Friday 29 October 2010

Bad language

Bozza has rightly been pulled up for comparing changes to Housing Benefit to what happened in Kosovo. Whatever we might think about the ConDems' policy, it is not reasonable to compare it to ethnic cleansing.

But why then is it considered OK for the ConDems to compare the difference between public and private sector pension provision to apartheid? It's equally inappropriate, innit?

And who used such inflammatory language? Err....
The Tory leader told the Manchester meeting: "My vision over time is to move increasingly towards defined contribution rather than final salary schemes." He added: "We have to end the apartheid in pensions."

Regulation, regulation, regulation

Worth reading this in light of the general direction things are taking (ie a turn towards regulated governance). The speech isn't anything like as dramatic as the new piece suggests, but the tone is probably right in terms of the way thinking has shifted.

Wednesday 27 October 2010

And another thing... about high pay

I like Tom Harris's blog, and find myself agreeing with quite a lot of what he says. Not sure about this bit in his latest post tho:
3. I oppose a “High Pay Commission”.

And in government, so did the Labour Party, or at least our then (very sensible) Chancellor, Alistair Darling did. Holding an inquiry into the “evils” of high pay sends out the message that we think wealth is A Bad Thing. Get real, comrades: high pay isn’t the problem – low pay is.
There are several things wrong with this. First, there is no need to counterpose low and high pay - there can be problems with both and we can deal with both, in different ways.

Second, in an environment in which the head of the CBI and former chief exec of HSBC are saying that top pay is causing problems I don't think reviewing the issue via a commission sends out the message that wealth is a bad thing. In fact I'd argue the reverse, to not take action looks like a lack of understanding that there is a problem.

Thirdly, and most importantly, the Labour government actually did undertake some useful work in this area which is worth remembering. Aside from the bonus tax, Labour also initiated the Walker Review which in turn resulted in significant reforms to the pay arrangements of amongst the most hightly paid in the UK - people in the City. And this took place whilst Darling was in charge at HMT. In addition Labour had intended to toughen up shareholder oversight of executive pay, perhaps either through a vote on contracts, or making the existing vote binding. And, Lord Myners gave plenty of speeches indicating that he felt there was a market failure in respect of rewards for those at the top.

Going back a bit, Labour of course introduced the shareholder vote on remuneration reports in 2003, and improved the disclosure of exec pay - because of concerns that there was a problem with high pay!

All that a commission on high pay would do differently presumably would be to get experts to advise it. I'm not sure that it would reach hugely different conclusions to those Labour drew in power, or come out with ideas much different to those floated in the leadership election (like employee representation on rem committees, trailed by D Miliband).

To argue against a commission on the grounds that it sends out an anti-aspirtion/anti-wealth signal is, like, soooo pre-crisis.

Tuesday 26 October 2010

The BIS short-termism review

Is available here. Notable by its abscence is the lack of a discussion of qualifying periods for voting rights, despite Vince Cable trailing it as an idea at t'weekend. The section on takeovers looks like it's had the most work done on it, with the other sections lacking much underpinning evidence (Not that you need to provide a justification for consulting, just we've got a bit used to it with Turner, Walker etc). So I assume that's where the most interest is initially.

Could be interesting, provided the Blue half of the ConDems don't squash it.

Sunday 24 October 2010

Short-termism review part 3

Keep an eye out for this John Kay quote:
The notion that market prices are the result of a plebiscite on competing estimates of fundamental value is far removed from the reality of frenzied trading in modern financial markets. Most participants are preoccupied, not with long-term economic trends and the competitive advantage of companies, but with evolving market opinion and the ephemeral news that passes across the Bloomberg screen....
Will explain why if it appears tomorrow.

Short-termism review part 2

Mark Kleinman at Sky looks like he's been well briefed on the contents, get a load of this. Some of the questions on his list look suspiciously detailed (unless he spends as much time thinking about this stuff as I do!) so check out the the full list below for hints about what we can expect tomorrow. Note questions on rem committee membership and 'relationship between directors’ pay and employees’ pay' (ie ratios):
1. Does the legal framework sufficiently allow the boards of listed companies to access full and up-to-date information on the beneficial ownership of company shares?
2 What are the implications of the changing nature of UK share ownership for corporate governance and equity markets?
3. Is there sufficient dialogue within investment firms between managers with different functions (i.e. corporate governance and investment teams)?
4. How important is voting as a form of engagement? What are the benefits and costs of institutional shareholders and fund managers disclosing publically how they have voted?
5. What action, if any, should be taken to encourage a long-term focus in UK equity investment decisions? What are the benefits and costs of possible actions to encourage longer holding periods?
6. What would be the benefits and costs of more transparency in the role of fund managers, their mandates and their pay?
7. What would be the effect of widening the membership of the remuneration committee on directors’ remuneration?
8. Are shareholders effective in holding companies to account over pay? Are there further areas of pay, e.g. golden parachutes, it would be beneficial to subject to shareholder approval?
9. What would be impact of greater transparency of directors’ pay in respect of: linkage between pay and meeting corporate objectives; performance criteria for annual bonus schemes; relationship between directors’ pay and employees’ pay?
10. Do boards understand the long-term implications of takeovers, and communicate the long-term implications of bids effectively?
11. Should the shareholders of an acquiring company in all cases be invited to vote on takeover bids, and what would be the benefits and costs of this?

