Tuesday 31 August 2010

Standard Life response to the Rights Issue Fee Enquiry

Once again, much respect to Standard Life for putting its various policy type documents in the public domain here. And here (pdf) is its response to the Rights Issue Fee Enquiry, the thing set up under the imprint of the IIC (the body set up after Paul Myners said the ISC wasn't working) to look at fees on capital raising (the issue Myners said that investors should look at). Here's the conclusion:
There is much evidence to suggest a basic asymmetry between the risks to underwriters and subunderwriters and the fees that are paid to each for the taking of the risks associated with rights issues. The rewards available to advisors and lead underwriters are disproportionate to those available to other providers of risk capital. It would also appear that the general increase in fees associated with rights issues is imperfectly correlated with the risks associated with these transactions and therefore degrades shareholder value.

As an institutional investor which receives no financial benefit from sub-underwriting, Standard Life Investments would support a return of competitive tension to the costs arising from the advising and underwriting of secondary offerings of equity. We would welcome a return of the tendering method of underwriting. We would also urge corporate buyers of investment banking services to consider more critically the economies that they are achieving within the present system and to examine ways that the associated costs can be minimised for shareholders.

One odd thing to note - the letter is addressed to the IMA. I presume this is because the IIC doesn't have a separate life of its own yet.

US companies to disclose pay gap

If they can can do this in the US why not here? And why not as part of the BIS consultation on narrative reporting?
US companies face a “logistical nightmare” from a new rule forcing them to disclose the ratio between their chief executive’s pay package and that of the typical employee, lawyers have warned.

The mandatory disclosure will provide ammunition for activists seeking to target perceived examples of excessive pay and perks. The law taps into public anger at the increasing disparity between the faltering incomes of middle America and the largely recession-proof multimillion-dollar remuneration of the typical corporate chief.

Friday 27 August 2010

Self-interest as a norm: the same thing said different ways

Academic version:

"The fear that deviating from one's material self-interest will provoke dismay, suspicion, or derogation can be as powerful a deterrent as the fear that it will prove futile or render one vulnerable to economic exploitation."

From The Norm of Self-Interest by Dale Miller

Business version:

"If, wherever you look, you see people lining their pockets rapaciously, without any thought for what is right, then if you do the right thing, you are made to feel stupid. Your wife thinks you are stupid, your friends at the golf club think you are stupid."

Roger Bootle

never anything to do in this town

live here my whole life

Thursday 26 August 2010

Proxy access

Approved by the SEC. It will be very interesting to see how this one pans out. The ownership threshold is still high, so it will require collaboration for shareholders to really make it work, but the door is open.

More from CorpGov.net here.

Obedience and ideology

I've only just got round to reading Stanley Milgram's own writing on the electric shock experiments, here's a good snippet on ideology:
Control the manner in which a man interprets his world, and you have gone a long way toward controlling his behaviour. That is why ideology, an attempt to interpret the condition of man, is always a prominent feature of revolutions, wars and other circumstances in which indiviuduals are called upon to perform extraordinary action. Governments invest heavily in propaganda, which constitutes the official manner of interpreting events.

Every situation also possesses a kind of ideology, which we call the 'definition of the situation', and which is the interpretation of the meaning of a social occasion. It provides the perspective through which the elements of the situation gain coherence. An act viewed in one perspectiv may seem heinous; the same act viewed in another perspective seems fully warranted. There is a propensity for people to accept definitions of action provided by legitimate authority. That is, although the subject performs the action, he allows authority to define the meaning.

It is this ideological abrogation to authority that constitutes the principal cognitive bias of obedience. If, after all, the world or the situation is as the authority defines it, a certain set of actions follows logically.

The relationship between authority and subject, therefore, cannot be viewed as one in which a coercive figure forces action from an unwilling subordinate. Because the subject accepts authority's definition of the situation, action follows willingly.

I was trying to get at this stuff a bit in this post.

The book is well worth a read btw, and deserves its reputation.

That IFS report

It's caused a right old stink hasn't it? And also drawn out some of the problems facing the Con-Dems.

