened the position of those who emphasize economic liberalism over social justice. That is, of course, a perfectly respectable intellectual position, but still, it's clear which wing is winning.

Secondly there are a couple of psychological factors I reckon will come into play. The first is status quo bias, whereby Lib Dem supporters, councillors, MPs will simply get used to where they have repositioned themselves on the political map. It will become their new 'normal'. The second is cognitive dissonance. Many Lib Dem supporters, faced with what looks like facilitating a right-wing government that increases inequality, will talk themselves into justifications. This may include convincing themselves that they were always really more about economic liberalism than social justice.

The latest stuff on UK polling report may bear this out a bit:*
In their final poll before the 2010 election YouGov asked respondents how they would have cast their second preference votes if they had been voting under AV.
Amongst Conservatives voters 45% would have given their second preferences to the Lib Dems, 5% for Labour, with the rest not sure, not casting a second vote, or casting one for minor parties. Amongst Labour voters, 6% would have given their second preference to the Conservatives, 64% to the Lib Dems. Lib Dem voters would have split their second preferences in favour of Labour by 42% to 27% for the Tories.
YouGov repeated the same experience at the end of June. Second preferences now break differently. Conservative voters are much the same, but Labour voters are now much less likely to transfer to the Lib Dems, from 62% at the election, now only 33% of Labour voters would give their second preference to the Lib Dems. Lib Dems now break in favour of the Conservatives rather than Labour, though not by very much (38% to 33%).

Not surprisingly, Labour voters are far more wary now of giving their votes to ...ahem... 'Gideon enablers'. But look at the Lib Dems starting to swoon in the Dark Side's embrace. Now the reason I put '*' is, as the post goes on to point out, that left-leaning Lib Dem voters may no longer be Lib Dem voters. So you'd expect some shift toward the Tories in second preference votes. But then that is just another tick in the box for a turn to the Right.

Now again, this is all perfectly reasonable. There is no reason why there shouldn't be a genuinely liberal right-of-centre party. But a) if that really what all those Lib Dem supporters thought they were voting to create b) are we convinced that the electoral system is the only thing that prevented such a party from emerging previously c) what do we estimate the long-term level of support for such a party will be and d) won't such a party ultimately find it hard to differentiate itself from its big right-wing brother?

Sunday 4 July 2010

A few points on the Stewardship Code

No big surprises, eh? As expected, the FRC decided to press ahead with the Code rather than doing a radical overhaul. I think that is the right decision since no-one really knows how this will work in practice, so we might as well just get on and give it a try.

All institutional investors will be encouraged to seek to comply, so some work needs to be done to help pension funds think through how to do it. Also proxy voting advisers will be encouraged to report on how they help clients apply the Code.

In terms of monitoring, effectively the FRC is giving institutions a year or so before it takes a proper look, with a formal review of compliance taking place late in 2011. Notably the FRC has decided against simply taking over the IMA's engagement survey, which will continue as before.

Nothing further in the Code itself about either voting disclosure or voting in pooled funds, BUT the FRC says that it will look at these issues (along with stock-lending) ahead of the 2011 review.

This is an interesting new departure for the UK, as the Code formalises what we can expect from the investor side of the owner-manager relationship. The interesting thing to remember is that the Code is basically intended to encourage shareholder/owners to act as the theory underpinning many folks' approach to governance suggests they should.

Now you might think this is necessary because of a collective action problem, and that currently it's rational for well-diversified investors to not care too much about individual equity holdings. But in that case is exhorting shareholders to act more like owners a) the right thing to do and b) likely to work? And if the answer to either question is 'no' then where do we go?


When in hole, stop digging. This is that "EU to ban sales of dozen eggs" bollox. Worth reading the Mail article as there is nothing in it that proves the mag's claim. It also says that the claims from the MEP leading on the legislation that there will be no change are 'disingenuous' and 'misleading'. It doesn't say the MEP's claims are 'wrong' or 'false', odd given the clear truthiness of the story! Also worth reading the comments under the blog post where a number of people who have read the legislation say the sorry is bollox.

Friday 2 July 2010

Odd Reuters report on Tesco

At home sick today, but still keeping an eye on AGMs, saddo that I am. I noticed that the head of the Reuters report on the Tesco AGM reads as follows:
Tesco wins investor backing for pay plan

Tesco, the world's third-largest retailer, won support for its management pay plan at its annual shareholder meeting on Friday, despite criticism from a handful of investor lobby groups.

The supermarket group said its remuneration report was endorsed by 62.36 percent in a shareholder vote, with 37.64 percent against.
This is odd for two reasons. First, surely anyone with any knowledge of exec pay (and shareholder challenges to it) will regard a vote of over 37% against a rem report as pretty significant? It is way above average for this season - or last season, when there was a real spike in voting. And for a FTSE100 it's a really bad result.

But secondly, those figures don't even tell the whole story. Check out the company's AGM statement and you find that actually there were a significant number of abstentions too. The actual vote in favour was just under 53%, with oppose votes of just under 32%, and 15% abstentions. Personally I think it looks more like a narrow majority supporting the company's exec pay policy.