BIS short-termism review

There's a bit of an early sniff of what might be in the short-termism review in the Telegraph today, which suggests that we should hear something from BIS soon. As I blogged previously, the language in the Takeover Panel report that came out last week gives wiggle room for the Code to be adapted to reflect changes in company law. And it looks like Cable is willing to have a look at making changes here:
"The Takeover Panel didn't go for some of the more radical solutions like restricting the voting rights of short-term investors who have just come in to make a quick killing during a takeover bid," he said.
"There does remain a problem that as far as we can see from the objective evidence takeovers tend to reduce value, not increase it.
"We are going to have to look [at it]. I want to take what the Takeover Panel has done – and it is positive – and probably go rather further.

As I've written before, I quite like the idea of qualifying periods for voting rights, and if I remember rightly Myners trailed the idea in one of his speeches on 'ownership'. Cable also makes reference to an idea that Labour had committed to taking a look at - toughening up shareholder powers in respect of remuneration:
"On remuneration there is an issue that certainly over the last decade executive pay has far outstripped shareholder performance.
"It is a tricky issue whether we legislate to give shareholders more voting power. I don't want to rush in to some crass change that has unintended consequences but we do need to acknowledge that there is a real problem here."
So to go back to my brief post summarising what Labour had said/planned in this area, I would say that we could legitimately claim that Vince Cable is nicking some of our ideas. Not a strong argument I know, but I think it is worth making clear where no new ground is being broken (and it may well be the case that the review covers some issue we hadn't touched on).

I think it is also important that Labour puts out some thoughts on where reform could go further - and the idea of employe representation on remuneration committees is one possible, and it's a reform that I think ConDems would find hard to support despite some good arguments in favour. (And hat-tip to James for alerting me to the fact that Lord Ashcroft included this as one of his polling questions and found that the punters like it). I'm interested in whether Labour-friendly business people think it is actually achievable.

Finally, it's interesting to note that the review will look at shareholder behaviour - I hope this includes a proper look at how institutions use their votes. As I have blathered before, I continue to think that shareholder votes on remuneration could be effective - if only more institutions voted against more often. Perhaps exec pay inflation would have been controlled a bit better if more investors had been willing to say no.

Friday 22 October 2010

Lib Dems vs unions

I understand that people have different views on the merits or otherwise of trade unions. But I always thought that liberals accepted them as a (voluntary and democratic) force for justice at work. I advise any union member who still sees the LDs as on their side or even (chuckle) more progressive than Labour to keep an eye on LibDemVoice, where attitudes towards TIGMOO have become notably chillier post-election.

Part of this is the inevitable Rightwards shift of the Lib Dems (this is partly being forced on them by the Tories, partly being actively pursued by their own Right). But I still find comments like the following on their latest 'scary unions' post rather hard to swallow, particularly given very recent history:
"unions are a special interest group, just like bankers."

"The TUC, The Co-op Bank & The Labour Party are all part of the same thing. The situation has many parallels with that in China or Cuba."
Also check out the comments from LD supporters saying they are quitting unions because the unions are mobilising against those pusing through cuts.

Nick Clegg stoops even lower

Next Left has the details of the Lib Dem leader's latest assault on objective analysis of the Bullingdon Budget.

To any Lib Dem supporters that might happen upon this blog consider this - isn't this exactly the sort of stuff we expect of Fox News? You know, keeping on repeating misrpreresentations until they start to stick. Like all that 'death panels' business. Doesn't this look like Clegg is trying to call the intergrity of the IFS into question so that the average punter doesn't trust their analysis.

You lot were supposed to be above this weren't you?

Or to put it another way... Your leader... was seduced by the Dark Side of the Force. He ceased to be Nick Clegg and became Darth Wibble. When that happened, the good man who was your leader was destroyed.