First up, it surely demonstrates why it was stupid to attempt to brand it a progressive budget. It was stupid because a) it is false and b) everyone is completely sick of the P-word in its loose sense c) 'progressive' also has a techinal meaning that anyone with a bit of knowledge is aware of and so the attempt to blur the meanings in b) and c) makes those doing it look duplicitous.

Secondly, Iain Dale is quite right to draw attention to this article on LibDem voice because it, and more so the comments below it, show what a mess they are in when responding to independent analysis. Should they accept the broad message from the IFS, or attack it? The fact various folks out there are already seeking to portray the IFS as either inherently lefty and/or bending their analysis to suit the policy needs of those who paid for it shows how quickly standards can slip.

It may have been much better for the ConDems to set out an honest 'classical liberal' argument in favour of what they were doing. After all that is the ground on which the coalition is built. Instead they have basically tried to pull the wool over the eyes of the electorate and their own supporters. And Labour supporters know only too well that when you try that in a Budget, once someone has looked closely at the numbers the short-term advantage can turn to long-term damage.

And the really great thing about this story is that Labour didn't even need to be in it. A self-inflicted wound if ever there was one.

Wednesday 25 August 2010

oh dear oh dear

Clegg's blaming the ref


I think the FT makes the point quite well about why this isn't just a socially conscious celeb issue:
As an investment, Vedanta has its attractions. Anil Agarwal, the chairman, has expanded the company into a large diversified mining group offering a way into the Indian growth story. The shares, even after yesterday’s 7.6 per cent fall, have outperformed those of other FTSE 100 miners over the past five years.

But there are other ways to buy into the Indian growth story. A mining company featuring a dominant founder, an overly complex corporate structure and a growing PR problem is far from the most attractive entry point.

partisan left-wing attack on Budget


YouGov stats

The coalition's approval rating has just turned negative. Also the last two polls show us much closer to the Tories, with the LDs definitely in the 12%-13% range. This before the cuts start...

Tuesday 24 August 2010


I'm baffled by Guido's logic on the appointment of Matthew "Higher Rate Tax Avoiders Alliance" Elliot to run the anti-AV campaign:
With the pro-AV campaign likely to be run out of Cowley Street, or at least by LibDem proxies, it seems wise to choose someone who is not a Conservative Party figure, not least because he will have to win Labour and union support for the campaign as well as keep some of the more ambivalent Tories onside. The aim is to assemble the strongest, broadest based campaign possible to oppose AV regardless wider of ideological differences.
Given that there is a significant knee-jerk anti-AV tendency amongst Labour supporters who simply want to put one over on the Lib Dems this appointment (from a Rightie perspective) looks tactically clueless. The TPA is about as popular with Labour supporters and union members as hunt saboteurs are with the Countryside Alliance. It's like magnetic repulsion. So appointing the head of TPA to this campaign will surely tip many of those who are only against AV because the Lib Dems are for it back in the other direction. And that in turn may help rapproachement with the LDs.

If I were a pro-AV Lib Dem I'd see this appointment as a plus point, and I'd be hammering it home with Labour supporters as often as possible.

Monday 23 August 2010

IoD u-turn on deal threshold

get a load of this:

April 2010:
"we agree with the Government that the threshold for approval of a hostile takeover should be raised to a shareholder majority of two-thirds"

July 2010:
"we are not convinced that raising the acceptance threshold for a takeover offer is the best way to tackle investor passivity"

wonder what drove this?

European directors on shareholder views on corp gov

From ecoDa's response to the EC Green Paper on BOFI governance:
the views of institutional investors with respect to corporate governance are not necessarily synonymous with good governance from a long term sustainability perspective. They reflect the self-interest of a specific governance actor rather than the interests of stakeholders as a whole. Although their long term interest may be aligned, their interests may substantially differentiate in the short term.

Moreover, institutional shareholders are not the only form of shareholders whose views should be considered. Families, individuals, non-financial corporations and other forms of non-institutional shareholder play a major role in the ownership of many listed European companies (often via blockholdings or controlling ownership stakes). We are not aware that their perspectives were sought in the preparation of the Green Paper. However, their longer-term perspective would provide a useful counterweight to the disengaged and relatively short-termist investment approach of many institutional investors.

