Tuesday 27 December 2011

Crone and Myler, DCMS committee, 2009 vintage

Q1511 Mr Watson: When did you tell Rupert Murdoch?

Mr Crone: I did not tell Rupert Murdoch.

Mr Myler: The sequence of events, Mr Watson, is very simple, and this is very clear: Mr Crone advised me, as the editor, what the legal advice was and it was to settle. Myself and Mr Crone then went to see James Murdoch and told him where we were with the situation. Mr Crone then continued with our outside lawyers the negotiation with Mr Taylor. Eventually a settlement was agreed. That was it.

Q1512 Mr Watson: So James Murdoch took the ultimate decision?

Mr Myler: James Murdoch was advised of the situation and agreed with our legal advice that we should settle.

Sunday 18 December 2011

Timing is everything

Last week the DCMS committee received a letter from Linklaters including the transcript of That Email, which James Murdoch claims not to have read. The letter says that firm "recently became aware" of the email.

Notably this came after Linklaters had sent a letter to the committee on 1st December stating:
The MSC [News Corp's Management and Standards Committee] can confirm that it has reviewed all available documents likely to be relevant to Mr Myler’s request and is satisfied that none throw any further light on the events of May and June 2008.
On a sympathetic reading, having told the DCMS committee that there was no evidence relating to those crucial days in the summer of 2008, the MSC then stumbled upon this email (or, perhaps, was shown it by the police - see below). The email in question is rather relevant, as it suggests James Murdoch was made aware of the implications of the Taylor case (and, of course, he claims he didn't read all of the email).

The thing is, over a month ago, on 12th November, the Daily Mail ran a story saying that the police had discovered some "bombshell" emails that could be trouble for James Murdoch (they actually said that the police might want to question him). And on the evening of November 12th ex-Times editor Andrew Neil tweeted that a source close to Murdoch Snr had told him that they were indeed bad news for Murdoch Jnr.

Brillo Pad's exact words were:
Source close to R Murdoch tells me emails uncovered by police in India (see today's Daily Mail) potentially 'devastating' for James M down.
A source close to Rupe sounds like a News Corp, or ex News Corp, person, and this is someone who is aware back in mid November of "emails" that are "devastating" for James Murdoch. So, unless there are more emails to emerge (which, to state the obvious, would be worse for Murdoch Jnr) it seems reasonable assumption that the transcript disclosed to the DCMS committee last week is one of the "bombshell" emails that the Mail story i November referred to. It's possibly significant that Neil tweeted 'potentially devastating', perhaps indicating the source's view that the evidence could be spun (ie by claiming the email hadn't been read properly).

But the timeline also means that someone close to Murdoch Snr knew about this crucial email a month before it was disclosed to the select committee. Does that mean that Murdoch knew too? More significantly, someone knew about this in mid-November - before shareholders voted on James Murdoch's re-election as BSkyB chair. As I said, the Mail story appeared on 12th November. That was two days after Murdoch Jnr appeared before the DCMS committee. So it is even possible that someone knew about this email before he gave evidence.

There are some big issues lurking here that deserve exploration. In terms of News Corp's internal governance, how is a source close to Rupert Murdoch able to take a view on these emails more than a month before the company's own internal investigation seems to have become aware of them? When did the MSC know? Who knew before then? Was this information known by News Corp before the BSkyB AGM, and if so was it communicated to the board?

Someone, somewhere knew a lot earlier, and they may have allowed BSkyB shareholders to take a crucial voting decision without letting them have access to significant new information. Securities litigation people could have a field day here.

Tuesday 13 December 2011

James Murdoch: I did not inhale

The DCMS committee has published an email transcript sent to it by Linklaters. Colin Myler emailed James Murdoch ahead of the crunch meeting in early June 2008 to discuss the Taylor case. In the email Myler says "unfortunately it is as bad as we feared" and draws attention to Julian Pike's comments. If you scroll down (one page) you can see Pike's bullet points which include the comment that Taylor wanted to prove that hacking was widespread and that Parliament had been led by the claim that it was just one, rogue reporter.

So the killer info, that James Murdoch claims he wasn't made aware of, was there in an email he was sent three days ahead of the meeting. His answer? Despite responding to the email he did not read the full thing, either then or later. He didn't review an email which Crone described as an update on the Taylor case, before a meeting to discuss exactly that case and whether to settle it.

Pick the bones out of that one.

Friday 9 December 2011

Whilst you were looking at Europe the regulatory turn happened here

You'll recall, of course, that there is a popular narrative in the UK investment world about stupid Eurocrats meddling in stuff they don't understand. The plebs on the continent are unable to grasp the understated elegance of 'comply or explain', for example, and just want to try and 'regulate' bad behaviour or poor decision-making out of existence. That in turn means we need to defend our model against this threat by demonstrating that a market-driven approach is inherently superior to any silly ideas the EC might come up with.

What to make of this then (another excellent scoop from Sky man Mark Kleinman it has to be said)?
Regulators should be given greater powers to block hostile bank takeovers in order to avoid a future crisis like the one that forced Royal Bank of Scotland’s (RBS’s) into a £45bn taxpayer bail-out, the chairman of the Financial Services Authority (FSA) will say next week.
So we are now at the point where the FSA believes it should be able to block hostile takeovers because of potential systemic risk. This is important for several reasons, when thinking about just how market oriented our system really is. Firstly it means that regulators get to decide on takeovers before shareholders do. You might want to vote to take the cash, but the FSA might block a deal before you get a chance to. Secondly, it clearly implies that regulators think that shareholders may not spot/oppose deals that are extremely risky. Thirdly, it could come to set a benchmark, whether intended or not, of 'FSA approved' takeovers. This is not insignificant.

But there's more:
The report, which runs to about 490 pages, contains recommendations about the future of banking regulation. These include raising the prospect of bank directors being forced to prove their innocence in the event of a future bank failure; being obliged to forfeit remuneration; or toughening laws governing directors’ liability in the event that their bank goes bust.
So, potentially much tougher standards for those involved in the corporate governance of banks, including potentially changing their liability for failures. This goes a bit further than the Corporate Governance Code, doesn't it? An obvious question, and an argument that we'll no doubt hear pretty quickly from the banking lobby, is whether this will stop people wanting to become directors of UK-regulated banks.

And there's more:
In his introduction to the report, Lord Turner, the FSA chairman, argues that in contrast to the boards of other companies, directors of banks should place less emphasis on profit maximisation and more on effective risk management.
What to say? If accurate this is a fundamental challenge to the idea that we should just let businesses, even systemically important financial institutions, pursue their own interests because it ought inevitably to benefit us. It's almost a 2008 vintage mid-crisis perspective.

And there's a bit more:
I’ve learned that as part of its inquiry, the FSA wrote to former non-executives of the bank, including Sir Tom McKillop, the chairman at the time of RBS’s collapse, to gauge whether they had felt intimidated or bullied by Sir Fred’s notably autocratic style. I’m told that none of the former directors responded that they had.
I wonder if any of the large investment institutions, or their representative bodies, have done anything like this? I strongly suspect the answer is no. But, with the benefit of hindsight, it seems like such an obvious thing to do. Another indication that shareholders currently just aren't set up to play the ownership role? Whether or not that is the case, it certainly seems to be true that the FSA is playing an ever greater role in the governance of the businesses under its watch.