Thursday 21 October 2010

My hobby horse

Voting disclosure. It's been the subject of a question in the Lords, look:
Institutional Investors: Voting Records
Asked by Lord Harrison

To ask Her Majesty's Government what is their assessment of (a) the proportion of United Kingdom institutional investors who publicly disclose their voting records, and (b) trends in that figure over the last ten years.[HL1802]

To ask Her Majesty's Government whether they intend to set (a) criteria for judging the success of the Financial Reporting Council's Stewardship Code in encouraging institutional investors publicly to disclose their voting records, and (b) a date to assess the Code's performance against those criteria, with a view to deciding whether to exercise the reserve powers under section 1277 of the Companies Act 2006 to introduce mandatory voting disclosure for institutional investors.[HL1803]

27 Sep 2010 : Column WA491

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): The proportion of institutional investors who publicly disclose their voting records has increased since 2004. Considered voting at company meetings is one of the ways in which investors can act as effective owners of the companies in which they invest, and it is important that all institutional investors disclose their voting in order to improve transparency in this area.

The Financial Reporting Council's planned approach to assessment is given in its report Implementation of the Stewardship Code published in July 2010. The Investment Management Association will be reviewing disclosure of voting as part of its next engagement survey, which will take place later this year and will include independent oversight.

The Government will comment on this and other related corporate governance issues when they set out their views on the regulation of takeovers in the light of the Takeover Panel's recent consultation.

Takeover Panel review

Response to the consultation from the Panel is now out here (PDF). No action on either threshold for a bid to go through, or qualifying periods for voting rights. But notably the text says:
the Code Committee understands that qualifying periods (or weighted voting rights) could be introduced through changes in company law. If such changes were to be made, the Code Committee considers that it would be logically consistent for the Code to be amended accordingly.
That, one could conclude, might leave the door open for a certain Lib Dem populated government department to muck about. All eyes on BIS then.

Tuesday 19 October 2010

Labour thinking on ownership issues

I posted back in April about some of the things Labour had proposed in its election manifesto in April. Just a few recaps these included tweaking company law to encourage long-termism, considering greater shareholder powers in respect of remuneration, disclosure of shareholder voting records, reviewing the takeover regime and looking at other issues in respect of company ownership. Arguably quite an ambitious package, but in my opinion a cohesive one, and Labour seemed to have the most thought through policies in this area.

More recently (ie post-election) the idea has been floated within Labour circles of employee representation on remuneration committees, and perhaps disclosure of pay ratios within companies. Both good ideas in my view and worthing seeing if the Coalition nicks any of them.

Thursday 14 October 2010

That tax exodus

From Financial News:

Not a single trading team from Tullett Prebon, the London-based broker which told employees they cold move abroad for tax reasons in one of the clearest signals of an exodus from London has moved, almost a year after the offer was made. It is the second development in a week that suggests fears over core talent leaving the City were overblown.

In December last year, Tullett said it would "seek to facilitate, where possible and appropriate, relocation to the company’s other offices around the world which will have more certain taxation regimes”. The company, led by City heavyweight Terry Smith, specifically meant offices in Singapore, Switzerland and Bahrain.

A source familiar with the situation said this week that no teams had taken up the offer, which was only available for whole teams. A company spokeswoman confirmed the offer to support those wishing to move still stood.

Tullett Prebon was the first London financial institution to offer support to staff wishing to relocate, following changes to the UK tax regime, in a bid to stop firms based outside the UK from poaching top staff.

FRC rejig on the cards?

Get a load of this from the 'bonfire of the quangos' document (PDF):
Financial Reporting Council
Retain and substantially reform - Remove reliance on Government funding
Wonder how this fits in with the UKLA tranfer proposal?

Wednesday 13 October 2010

Pay and performance

Just a quickie - Leigh at Knowing and Making has responded to my post from the other day with a great post here. Here's a good bit I hadn't considered:
Companies offer performance-related pay because that lets the good employees select themselves for the job. If you're not willing to be paid per (goal scored/extra penny on the share price/lawsuit won) then maybe you're not so confident in your abilities after all. And who'd know your own abilities better than you?
I also agree with Leigh that a) there isn't a clear answer to this one and b) much of the stuff about the negative impact of rewards is experimental - we definitely need some real-world evidence. This to me makes it all the more surprising that performance-related pay is an ever bigger slice of exec pay - as if its effectiveness had been conclusively proved.

Tuesday 12 October 2010

Belated plug

For an excellent analysis (PDF) of voting by Canadian mutual funds produced by the excellent SHARE and Fund Votes.