Sunday 22 August 2010

Self-interest as an ideology

From Albert Hirschman's Shifting Involvements:
[T]he dogged pursuit of happiness along the private road is not, as we often tend to think, "what comes naturally"; rather, it is presided over and impelled by an ideology which justifies it, not only in terms of beneficial results for the individual pursuer, but as the surest and perhaps only way in which the individual can make a contribution to the common good. The ideological claims made for private life thus sustain the individual's quest with two messages: one, the promise of satisfaction and happiness; and two, the assurance that there is no need for guilt feelings or regrets over the neglect of public life.

Friday 20 August 2010

Standard Life response to Takeover Panel review

Is available here. Not surprising, but they are opposed to the two more 'political' proposals - raising the threshold required for a bid to go through, and/or introducing a qualifying period for voting rights (so if you acquire shares once a bid has been announced you can't vote them).

Standard Life are generally a good bellwether of mainstream investor views, and, as I have said before, I don't expect to see any significant change resulting from the Panel's review. Whether this is a sensible approach or a cop-out is up to you. This doesn't stop Vince Cable from approaching M&A from a public policy perspective either.

Lying executives

Via the ace-a-tronic CorpGov.net, I came across this WSJ article summarising some academic analysis of analyst calls and the like to see if they could spot deceitful chief execs (they looked at companies that subsequently restated earnings). Interestingly part of the analysis is use of language:
Executives who later had to revise their books displayed some very consistent clues.

For one, they seldom referred to themselves or their firms in the first person; “I” and “we” were replaced by terms like “the team” and “the company.” Deceitful executives passed up humdrum adjectives like “solid” and “respectable” in favor of gushing words like “fantastic,” and (not surprisingly) they seldom mentioned shareholder value.

They also tended buttress their points with references to general knowledge with phrases like “you know” and to make short statements with little hesitatation, presumably because they had carefully scripted the untruths in advance and had no interest in lingering on them.

I would need to go back and check on the actual research, but the first bit of this looks rather familiar in terms of explanatory styles. If you know something has gone wrong (which I assume is the implication here) someone with a certain explanatory style might try and frame it as being the result of external factors, rather than personal failings, hence the lack of reference to the first person.

Thursday 19 August 2010

Hedge fund managers talk rubbish too

I love this. You may need a sub to read it, but if so Google "Tom Barrack, Twilight". The super-rich can be right twassocks.

Tuesday 17 August 2010

Even stevens

Latest poll in the Grauniad has us level pegging with the Tories. That's encouraging, but meaningless really at this stage. The more important things to note are a) that the coalition's narrative on cuts is accepted - at the moment and b) Tory voters are wildly enthusiastic about what they are doing and who is doing it - Osborne.

Labour has clearly picked up ground because of former Lib Dem voters switching (or more likely former Labour voters who gave the Lib Dems a try switching back). As I've argued before, I think the forces at play (the ideological common ground on which the coalition was built, the exit of left-leaning supporters as a counterweight, etc) are dragging Lib Dems to the Right. Nonetheless there will be plenty of decent Lib Dems who stay put, for honorable reasons. I just hope they reflect on how little they are getting out of the deal, and who they are helping to strengthen - Osborne, for one.


This here report of T Blair's donation. Never been a Blairite, totally opposed to invading Iraq, plenty of questions about his political stance on various issues. But 'bloke gives millions to charity' is surely A Good Thing, innit?

Monday 16 August 2010

Managerial control

One of the books I currently have on the go is Douglas MacGregor's The Human Side of Enterprise which came out in 1960. It contains a very early critique of fiancial incentives which is argued in part from the perspective of control - employees often perceive contingent rewards as an attempt to coerce them. But there's also lots of interesting stuff of general managerial attitudes to control, and the effects they have:
Those managements who are most worried about their prerogatives seem, in general, to have the greatest difficulty in protecting them. It is at least possible that this suspicious, almost paranoid, attitude of management actually tends to promote interference with management prerogatives, to create targets which employees promptly shoot at. The chain of events in some companies amounts to a self-fufilling prophecy: Management expects certain things to happen, and behaves in such a way that they do happen. Then management reverses cause and effect in its interpretation of what has taken place.