This is not an isolated incident. Remember, for example, that the FSA is looking into the Pru/AIA bid, and has apparently told Santander to strengthen its governance. Again these interventions are very significant because inevitably they will carry more weight than shareholders putting on pressure. This is particularly the case when any UK-listed financial institution with any smarts will know that a) there are investing institutions out there that would rather bite their own arms off than vote against and b) even where there is shareholder unease they can paly 'divide and rule'. Doesn't always work, but at least more of a fighting chance than when dealing with the regulator (bear in mind, for example, that neither chair or chief exec went from Pru despite the failed deal).

As I've been banging on for some time, we should not kid ourselves that the UK is purely-driven governance regime and should instead be aware that a more regulatory approach is already on the cards. The more I look at some of the commentary about sticking up for the UK model against EU regulatory interference the less I consider it corresponds to reality, at least in respect of listed financial institutions. And once you let regulators play a role in the governance of some sectors, why not others?

Thursday 8 December 2011

Corporate governance consequences - unintended, intended and unrealised

One piece of conventional wisdom you regularly hear invoked in the corporate governance world is The Law of Unintended Consequences (LUC). It is usually, though not always, aimed at government intervention over a given policy issue as is (in my experience) usually believed by the user to be a logical smackdown. You might think that if the Government does A to B then C will happen, but actually perhaps D will happen instead. And D is usually Very Bad Indeed.

The LUC has often been prayed in aid of conservative positions on PLC executive pay. You may think that trying to rein in pay is a laudable aim, but what you don't realise is that it could actually cause problems. It could cause executive talent to move into the private equity world or worse move out the UK, taking potential tax revenue with them.

A more sophisticated claim in recent years, that is widely believed in corporate governance world, is that greater disclosure of executive remuneration has served to exacerbate the problem by fuelling the war for talent. Greater disclosure was meant to lead to pay being restrained but in reality, apparently, it had the opposite effect of that intended. It all sounds plausible. And indeed it would be a mistake to not consider how "purposive social action" might result in outcomes other than those intended. Life is very complex and billiard ball models of causation may only rarely fit the facts when humans are involved.

However, there are several problems with regularly invoking the LUC as an argument againbst reform. For one, at the risk of stating the obvious, there are plenty of examples were the consequences of a particular policy intervention are those that were intended. For example, I have yet to hear a plausible negative unintended consequence of the introduction of pensions. Yes, we have to deal the consequences of people living longer, but that is not a result of the provision of pensions. This was a big social reform that has touched millions of lives. What are the big negative results?

Second, there are, of course, positive unintended consequences. It's interesting to note that "unintended consequences" are so often portrayed as a threat or negative outcome that when we hear the term we probably all immediately think in these terms. That is an indication, in my opinion, of how often this argument is invoked in defence of conservative positions. And yet isn't a commitment to free markets rooted in the possibility of unintended positive consequences? After all, It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Unintended consequences, no?

In policy terms perhaps we could describe the "automatic stabilisers" in the economy as positive unintended consequences. For example, unemployment benefits were largely introduced to address a social problem, but, by maintaining a level of demand when people lose their jobs, they also began to play a role in the economy that wasn't initially part of the plan. (Obviously this will be disputed by some people!)

Thirdly, as Albert Hirschman pointed out, the flipside of unintended consequences is unrealised expectations. By undertaking reform X you expect Y to happen, but it doesn't. It doesn't lead to unintended consequences, but it doesn't have the intended consequences either.

So let's consider executive pay reform in the UK again. Actually greater disclosure of pay was combined with shareholder empowerment - the introduction of an advisory vote on remuneration policy. The intention was that, armed with more information and greater powers, shareholders would act to restrain unjustified executive reward, because it would be in their own interest to do so. Therefore perhaps the bigger story of the last round of major reform in this area - the Directors Remuneration Reporting Regulations - is less the alleged unintended consequence of greater disclosure, and more the unrealised expectation of shareholders exercising restraint over directors in respect of pay.

If greater disclosure of executive pay added to upwards pressure, then why didn't shareholders use their new rights more effectively? Remember, for example, that no remuneration reports at all were defeated in 2007 and 2008. I'm prepared to accept that disclosure may have fanned the flames, though I think the argument is overdone, but then the question for me is why shareholders didn't protect their own assets. Perhaps it's because shareholders don't consider the extra costs to be excessive in the total scheme of things, or even consider that it is simply a cost of doing business in order to attract the best talent. But then can it really be claimed that disclosure has caused unjustified pay growth?

If you do think both that disclosure is a major driver of executive pay growth and that there isn't much that shareholders could have done any different (and these are the implicit propositions some in the investment industry are putting forward, even if they are unaware of it) then this, again, raises a question about shareholder oversight of pay. That in turn may lead policymakers to conclude that an alternative approach is required, a more regulatory approach, or stakeholder model of governance, perhaps.

The thing is, I'm sure this isn't the outcome that those invoking the LUC to oppose public policy intervention expected. One might even argue that it is the unintended consequence of warning about unintended consequences.

Wednesday 7 December 2011

Phone-hacking in numbers

Another arrest today, and here's a snippet on the scale of the investigation from The Grauniad:
Scotland Yard's phone-hacking squad is working its way through 300m emails from News International. A total of 120 officers and staff are now working on the investigation after 1,800 people came forward to express fears that they may have been hacked.
UPDATE: It's Mulcaire... very interesting.

Monday 5 December 2011

Flat Earth News... about executive pay

I think I'll look back on the second half of 2011 and think that two issues have occupied a lot of my time - media standards and ethics, and the policy debate around executive pay. I admit to being off the pace on the first. I read quite a few pieces of commentary about the likely extent of phone-hacking at the back end of last year and assumed that a) there was probably something in it but b) it wasn't a really big deal. Like many people, I was wildly wrong.

On the second issue, exec pay, I've been expecting the terms of the debate to shift for some time. I am (pleasantly) surprised at the speed of movement lately, in no small part due to the High Pay Commission, but I did think the nature of the discussion was going to change. I still think this has some way to go. For example, there is still a definite strand in the discussion that seeks to paint the main issue as rewards for failure. This is important, no doubt, and hence the focus on clawback lately is welcome. But I think this the 1990s vintage of the exec pay argument. I think in the next few years it will be much harder to get away with "I have no problem with large rewards if there has been excellent performance" type lines. In a period of austerity I think there will be scrutiny of large rewards per se if they are not shared across organisations.

This is likely to cause sparks to fly, as I think even now the business lobby is only reluctantly signing up to the idea that rewards for failure need to b dealt with more effectively. I think they may keep trying to fight that battle whilst other participants in the debate move on to the question of whether large rewards are justifiable if not shared more evenly across organisations. One to watch I think.

Anyhow, these areas of interest have collided. I recently started reading Flat Earth News by Nick Davies, principally because I wanted to see what he said about phone-hacking (actually not much in the scheme of things). However the book is much more concerned with how journalistic standards have become corrupted by cost pressures. Phone hacking and blagging are good examples of this in practice since they are cheap ways of getting information that journalists want. Nick Davies also explores in some detail the reliance on newswires by many mainstream news organisations (the nationals, Beeb, etc). Importantly that means that often the particular emphasis put on a story by the newswire can affect the coverage of the story in numerous outlets. It also means that an error can be spread through the media system quite easily, since people assume the wires get the facts right and don't check them.