Sunday 10 October 2010

A bit more on pay and motivation

We recently got hold of James McConvill's The False Promise of Pay for Performance at work. It was rather expensive for what is quite a short book (and I notice the price has gone up significantly further on Amazon since we got it). The subtitle is 'embracing a positive model of the company executive'.

As such I thought that this would be right up my street. And in some respects it is, as a big part of the argument is that agency theory provides a poor model of human motivation and that as such the focus on remuneration that derives from it is mistaken. So far so familiar. But what surprised me is that the section on what really motivates people is much more influenced by so-called Happiness Economics than what I was expecting - motivation crowding.

I was actually very surprised by this as I personally think this is weaker ground from which to develop a critique of what is indeed a false promise of performance-related pay (at least for complex tasks). It led me to dig out my copy of Richard Layard's Happiness (which is frequently referenced) to see what he said about performance-related pay. The answer seems to be not a lot, there are only about three pages on it. So whilst I find the book interesting, this was probably more because it critiques the topic from a different angle, than because I found it particularly convincing.

Again just my personal view, but I think you can develop a better analysis drawing on people like Frederick Herzberg, Douglas MacGregor, Deci & Ryan etc than by straying into the 'happiness' field. And just to push this on a bit further, I think you could probably develop a really powerful critique of performance-related pay for complex tasks by trying to make advocates make explicit the model of decision-making that lies behind it. What I mean by this is surely at the executive level what we are really interested in is directors making good decisions. Yet how is an incentive scheme supposed to achieve this?

To put it in real-life terms, imagine asking a director 'what was your most effective or important decision?' and then 'what role did remuneration play in it?'. I think a lot of people would answer the second question 'not a lot'. At this point you might get the answer back that whilst incentive schemes don't directly influence decision-making in that way they do provide a sort of background incentive to keep the director wanting to do well. But then that starts to sound quite a lot like a hygiene factor, doesn't it?

Thursday 7 October 2010

Hutton report

Is here. Incisive commentary to follow (much) later.

Actually just read Nigel's post here.

Wednesday 6 October 2010

Stand up for decent work - belated plug


Across the world Thursday 7 October will be marked by Trade Unions as 'World Day for Decent Work. The campaign's core messages for an economics that put people first couldn't be more timely with the Con-Dem government onslaught on jobs and working conditions.

For the second year running the TUC is working with Philosophy Football on their Stand Up Decent Work event. A night of ideas and entertainment will mix TUC General Secretary Brendan Barber opening the night with the superb comedy of Shappi Khorsandi closing it. Contributions include the performance poetry of Luke Wright, Kat Banyard author of 'The Equality Illusion' and the soulful sounds of East European brass from marching band Fanfara. Adding an international from Bangladesh ZM Kamrul Anam , leader of the country's textile workers trade union, at the cutting edge of the global campaign against sweatshop labour.

Thursday 7 October at TUC Congress Centre, 23-28 Great Russell Street, London WC1. Starts 7pm, Advance booking essential from or call 020 8802 3499

And regulating bonuses

The clues are there -
But [Philip Hampton] also admitted that the bank was "paying a lot of people who aren't worth it" and concluded that the way to solve the bonus conundrum in the City was through regulation.

"My own view is it can probably only be decisively solved through regulation," Hampton said as he highlighted changes that had been made to the structure of bonus deals to avoid rewards for failure.

Regulating culture in financial institutions

It begins.

Hat-tip: CL&G.

Car crash TV

Last night's Newsnight with Theresa May trying to explain the current position on Child Benefit. I actually found it painful to watch as you could almost see the ground disappearing from under her feet as she spoke.

Tuesday 5 October 2010

My lazer sharp political ears smell an unpleasant message for Cameron

If the jungle drums from the Tory conference are to be believed then the writing is on the wall. In a word: Osborne has guffed. And as Iain Dale eloquently puts it:
David Cameron has an acute pair of political nostrils. And if he is sniffing the wind this morning I think I know what he will smell.
Indeed, that distinctive and unpleasantly eggy aroma in the conference hall is the unmistakable whiff of poorly thought through policy. And Osborne has definitely let one go in this instance. But Cameron can't complain, he was involved in this decision too. To quote Disraeli: he who smelt it, dealt it.