Thursday 12 August 2010

Takeover Panel review

What's the betting that the Panel's consultation concludes that the status quo is basically ok?

Class politics, and more politics

David Cameron's attempt to pass himself off as middle class seems rather badly judged. My workmate who was most irritated by this claim is a female Tory voter, who thought it was dishonest. Let's be clear, either he was trying to pass himself as something he isn't, or he genuinely has no idea what real middle class life is like. I think it's being kinder to think he was just trying a bit of spin.

The odd thing about this is that Nu Dave had almost managed to turn his background into a positive, with those who raised it ending up looking like it was they who had the problem, as Toby Young argues. So it's doubly surprising that he has now apparently tried to recast himself. It does make you wonder if it's part of the softening up ahead of the real cuts.

That also made me think of something I posted ages ago about an MoD document suggesting the emergence of (genuine) middle class radicalism. As you may have noticed, bonuses are back at the banks, and not just there. It looks like we are about to see the steady upwards march of executive pay restart.

I do wonder whether some sort of radicalism in the middle might not emerge, especially as the cuts start to kick in properly. Faced with the reality that the financial system that nearly took us all down, and relied on taxpayers to save it, is now back to business as usual is going to be hard for a lot of people to take. And people in the middle have both something to lose and no realistic chance of catching up with those in the City who were at the centre of what went wrong. Maybe something to keep an eye on.

Wednesday 11 August 2010


Interesting bit on S&M about choice here. There are a couple of other things I would add . First, people often don’t really choose – as in make an active decision – when offered a choice. It’s too much mental effort, and we don’t have much energy to spare it seems. According this book (only about a third of which is any good) the energy-efficient nature of our brains encourages us to take mental short cuts. This partly explains things like why we fall for optical illusions.

In terms of consumer choices often we seem to simply do what we’ve always done because it's easy, a point made in this. If we use choices made to infer decisions made then this can appear to be a strong preference when actually it’s almost the opposite – a lack of effort. A regular choice does not necessarily mean we are knocked out by our purchase, as my own sandwich-buying activity reveals.

Secondly, we also seem to misread our own past decisions. In Dan Ariely’s latest book he details how decisions made in an emotional state are (wrongly) judged by our later – more coolly rational selves – to have been based on sound reasoning. And we use that past decision to inform future ones, so we are almost subject to our own personal information cascade.

Having said all that, having the option of choice does seem to be important to us, even if we rarely actively exercise it, presumably because it links to our sense of self-determination.

Monday 9 August 2010


Been reading a bit around the topic of reciprocity recently. This seems to be a pretty deep-rooted facet of human behaviour, in both its positive and negative forms. That's why marketing drones seek to use it against us. It's also a very good strategy to adopt in Prisoner's Dilemma (provided it's an ongoing relationship), as famously put forward by Robert Axelrod.

It does suggest, doesn't it, that the desire to reciprocate, including the indebtedness we feel towards people who have done us a favour, is there through a process of natural selection. Survival of the fittest - as in most suited to the environment - actually favours co-operation for mutual benefit. The evolutionary process presumably has led to the feelings we experience that lead to reciprocal behaviour.

Two other things worth noting. Firstly, and most obviously, reciprocation doesn't just mean returning the favour, it also means responding to provocation. Hence the finding that people are willing to incur costs in order to punish someone who defects. This is an eye for an eye, not turn the other cheek.

Secondly, if we apply this approach to life in general then arguably selfish people - those who always defect - will never have their approach disproved. If they always defect they will never experience the worst possible outcome (I co-operate, you defect). They may end up in a lot of situations where both parties lose out, but they won't end up feeling like a sucker. The opposite is true for co-operative players. Sometimes they will get turned over by an unscrupulous partner. Making a bit of a leap, co-operative types are going to experience worse individual disappointments, even if they may do better in the long run.

Friday 6 August 2010

Important clarification

The word 'herbaceous', as in 'herbaceous borders', does not mean 'very very herby'.

Thursday 5 August 2010

Winter/spring/summer/autumn of discontent

This is excellent!

Latest Member Trustee News

From the TUC is available here. The annual trustee conference has also been announced, see here.