Well today I was off sick so did a bit of work from home instead. I noticed that Nick Clegg's interview on the Andrew Marr Show was picked up in numerous places on the back of his comments on executive pay. The bit that really stuck in my mind was what he apparently said about remuneration committees.

For instance, the FT says:
Mr Clegg said he was also looking at whether to “break open the closed shop of remuneration committees” by adding an employee representative into the group that sets executive pay.
The Telegraph (which embeds the Beeb clip in its story) says:

The government will publish new proposals to "get tough" on excessive pay in January, the deputy prime minister said.

Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.

The Grauniad agrees:

The deputy prime minister said that ministers would publish firm proposals next month, and the government was willing to legislate if necessary on measures that could include forcing firms to let workers sit on the remuneration committees setting pay rates for top executives.

And even the Beeb web story says:

The government is to publish new proposals to curb "unjustified and irresponsible" pay rewards in the private sector, Nick Clegg has said.

The deputy prime minister said ministers would announce plans to "get tough" on excessive boardroom pay in January and may legislate if necessary.

Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.


Remuneration committees, the bodies which set the pay of top executives, were too often "closed shops", resembling "old boys" clubs, and he wanted to "break open" membership of these bodies.

Labour want workers to have a seat on remuneration committees to ensure their voices are heard and Mr Clegg suggested this was one area being looked at.

There's just one problem - he didn't say it. I've watched the clip on the Beeb site through several times now. He certainly says rem comms are too much of an old boys club, but, unless I am missing something, he doesn't even mention employee representation. *(see update at bottom, in full interview he is asked about it).

This is rather important, because there is a big difference IMO between opening up rem comm membership more widely and including an employee representative. They overlap, but the second implies a formal role for the workforce, or its representatives, in this aspect of corporate governance. This point isn't lost on the CBI, which says (PDF):

the inclusion of additional independent members or employee representatives on RemCos would fundamentally change the UK’s corporate governance framework.

So it is kind of important if Nick Clegg does indeed support employees on rem comms, or not. It would be a big statement of intent.

So where has this line come from? Was there more to the interview that the BBC clip doesn't include? Did a BIS spinner get busy after the interview to make sure the press got the message of what Nick Clegg really said? Or did a newswire put out a story that blended together what BIS consulted on (which includes employee reps) and what Nick Clegg, and the error got replicated widely? I genuinely don't know.

But on the face of it it seems that what we have at present is a bunch of national newspaper reports that claim that the Deputy Prime Minister said something which he actually didn't, and which can be easily cross-checked against a publicly available clip of the interview.

*UPDATE: Actually to be fair, in the full version of the interview on BBC iPlayer Clegg IS asked about employees on rem comms. But he just says they have consulted on it. He does not say he supports the idea, that it is likely or give any kind of opinion on the issue.

Tuesday 29 November 2011

Pessimism of the intellect...

...and all that, so that's what I'm blaming for being wrong, big style, about the BSkyB vote. The headline vote against James Murdoch was a bit shy of 19% (quite a bit above what I was expecting). Bad for any company, bad for any chair, well above average, and putting him the 1% of directors most unpopular with shareholders this year.

But when you back out the News Corp vote it gets very interesting. A few media outlets have got this badly wrong, including Pesto, and suggested that about a third of indie shareholders failed to back JM. Not so. You need to look at the actual number of shares voted.

The company says 1,105m shares vote for, 255m opposed, and 105m abstained. But, on a conservative reading, News Corp voted about 650m of those shares. Taking that out of the total means that the indie shareholder support for James is only about 55% I think.

That is a serious loss of confidence that the board will struggle to spin. If you're a shareholder and you think this company needs an independent chair now is the time to be pushing for it.

Monday 28 November 2011

BSkyB latest

OK, from what I've read it seems that Legal & General, Kames (Aegon investment arm) and Franklin Templeton are all opposing James Murdoch. That's on top of the three US investors identifed last week.

I suspect L&G's opposition will sting as it's a top 10 investor and has many UK pension fund clients who will be reading about their opposition in its Q1 reports to trustees. It can't be good news that large shareholders are public in their opposition to Murdoch either. Very difficult to change your mind once you're in the public domain saying a new chair is needed.

According to one report, Capital has voted for Murdoch but privately told the company it needs a new chair. I don't think that will be a one-off, so tomorrow's vote may not tell the whole story.

Also a certain hapless right-wing blogger has got himself called before the Leveson Inquiry for leaking Alastair Campbell's evidence. Incredibly the evidence is still available online. It is believed to say that Campbell received threatening phonecalls and texts "from the office of James Murdoch" when he supported The Guardian's 2009 story on the extent of phone hacking.

I'll blog asap tomorrow when the vote is out. Look out for possible large number of abstentions driven by ISS recommendation.

Friday 25 November 2011

More BSkyB snippets

Good bit from Hugh at Responsible Investor (cough up for a sub, well-paid asset manager types!!) on pre-disclosure of votes at the BSkyB AGM. CalSTRS, Florida and Christian Brothers all opposing James Murdoch, with CalSTRS opposing the whole BSkyB board. (hat-tip to Fair Pensions for alerting me to this)

Separately Chris Bryant MP has written out to institutional shareholders urging them to oppose James Murdoch's re-election. Can't think of a previous example of this happening? Though maybe some MPs were involved in shareholder campaigns in the 1990s? (Cedric the Pig etc).

For what it's worth I expect Murdoch to be re-elected very easily, with opposition maybe as low as 10%. Enough shareholders seem to be willing to take the board's word that he's a good egg. But I also don't think this will be the end of the story...

Tuesday 22 November 2011

Exec pay, and how some still fail to get the point

Today saw the publication of the High Pay Commission's final report which is, as should be obvious, well worth a read. I won't do a re-tread of the arguments & proposals it contains because you can find much better versions of that elsewhere. Instead my quick take on a few of what I think are the Commission's key points are, and their wider significance.

Radical simplification of executive pay is, just about, a win-win since no-one except remuneration consultants really benefits from complexity. Investors are sick of reading rem reports that go one for a dozen or so pages, and anecdotal feedback from directors suggests that they don't really know what they're getting when things get to a certain level of complexity.

But, as David Prosser (whose comment piece on the report is probably the most interesting I've read) points out in the Indie, complexity is a result of what investors supposedly want - carefully-designed performance linkage:
it is worth noting that the pay structures in place at many companies today reflect previous attempts to hold executives to account (rather than, in most cases, to obfuscate, as the High Pay Commission rather uncharitably suggests). Executive pay is now set with reference to hugely complicated performance yardsticks because remuneration committees have sought to show they are sensitive to complaints about rewards for failure. So sensitive, in fact, that it is almost impossible to understand the pay formulas they put in place.
This is a point that deserves to get made in responses to the BIS consultation that closes this week.

Of course this also feeds into the question of whether the performance linkage that investors have sought to put in place is actually desirable after all. For one, does it simply replicate the performance pressure that asset managers (who cast most of the votes on rem reports) are themselves under? Do we really want our largest public companies run with one eye on short-term share price fluctuations that, in reality, may be nothing but noise?

Secondly, are we sure that performance linkage delivers... err... performance? It's notable that the Commission digs into this a bit and comes up with a fair bit of evidence, academic and anecdotal, that complicated incentive schemes don't really motivate directors. Again, this seems to be an argument that is gaining ground and, in my opinion, with good reason.