Monday 4 October 2010


What's going on here then? Look at all the groups listed (LSE, CBI, IoD, NAPF) as opposing moving the UKLA to the FRC. Perhaps it is, as it says on the tin, a grumble about pointless deckchair shuffling (but then that's the HMT White Paper in a nutshell!). But you get the feeling there's more to it. Check out the CBI quote:
"It is not clear what the proposal to merge the UKLA with the FRC is seeking to achieve. UKLA is a real-time markets regulator whereas FRC is a standard-setting regulator."
But in that case I refer the honorable gentleman to the HMT consultation document (which I can't believe he hasn't read!) which states:
"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."
It's explicit that this is intended to be a step towards creating a companies regulator. And my suspicious side leads me to think that is what is being (indirectly) opposed.

Beware a 'nudge' fudge on pensions

According to one report, the Government's response to the review of auto-enrolment may now appear later in the year. As Nigel has posted previously, here are some unpleasant rumours circulating about how the Coalition may undermine the consensus that has been built up around the policy. Of course it would all be pitched in terms of the difficult economic environment - especially exempting smaller businesses.

But this would - of course - be a major retreat from arguably the most high-profile Nudge-inspired policies*. Auto-enrolment as a way to 'nudge' people into saving is given a good bit of coverage in... err.. Nudge. And go back and read through the DWP docs first setting out auto-enrolment and you will see referenced one R Thaler, now an adviser to one D Cameron's Behavioral Insight Team. Therefore if the Coalition does back away, even partially, from auto-enrolment then someone ought to seek out Thaler's views.

* This is also why I find it irritating when Labour supporters take the mick out of the Tories over 'nudging'. a) we got there first and b) we should not surrender this ground to the Right.

Sunday 3 October 2010

Labour back in front - part 2

A couple of polls today have Labour in the lead, by 2 and 3 points respectively, with one having us behind. So, based on other polling results in the week, there was a bit of a post-conference bounce it seems. But this is clearly fairly meaningless and whilst we have probably hoovered up left-leaning Lib Dems I would be surprised to see a result like this if there were an election today.

Encouraging stuff, provided you don't take it too seriously.

maybe not today, maybe not tomorrow, but soon...

I've posted a couple of times previously about my belief that we are going to see a shift away from a market-focused approach to governance to one in which others (primarily regulators) play a bigger role. Despite the publication of the Stewardship Code, and the apparent desire amongst the key interested parties in the UK to keep a shareholder-centred model, I am increasingly convinced that a regulatory turn is on the cards.


1. I am not convinced that the asset management industry in general is concerned enough to lobby hard in defence of the UK model. IMA research seems to bear out the intuition that most managers think governance matters a bit, but not enough to put real resource behind it. And most clients are not bothered - so where is the commercial incentive? The Stewardship Code may result in some upskilling across the industry as a whole, but I think this will be overwhelmed by other trends.

2. Regulators and/or states have real power to intervene in companies in a very forceful way. They have been reluctant to do so pre-crisis, but the situation is surely reversed now. It is more risky (reputationally) to not intervene. The govt booted out Fred Goodwin, not the shareholders, the FSA barred Johnny Cameron. I don't think that asset managers who are not as a whole even convinced of the intellectual/economic case for activism are going to achieve anything similar. And what matters is what works, I seem to remember someone saying.

3. Pay. Governance isn't well paid, except for a handful, but regulators are belatedly open to the idea that you have to shell out if you want to attract poachers turned gamekeepers. A lot of good people wouldn't think twice about a job in corp gov at an asset manager because it offers neither financial or reputational rewards comparable with those elsewhere. That matters - companies see how much money asset managers put into corp gov too.

4. Europe. The tone of the EC Green Paper looks to me like the direction of travel. It's worth noting that beyond a couple of nods to employee representation and a wider conception of directors' duties, it doesn't herald a turn back to the Rhineland model. It's a regulatory turn, not shift to stakeholder capitalism.

5. Politics. I don't think the restart of the upwards march in exec pay, return of big bonuses etc, can survive another attempt by politicos to kick it into the long grass by saying 'it's a matter for companies, rem comms and their shareholders'. There will be pressure to intervene more directly.

In all of this I am by no means expecting an overnight change. It may take several years to work through and the direction of travel won't always be obvious. But I think the signs are there already, and I struggle to see how an investment industry that is structured around an entirely different conception of what share ownership is about can make stewardship work quickly enough to fend off the inevitable.

It's also worth noting that this is no way a triumph for the Left or other critics of the existing model. As is no doubt obvious given my background, my personal sympathy would be with a model that had a greater employee involvement in governance. The fact that such an alternative is not a realistic option suggests on the one hand that we don't have the capacity to deliver it, but perhaps on the other that we don't have the collective belief to argue for it.