Wednesday 4 August 2010

Report to UK government: investors should engage with unions

A committee report to government recommends that institutional investors talk to union officials to gain a deeper understanding of companies:
The success of a company is determined not only by its management but also by the attitudes and activities of its workforce. Institutional investors should therefore have regard to the relationship between management, employees and trade unions in the companies in which they hold shares. This is not merely a matter of passive observation. In appropriate cases they could often with advantage hold discussions with trade union officials to learn their views about the company and to inform them about matters that are of concern to them. The promotion of exchanges of this nature should be to the advantage of all concerned.
A very sensible suggestion, from the report of the Committee to Review the Functioning of Financial Institutions, published in... err... June 1980.

Some great stuff in here (hat-tip: Brendan) which I'll no doubt be posting up. Get a load of this:
On occasions when there is a general dissatisfaction with management performance, and where it is felt appropriate to co-ordinate an even broader approach to the board, an [investor representative group] can refer a case to the Institutional Shareholders' Committee (ISC). This was set up by the four institutional investor associations in 1973 at the initiative of the Bank of England and with a terms of reference which require it:

To co-ordinate and extend the existing investor protection activities of institutional investors with a view, where this is judged necessary, to stimulating action by industrial and commercial companies to improve efficiency

...the ISC acts primarily through the creation of case committees, though in practice many of the cases coming to it have been referred back for action [other investor groups] or by individual institutions. Between its formation and the end of 1979 it had dealt with 37 cases, of which seven led to formal case committees and 19 were felt more appropriate for independent action. The remaining 11 had either already gone too far for anything to be done or were resolved in some other way.

So the terms of reference under which the ISC was set up required it to facilitate collaborative engagement. And at an earlier point in its history this is actually what it did in practice. And compare that to what the ISC's terms of reference say now, for example:
· consider whether there are any such matters on which member organisations should co-ordinate their activities or representations to UK Government and regulators; European institutions; and, any other relevant international legislative, regulatory or standard setting bodies; and

· make joint representations on occasion and by mutual agreement.

So its mission has changed broadly from co-ordinating investor engagement with a view to improving performance to co-ordinating the lobbying activities of its member associations.


This is an idea that has cropped up a few times in posts on here. There's a really simple take on it here. Interesting stuff.

Tuesday 3 August 2010

BIS consultation on narrative reporting

Is out, here, and is intended to meet the coalition's objective of reinstating the OFR. Could be interesting, get a load of this:
Should there be an advisory vote on the Business Review to allow shareholders to express their view on the directors’ performance and the company’s future prospects on the basis of the directors’ description of the company’s performance, forward looking strategy and principal risks?
I think I know which asset manager might have been pushing that one....!

Also seeks views on remuneration reporting, which is an opportunity to address the 'sensitive to pay and conditions across the group' issue. Also maybe time for BIS to look at disclosure of directors' pension entitlements?

Monday 2 August 2010

Incentives in one sentence

From John Kay again:
There is a role for carrots and sticks, but to rely on carrots and sticks alone is effective only when we employ donkeys and are sure exactly what we want the donkeys to do.

Interesting vote at Invensys

On the remuneration report, AGM results here. Looks like a high, but not very high vote against on the face of it. But look at the total votes on the resolution, they are way lower (as in over 220m votes lower) than on the other resolutions. That suggests a big block of abstains, and in fact if you assume a similar turnout on the rem report to the other resolutions this looks like another report that passed on minority active support.

Sunday 1 August 2010

Agency theory vs trust

A nice little snippet from John Kay's Obliquity:
There is nothing wrong with using 'I trust him' or 'I don't trust him' as a basis for decision. Finding individuals you can trust, or establishing trusting relationships with them, is the most effective - often the only effective - means of achieving the delegation that is necessary to accomplish objectives and goals in large organisations. Successful decentralisation relies of the transmission of high-level objectives, not just intermediate goals and basic actions, to the agents who will implement them. This is a world apart from principal-agent models that treat social organisations as mechanical systems in which agents respond to stimuli that incentive structures impose.

Lib Dems hit the ground flying

Wow, down to 12% now in the latest YouGov poll. Bound to be a rogue, but they seem to be down to about 14% on average. And this before the cuts really bite. Can they drop to single figures?