The other headline proposal that has got most attention is rem comm reform, and in particular the idea that employees should have representation. Within a couple of years this idea has gone from being advocated by just a handful of organisations (with the TUC the most obvious) to being seriously discussed. There are a number of reasons for this. One is that the idea that rem comms are too clubby, and that directors set each others' pay and therefore have no incentive to be tough, is easily graspable, so (unlike much corp gov policy) reform here has a tiny sliver of populist resonance. Second, as I've argued a bit, there's some psychological evidence that shaking up group membership to make it more diverse (opinions wise) can make decision-making less extreme (see Cass Sunsteain for details). Third it's a reform that seeks to address exec pay earlier in the process - at the decision-making stage - rather than most recent reform which has focused on disclosure+shareholder empowerment so that decisions already taken can be challenged.

This last point is important, because it's a tacit admission that shareholder oversight, as currently constituted, isn't really cracking the exec pay problem. It could be because they still don't have the right tools and/or right info, but I suspect most informed comment on this topic would now concede that it's actually a deeper problem relating to share ownership. We either don't have the right shareholders to make it work, or they aren't motivated to do so. Here the Commission admits that the subject is beyond its remit, but it is striking that they highlight a potential problem in relying on shareholder oversight alone. Many of us would argue that a stronger focus on the stewardship aspects of share-ownership is required, but a look at the voting records of asset managers on rem reports (see TUC survey for details...) shows that we face a huge challenge.

In all of this I think the Commission has pushed the debate on executive pay onto new terrain (or shifted the Overton window if you prefer!). It's recommendations will probably become the new normal pretty quickly, which was I'm sure the aim. There will be a fight over the employee reps point, but some kind of rem comm reform looks increasingly likely.

So far so simple, which leads me to the failure of some people to get the point. The FT's editorial on the Commission this morning was particularly weak. It reads:
A better strategy [than employee reps] would be to strengthen the role of shareholders. At the moment, they have only an advisory vote, relating to decisions already made.
This implies two things - a binding vote and/or a forward-looking vote. A binding vote would in essence be an instruction to the company, and a forward-looking one could, presumably, affect the distribution of resources. I'd certainly be interested to see these ideas fleshed out. But given that in nine years of advisory votes on remuneration reports, shareholders collectively have defeated under 20, where is the evidence that simply improving shareholder powers is "a better strategy"? Given that many asset managers rarely use the weak power they have already, what leads the FT to conclude that the solution is to tool them up further? The Telegraph makes a similar point in its editorial, but I expect them to put forward solutions they expect to fail to a problem they, in truth, are not sure actually exists (markets should get pay right, right?). The FT really ought to know better.

Which leads me onto my final point, and back to David Prosser's article. I think the Commission has done a good job as it has essentially aimed a couple of years into the future, plotting forward a bit from where we are. So, unless you are the sort of person who thinks that employee reps on rem comms is a Cuban approach to policy, none of the proposals are particularly radical, IMO. But if people really want to fight the last war, and propose another throw of the dice for disclosure+shareholder empowerment, let's see where that takes us. I suspect that it will mean a few years down the track we will far more illiberal ideas for dealing with pay come into play:
In the end, capping pay, or pay ratios, might be impossible politically, but it would be a much more direct way to tackle the problems identified by the High Pay Commission.

Monday 21 November 2011

TUC voting survey

It's that time of the year again - the annual TUC trustee conference was last week, and at it the annual voting survey was launched. The conference was great, though I couldn't see it all as had to head out for a lunchtime meeting.

The blurb from this year's survey is below. The voting on bank remuneration reports is pretty depressing (especially Barclays!). Also interesting is the voting on James Murdoch at last year's BSkyB AGM - I am pretty sure there are some switchers this year...

Remuneration reports most likely issue to be opposed by institutional investors

Remuneration reports drew the greatest opposition from institutional investors yet bank remuneration reports were widely supported, according to the latest TUC fund manager voting survey published today (Tuesday).

The ninth annual fund manager fund voting survey, published to coincide with the TUC Pension Trustee Conference taking place in central London today, analyses the voting records of more than 20 fund managers, pension funds and voting agencies across 69 company resolutions between January and December 2010.

The survey has again found a sharp divide in voting stances, with four respondents supporting more than 70 per cent of resolutions, while five respondents supported less than a third.

Remuneration was the most common topic of engagement and the issue over which respondents were most likely to oppose company management. Half of the survey respondents supported less than half the remuneration reports on which votes were sought, and many supported less than a third.

The remuneration reports of all five major UK-listed banks were included in this year's survey. Surprisingly, bank remuneration reports comprised three of the five reports with the highest level of support in the survey. Barclays' remuneration report was backed by 75 per cent of all respondents - the highest in the survey.

These findings are surprising given the banks' recent stock market performance and dividend returns, says the TUC.

This year's survey showed further progress in the disclosure of voting records, with 13 respondents disclosing a full voting record, compared to just nine last year. However, the quality of information varied, with several fund managers only disclosing votes against and abstentions, and others only providing headline statistics.

This improvement in voting disclosure is good news for pension trustees and pension scheme members as it helps them to see how fund managers are using their shareholder mandate to influence companies, says the TUC.

Several respondents indentified changes made as a result of the introduction of the Stewardship Code a year ago, such as improved engagement record keeping. However, the Code has had very little effect on the voting stances taken by institutional investors and needs to be toughened up, says the TUC.

TUC General Secretary Brendan Barber said: 'Shareholders are supposed to be the ultimate check on our corporate system, but too many fund managers are still failing to use the power of their investments to influence corporate behaviour.

'The fact that UK bank remuneration reports received so much backing in the face of diminishing dividends and poor stock market performance is a clear sign that institutional investors are not doing their job properly.

'Reform of our corporate culture is long overdue and ministers need to take the lead in forcing through change, particularly on executive pay, where remuneration committees are frequently failing to act in a transparent and responsible manner.'

Sunday 20 November 2011

BSkyB weekend news

According to this piece on Bloomberg, The Times has pulled together a list of supporters of James Murdoch at the forthcoming BSkyB AGM. They include Taube Hodson Stonex Partners and... ahem... Odey Asset Management. Yes, apparently Crispin Odey thinks James Murdoch is the "right guy" to chair the company. Big news indeed!

There are three more interesting bits about the Bloomberg/Times report. First is the prediction that Capital are on side too. That is important as they are big holder, but I wonder what their clients will think. Second is the absence of other names. Are they struggling to find supporters? Third is the 20% figure (ie if 20% plus oppose he should go), which also popped up in a Telegraph column. I think this may be expectation management by the company, and if so it might be a useful benchmark.

A more objective comparison will be typical votes against directors. In the first half of 2011 the average oppose plus abtain was about 2.5%, of which 1.7% was the oppose. So a 20% oppose vote would be more than 10 times the average. And how many directors ever receive this kind of opposition? Less than 1%. Looking at a sample of just under 2,000 directors facing election at an AGM in the first half of this year, I can only see 9 that got 20% plus against, and two of those were directors at Eurasian! Add in the fact that News Corp holds 38%, and the board is setting the bar exceptionally low.

Friday 18 November 2011

BSkyB news 2

So, apparently ISS have recommended an abstain on James Murdoch's re-election, but their report also reportedly says he should stand down as chair. That means that Murdoch has failed to receive the backing of any shareholder advisory group.

Of course, that doesn't mean much in itself, since asset managers don't just follow follow what their adviser says, and I have no doubt that a few of the usual suspects will continue to pull their punches. But there is undoubtedly some movement going on out there. Some asset managers will definitely take a tougher line this year than they have done for some time. There is also overseas investor interest in the chair's position.

I suspect asset managers may face questions from trustees about how they voted on James Murdoch, so support risks doing reputational damage. I still think he'll get through relatively easily, because I am cynical about mainstream asset managers, but this will store up trouble in the future.

I will be surprised if Murdoch doesn't get a slap of some form from the DCMS committee when it publishes its final report. The committee essentially seems to have come to the view that he is either incompetent or a liar. Taking the latter position would be very serious, but I suspect (currently) it's a minority view. But being criticised by parliament for incompetence is hardly something to stick on your CV & will surely add to pressure on him to stand down. I am kite-flying here, but it's a reasonable guess, I think, that James Murdoch can't come out of the committee's review within anything less than a further damaged reputation. If a dumbo like me can see this, so can an asset manager. So to give him the benefit of the doubt, and to vote for him, when you know this is a likely outcome seems rather irresponsible in my view.

Finally, note that the deckchairs are being shuffled, with Martin Gilbert apparently coming onto the board, and two others leaving. Gilbert would make a decent chair, and has done a good job at First Group, so maybe this is a medium-term plan? More surprising, when you think about it, is that the NEDs slotted to come off the board are not the News Corp reps. If two come off and Glibert plus one other join there is no change in the level of independent representation. Crispin Odey publicly said that the board needs more independence, though oddly not an independent chair, so why isn't he making more noise?

UPDATE: Actually I have been a doofus, one NED coming off is a News Corp rep.

Wednesday 16 November 2011

BSkyB news

There's a good round-up piece from The Grauniad here. What we know so far in terms of voting advice by shareholder groups is as follows:

ABI - Amber top, with role of chair flagged up
LAPFF - oppose James Murdoch's re-election, support SID's re-election
PIRC - oppose James Murdoch's re-election, plus other News Corp cross directors
Glass Lewis - oppose James Murdoch's re-election (? if Grauniad is right)

That means if ISS oppose or abstain on James Murdoch he will have failed to win the support of any shareholder advisory group. Not good for a FTSE100 chair.

Sunday 13 November 2011

Think carefully

So, James Murdoch's latest brush with the select committee is over. What do we know? Well, he has stuck to his line that he was not shown, and did not ask to see, the "for Neville" email, Tom Crone's briefing note or the legal opinion that said there was a powerful case that there was a culture of illegal accessing of information.

It has gone curiously unremarked, except by Tom Crone, that James Murdoch's version of events has changed since July when he said he wasn't told about the email or the transcripts. Now he says he was, but wasn't told what they meant and didn't seek to find out more. He simply signed off a massive settlement for an unpublished story. And he never went back and reviewed any details of the case when the Guardian went large on it in July 2009.

More circumstantial evidence was provided by Tom Watson, who revealed that he has spoken to Neville Thurlbeck of "for Neville" fame. According to Watson, Thurlbeck was told by Crone before the key meeting with Colin Myler and James Murdoch, that he was going to have to show Murdoch the email. Thurlbeck asked Crone afterwards if he had shown Murdoch the email and he said yes. It's more evidence against Murdoch's version of events, but still not the killer punch.

Presumably emboldened by the fact that James Murdoch didn't just turn up and say "fair cop, it was me what done it", on Friday the senior independent director at BSkyB sent a letter out to shareholders setting out why the board had unanimously backed him as chair. It includes a defence of Murdoch's personal integrity. I sincerely hope the BSkyB board members know a lot more than they are letting on, because there are now some very serious rumours doing the rounds.

Since BSkyB's letter there have been two further important developments since then. First the Mail has run a story claiming that the police are likely to question Murdoch in relation to new email evidence. Notably the story has been covered, briefly, on the website of The Australian (a Murdoch title) with no denial from News Corp. In addition on Saturday night ex Murdoch editor Andrew "Brillo Pad" Neil tweeted that a source close to The Digger himself had told him that the emails referred to by the Mail could be "devastating" for James Murdoch. There was even an arrest rumour over the weekend when a Sky Business News Twitter account announced that James had been arrested. The tweet was quickly deleted and Sky said they had been hacked (no laughing at the back). Will reality imitate hoax in the coming days?

Secondly, The Guardian's Roy Gleenslade revealed in an interview on Saturday that an ex-Screws employee had told him all the current members of the DCMS committee had been tailed by private investigators and/or News of the World staff... earlier this year. (This is on top of News International titles previous hatchet jobs on the committee in 2009). We know the company's objective was in tailing the lawyers representing hacking victims - to try and discredit them professionally. Wonder what their objective was in tailing the DCMS committee members eh? (This is also on top of already tailing Tom Watson in 2009. He also revealed last week that he had been told by police that his computer may have been hacked.)

I have previously thought that the "fit and proper" test as applied to BSkyB was a low risk. I am starting to think again. If you look at what went on in News International, in particular the targeting of politicians who threatened News Corp's commercial interests, you have to think that Ofcom might focus on getting them to sell their stake down. Otherwise what does a company have to do to fail the test? Hacking phones, hacking computers, paying off cops, tailing commercial enemies - we know all this stuff happened. If that doesn't fail 'fit and proper' then presumably you really do need to be the mafia to fail the test....

Again it's worth repeating that the rumours out there should lead investors to conclude that there could be worse to come. Apparently a lot of people in media-land expect computer hacking to be big. You might also fancy a wager on The Sun closing, as the recent arrest of a veteran reporter over alleged payments to the police has apparently sent shockwaves through the paper. James Murdoch didn't take the opportunity offered last week to rush to the tabloid's defence. Closure is an outside chance, I'd say, but a chance now nonetheless.

Finally, again I think it is worth just asking the question about the possible overlap with BSkyB. Given that we know that News International employed subterfuge to try and undermine commercial threats, including members of parliament, is there any possibility that they may have done the same thing to defend their broadcast interests? I think this deserves some exploration. I imagine some people will recoil at even the suggestion, but this is an organisation that has routinely undershot low expectations.

To finish, I think if you are an institutional shareholder and you support James Murdoch's re-election as BSkyB chair you are now taking a risk. There really is no defence of ignorance if things take a turn for the worse, there have been plenty of warning signs. Think carefully before casting those votes.

Saturday 12 November 2011

Excellent union initiative on shareholder voting

The latest initiative by the Committee on Workers' Capital is excellent. There are now three markets - US, UK and Canada - where TUs carry out annual analysis of asset manager voting. As far as I am aware they were the first people to do this in each market, for which the US unions in particular deserve great credit, having come up with the idea. Now the CWC, which brings together TU people interested in such things from around the world, has taken the logical next step and put out a global survey.

Here's the blurb:

The Global Unions Committee on Workers’ Capital (CWC) announces the publication of its report: Proxy Review 2011. The report encourages investors to take an active role in proxy voting oversight.

Proxy Review identifies trend-setting shareholder votes on social, environmental and corporate governance issues that are relevant for pension investors with global equity portfolios. The report includes key votes from: Australia, Canada, Spain, Switzerland, the United Kingdom and United States of America.

Shareholder voting is one of the primary means by which investors can influence a company’s operations. It is therefore important for shareholders to participate in the voting process. However, pension equity investments can span hundreds of companies and numerous countries. Add to this complexity, regulatory differences, conflict of interest problems, agency dilemmas and narrow interpretations of fiduciary duty, which all contribute to accountability gaps along the investment chains of pension funds. Recognizing these gaps, Proxy Review was created to serve as an accessible resource for pension trustees who would like to evaluate how key proxy votes in international portfolios were cast on their behalf.

Ken Georgetti, Chair of the CWC and President of the Canadian Labour Congress said, “At the height of the global financial crisis, institutional investors were accused of failing to actively oversee corporate governance and risk management practices at the companies they own. This report will help the pension fund trustees who invest workers’ retirement savings overcome barriers in exercising such oversight. As our Proxy Review project demonstrates, creating the opportunity for dialogue between trustees and their investment managers is one important way the Committee on Workers’ Capital is tackling serious accountability deficits within global investment chains.”

The selected key votes in Proxy Review 2011 focus on corporate governance issues, though environmental and social issues are also highlighted. Among the issues addressed are the independence of Board members, CEO succession planning, executive remuneration and compensation, pay-ratio disclosure, sustainability reporting and disclosure of policies on labour and human rights standards.

These votes were cast at major global companies that represent a wide range of industry sectors. Companies include: Rio Tinto, Barrick Gold, Banco Santander, Nestlé, Credit Suisse, Novartis, UBS, BP, Hewlett Packard, Apple, Chevron, Shell, JP Morgan Chase and Bank of America.

Wednesday 9 November 2011

Nom comm reform

I've blogged a bit recently about the importance of remuneration committee reform, and in particular the idea of opening up membership to employees. Of course another way of tackling this issue could be to go through nominations committees, and thus affect who ends up on boards. Notably this idea got a nod last week from Sir George Young in response to a question from Angela Eagle. See Hansard here, text below:
Finally, on executive pay, it is worth reminding the House that the average chief executive of a FTSE 100 company earned 47 times the amount earned by the average employee in 1998 and 115 times that amount in 2009, so the gap actually widened under the last Labour Government. I agree with the hon. Lady that there is an unsustainable disconnect between how our largest listed companies perform and the rewards that are on offer. Concern on that comes not just from Government, but from investors, business groups and others. We are considering ways to reform remuneration committees and to empower shareholders, for example by making shareholder votes on pay binding and ensuring that there is shareholder representation on nomination boards. We are consulting on a number of issues, but at the end of the day, it is up to shareholders rather than the Government to determine executive pay.
That looks like a bit of a score for Paul Myners, who has pushed the idea, along with Cevian, the asset manager he now works for.

Sunday 6 November 2011

Exec pay again

OK, my tendency to obsess about one issue kicks in again, but it's worth keeping an eye on the executive pay debate.

There have been a few interesting developments of late. First up, David Cameron repeated his suggestion that it would be good if there were more women on remuneration committees, as it might dent executive pay. This is interesting because I'm not aware of any evidence that this might be the case (though very keen to hear if anyone knows otherwise) so it's an odd idea. It might make you think this may in part an attempt to tick the pro-women box now that Cameron's polling advantage there has disappeared, though it risks pandering to a rather patronising view of what greater board diversity would bring.

Personally I wonder if it is instead/also an attempt to avoid the rather more obvious idea of employees feeding into rem comm decision-making. I bet Tories instinctively HATE that idea, because it would a) acknowledge employees as a group, rather than a number of individuals and b) it would start to legitimise an employee role in governance. One of the great achievements on the New Right was atomisation, so people at work think more in individual terms, and less in a collective sense. I don't mean this in any kind of conspiratorial sense - people on the Right believe this is how people should think - but it's an achievement they don't want to lose. So safer to address rem comm reform it terms of individual progress and meritocratic advance than to have to give ground to notions of social partnership and all that entails.

There is some ground opening up here for Labour as many in the party would be actively enthusiastic about employee involvement in rem comms, so this could become a bit of a wedge issue, at least in my little corner of the world. Although asset managers and the investor representative bodies won't like it, there is definite interest in the idea that is starting to bubble up.

More generally there is also a sense that patience is running out. There are only so many times you can call on the executive class to exercise restraint and they stick two fingers up. There are only so many times you can urge asset managers to take a tougher line and they shrug their shoulder and say there's nothing much they can do about it. Of course we've been through all this before, and nothing has changed, so therefore shouldn't we just expect it to carry on? Well, maybe, but it was a former FTSE chief exec who said in a conversation recently that the position of executives taking ever more out of companies as their reward was analogous to the position of the unions in the 70s. People moaned for a long time about TU power before anything happened, but when change came it was very significant.

I now think that we could see some fairly radical reform in respect of executive pay, whether it happens under the Coalition or the next Labour govt in 2015 ;-) I suspect it will go significantly further than the policy positions adopted by most of the 'professional' governance bodies because most of them are still stuck parroting the disclosure+shareholder empowerment model (which hasn't worked very well). There has been an opportunity since the crisis to think very differently, our sector hasn't really done that. Don't be surprised if what we thought were the ground rules of the exec pay debate get overtaken by events.

Wednesday 2 November 2011

A crunch point

So, at the end of this month James Murdoch faces re-election as chair of BSkyB. I've been following the hacking stuff, and the shareholder reaction to it, since the summer. I think this month is the crunch point, in several ways.

First up, next week Murdoch is back in front of the DCMS committee. He will be quizzed, no doubt, both about what Tom Crone and Colin Myler have claimed about their meeting with him, about the separate meeting with Myler alone, about what Julian Pike said, and about the latest published evidence.

To be scrupulously fair, you can, just about, maintain an argument that James Murdoch didn't know in the summer of 2008 about the extent of hacking. He could have not understood the implications of the Taylor case, and why he was having to make a monster settlement over an unpublished story. Having got counsel's opinion (which clearly argued there was a culture of illegal hacking), he might not have asked Crone and Myler exactly what it said and/or they may not have told him. (Pike's phone notes get very close to this issue, but don't quite prove anything). He could have just missed the point of what was going on. I find that version of events very hard to believe, but I suspect it is the version that he will continue to propagate and which, unfortunately, I reckon the likes of Louise Mensch will buy.

Even if you accept that version of events though, you have to question at what point he became aware that something was up. Did he never return to the Taylor settlement mentally? Not even when The Guardian blew it open in July 2009? Again I find it very hard to accept. At least bythat point alarm bells should have been ringing, surely.

But even if you accept that what had happened didn't dawn on him till much later, you surely have to conclude that, if he wasn't covering up what was going on, his oversight was awful. If this had been dealt with much earlier it is quite possible, for example, that the BSkyB bid would have gone through. That was a major strategic ambition for News Corp, and it cost them millions in break fees, with about £15m in fees incurred by BSkyB (plus a few million in retention awards). If he had cleared up the mess in News International earlier all this might have been avoided. Instead he missed it (on a sympathetic reading of events) and did damage to both companies. That would be enough to lose your job if you had a different surname.

Non-Murdoch investors have made their feelings pretty clear at News Corp, by voting heavily against James Murdoch last month. I think they need to do the same at BSkyB. My own view is that he has misled parliament about his knowledge of hacking, but even if you don't share that view his failure to spot and deal with the issue shows extremely poor oversight. In addition, what does BSkyB derive from having such a compromised and non-independent chair? It's hard to see good arguments in favour.

Therefore I think this re-election is a crunch point for institutional investors too. Understandably there are already journos sniffing around trying to get a sense of how the vote will go, therefore there is likely to be significant scrutiny of voting decisions. I struggle to see how a vote in favour of his re-election, or an abstention, is justified by events, and there is no defence of being unaware of what the issues are. This is a real test of how seriously investors take their responsibilities - let's hope they don't flunk it.

Saturday 29 October 2011

High pay saboteurs

A hunt saboteur once told me a story a fellow sab had told them about how their approach to a hunt changed over time. When this sab first went out, he looked out for for the mounted field. He soon realised that they essentially just follow the actual business along, so he began to look for where the hounds were. And eventually he realised that, if he wanted to be effective in actually sabbing the hunt, he needed to look for the fox, and respond to that.

Incidentally, the sab also told me that once you got used to looking for the fox it was tempting to point it out to a fellow sab, but this was actually a bad thing to do, because someone from the hunt might see you and that would help them locate the fox. Another step on from this, I guess, is to point in a different direction to the where you know the fox is.

Anyway, recently this hunt sabbing story came back to me when I was thinking about executive pay. It strikes me that we are at the point where a lot of people in the policy world still have their eyes on the equivalent of the wrong bit of the hunt. As I've repeated regularly lately, I think we need to be honest about the limitations of shareholder engagement in respect of executive pay. Plenty of corp gov people are feeling pretty jaded about exec pay, not just the amount of their time it takes up, but also their inability to put much of a dent in the upwards trend. Despite this, it is a common retort from policy types when something like the IDS report comes out that we need more shareholder activism. I don't disagree, but this is only part of the story.

As I have again said quite often recently, remuneration committee reform strikes me as the most fruitful territory, though it needs thinking through. It is not popular, there is a lot of unthinking resistance to the idea of employee representation, for instance. In part I think it's force of habit, as we are essentially trying to teach people look at another part of the hunt, which may well have more importance, and changing our ways of thinking can be tough work.

It is striking too that increasingly people on the Right talk up shareholder activism when discussing executive pay. Probably it results from the same force of habit. But I also wonder if in some cases this is the equivalent of making sure they don't point to the fox. Greater employee influence within a business may have more impact on executive pay than improving disclosure to shareholders and/or retooling their powers. Maybe, therefore, it makes sense to keep talking up the shareholder oversight model, and suggesting further reforms to strengthen it, lest attention wander elsewhere.

Because if people on the Left are starting to think strategically about what is else is to play for when looking at corporate governance reforms to address executive pay, shouldn't we assume the same is true of the Right?

Friday 28 October 2011

Exec pay rises, no surprises

Latest figures from IDS out this morning show that FTSE100 directors total earnings went up by an average of 49% in the past year. The median is a less racy 16%, but still way, way ahead of what the rest of the population can expect. Is anyone surprised by this? I'm not. I'm well past the point of expecting to see any self-restraint.

The IDS figures will be based on public disclosures in annual reports, which in turn will have been seen by shareholders, who voted on the remuneration reports contain therein. And I think I'm right in saying that the number of FTSE100 remuneration reports defeated this year is zero. As it was last year. You have to go back to 2009 to find a defeat, two in fact - RBS and Shell.

We did some analysis at work of voting in the FTSE100 in 2010, based on asset managers' public voting disclosures. Five managers - all big ones - supported 90%+ of the remuneration reports on which they voted. That is part of the story - most remuneration reports get passed with thumping majorities because many institutions still vote for the large majority of them.

So if shareholders aren't effective enough on their own as a restraining force we need to bolster the system elsewhere. Rem comm reform is the obvious next place to go - address the decisions that shareholders have to take a view on.

Wednesday 26 October 2011

News Corp results

Everyone will have seen these by now, but to recap James Murdoch topped the poll as the director non-Murdoch shareholders would most like to eject, closely followed by Lachlan. The votes against were 35% and 34% respectively, a fair bit higher than the working assumption of about 25% against and, importantly, a majority of the independent votes.

As I have written before, now the News Corp AGM is over and done with I think that pressure for change will come from a number of sources. I hope investors go back to News Corp on the back of the AGM results and continue to push for change. The board has given out the message that it still thinks, for example, that a combined chair/CEO is appropriate so they aren't going to roll over.

In the near future we have James Murdoch in front of the DCMS committee on 10th Nov, and facing re-election as BSkyB chair on 29th Nov. I expect he'll be in for a pretty rough month, as even BSkyB investors are losing faith with him. Also expect to see more hacking developments break in the press. The Indy has clearly got some good lines in as evidenced by this morning's scoop on 'the Hub' - a mobile phone just used for hacking that was kept.... in the NOTW newsroom. ie it wasn't hacking by proxy via Mulcaire etc.

There are quite a few disgruntled NI people now out of work. Especially when they have been given an unceremonial heave-ho, what incentive doe they have to keep quiet now? So I reckon we can expect more to come out.

Personally speaking, I intend to blog about other subjects again soon!

Saturday 22 October 2011

News Corp AGM

So, after all the fighting, the News Corp directors were re-elected as expected. But what we still don't know is exactly what the results of the meeting were. According to an official statement bunged out on Friday PM, the results won't be made available until Monday.

Obviously the company knows the result, and will have known it for a few days. Delaying the release of the actual results suggests that we might have had some high votes against some directors. As one journo I spoke to yesterday pointed out, it's an odd PR move as this creates another story on Monday. Could be very interesting.

Meanwhile attention will turn to the BSkyB AGM, which is rapidly approaching. I am now of the view that if non-News Corp shareholders re-elect the current chair they will have made a major mistake. I would just about argue that there is a fiduciary issue here. There is enough information in the public domain to raise big questions about his continued position on the board (see Julian Pike testimony to DCMS committee for latest twist). Voting to re-elect him as chair must in turn put the spotlight on whether investors have really done their homework.

Tuesday 18 October 2011

Where News Corp goes next

Though its AGM is fast approaching, I think we can safely say that what happens to News Corp will largely not be determined by its (non-Murdoch) shareholders. Not directly at least. As is well known, despite holding an minority smallish chunk of News Corp's shares, Murdoch Snr has the whip hand in terms of voting rights. Add in some friendly faces, and knowing the passivity of many asset managers, and no-one really expects any directors to lose their seats on Friday.

The global shareholder opposition to the existing News Corp board is truly impressive, and a rarity. I know from experience how difficult it is to get investors both on the same page, and willing to take a public position on the need for reform. In that sense I struggle to think of a similar case to the forthcoming AGM. There will be some very big votes against News Corp directors and, if I were a betting man, I would say that James Murdoch will take the biggest hit (he is the one director everyone seems to be voting against).

But let's be clear how we got here, and where things are likely to go. Essentially News Corp has been undone by the efforts of investigative journalism, a few key politicians and some celebrities. Shareholders have come late to the party and many don't seem to have followed developments closely (hence I think a few have been very shocked and, no doubt, will be again in future). Shareholder pressure has developed as a further source of pain for News Corp once the initial blows had been landed.

Looking ahead, I suspect that the key players in deciding News Corp's fate will be a mixture of politicians, regulators, rival media, whistleblowers and law firms. Post-AGM shareholders will probably find they exercise the most influence via the last group, but I suspect they will largely play a supporting role. So let's examine who might cause problems for News Corp and why.

1. Politicians. There are a number of political interests here. First up the Coalition knows that allowing a revised News Corp bid for BSkyB to go through would look rather bad. So they don't have much to gain by letting News Corp have an easy ride. Add to this that, so far, Ed's one major success has been the way he called the hacking scandal and you can bet he will continue to try and push Cameron hard on this. And let's not forget the DCMS committee. At some point it's going to publish a report on hacking. That is bound to include some commentary on News Corp's governance, and some of the key individuals who are still there. A critical perspective could put an awful lot of pressure on.

2. Ofcom. It essentially has a watching brief on 'fit and proper' as it applies to BSkyB's licence which can include taking account of the behaviour of News Corp. So if the DCMS committee report comes out very critical this could be an important factor. The role of the current BSkyB chair sticks out like a sore thumb I think.

3. I would keep watching The Guardian and, increasingly, The Indie. Both have turned up a lot of info that has fed investigations into hacking. Last week's Nick Davies' piece on the WSJ pumping up its circulation figures shows that they are starting to look at whether other parts of the Murdoch empire are infected. I imagine that computer hacking, which a) a lot of people expect to be the next element of the scandal and b) is the subject of its own police investigation, will be the subject of some coverage.

4. Whistleblowers (though perhaps this is too grand a term). As Tom Crone and Colin Myler's decision to openly and publicly contradict James Murdoch's version of events shows, there are some disaffected former employees now on the prowl. Some clearly feel they have been let down by the company they worked for, and as such News Corp can no longer rely on them to keep quiet. This could result in further damaging revelations.

5. Law firms. Add wrongdoing to cover-up to misleading public statements and legal firms who work on behalf of shareholders will get interested. This could be quite a big deal.

So in all of this shareholder pressure may play a relatively minor part. I make this point for a couple of reasons. First because what has happened at News International for sure, and perhaps elsewhere in News Corp, represents a major scandal. If shareholders can't really make much headway in a case like this (in part because of the way News Corp's share ownership is structured) don't get your hopes up about the prospects for shareholder engagement where the rights and wrongs are less clear cut.

Second, because in reality it has always been like this. In the real world holding companies to account for poor behaviour has always required a range of stakeholders putting on pressure - shareholders cannot usually do it alone. This is important when thinking about shareholder engagement in a public policy context, where it is sometimes held out as a non-statist 'solution' to various problems of corporate behaviour. Or to look at it from the other direction the primacy granted to shareholders in governance is sometimes held out (mainly by the Right) as a reason why government/regulators etc should not and need not stick their noses in.

Therefore my conclusion from my experience to date with News Corp is that it demonstrates the need to try and form effective coalitions, but coalitions that go beyond the investor community alone.

Sunday 16 October 2011


Only kidding, but I thought I should contribute some wordage on the 'Occupy' movement. It is safe to say that the attitude of most Labour supporters is cautious, if not hostile. Cautious in the sense that lots of people with long memories will have seen similar 'popular' movements come and go without any lasting impact. Cautious too because it is clear that, unlike much of the anti-cuts 'movement', such as it is, these 'Occupy' types seem to come from a bit of the Left that doesn't have much faith in Labour.

Clearly some Labour supporters are more than cautious, they actively dislike the 'Occupy' movement. This, I think, is principally a fear of contagion from associating with what looks like it might be a 'far Left' protest. Plus they don't like the idea of Labour being linked with anything that looks 'anti-rich'. Sadly, there is a strain of "protests are a waste of time" thinking lurking in there too. I'm a bit of a pessimist myself, but find the fact that we apparently have such low expectations of politics outside the official channels a bit depressing.

If I'm honest, I share a lot of the scepticism I hear from other Labour supporters. This looks a bit too much like the wave of anti-globalisation protests in the 90s and early 2000s for my liking. Not just the incoherence in terms of objectives, but also the make-up of the movement. And yet, despite all this, I think there is something worthwhile here.

Incoherent they may be, but the movement has articulated points that surely most of us Labour supporters believe. The finance sector does have too much political power, and it is unaccountable, and the public at large is having to pay for the failures of this part of the private sector. This all comes with huge caveats - clearly very few people in the finance sector caused the financial crisis, entire bits of it were not culpable. Equally, we can't overlook the fact that politicians, even our own mob, have their fingerprints on this mess too. But the core idea that motivates these protests is seems to me basically not a bad one.

This is an era when our opponents on the radical Right are trying to reframe the financial crisis as a failure, even crime, of the state and/or politicians. I have heard senior people in the investment industry - the sort of people whose views carry weight in my corner of the world - come out with a version of the financial crisis where almost all the blame lies with politicians and regulators. Therefore to me it seems tactically stupid to not at least offer some words of encouragement to those who tell what, I think, is a more truthful version of events.

Plenty of folks on the Left have openly pondered why there has been no populist left-of-centre reaction to the financial crisis, instead it seems to have benefited the Right. What we are seeing with 'Occupy' looks like an attempt to kick off such a populist campaign, yet we seem to be uncomfortable with what we are looking at, perhaps in part because they are not 'our kind of Left'*. Perhaps the protests will fizzle out, my own view is that they probably will, but then I thought the US protests would have evaporated by now. But if the movement does blow away with the next wind perhaps that will be because people who basically share the same underlying concerns, but are suspicious of those articulating them, stand aloof.

Let's be honest about our own lack of knowledge too. There will be people within Labour who argue against the 'Occupy' protests as 'unrealistic' or 'ill-informed' or whatever, who have no greater knowledge of the City than those camped out at St Pauls. There are plenty of people who actually work in the City whose views about it are significantly more radical than moderate Labour types. It's partly because they know where the bodies are buried, no doubt, but it's a useful corrective nonetheless. There is a lot to be critical of and what needs changing is not necessarily easy to articulate, so perhaps exactly what we need right now is a simplistic populist message that gets the right basic point across.

You won't find me up at Paternoster Square any time soon. Quite apart from the fact that I think it's a slightly silly target (why the stockmarket? and few people even know what the 'new' stock exchange building looks like), I don't have the free time to camp out at a protest and, to be honest, I am put off by the fact that it looks a bit green/crusty/anti-globalisation so far. But in my heart of hearts I can't help but hope this message begins cut through because, basically, I think it needs to be heard.

* It appears that the original idea may have come from the Adbusters group.

News Corp news - Calpers

It's pretty much a clean sweep from investors so far. Any more to come? European public funds perhaps? Anyway, here's Calpers:

(Reuters) - Calpers, the biggest U.S. public pension fund, said on Friday it would withhold its votes for the reelection of Rupert Murdoch and sons James and Lachlan to the News Corp board of directors.

The California Public Employees' Retirement System, best known as Calpers, also said in a statement that it would withhold votes for Arthur Siskind and Andrew Knight in protest of the dual class voting structure at the company.

The pension fund said it aims to "rejuvenate" the News Corp board with new independent directors.

Calpers owns approximately 1.45 million News Corp shares.

Also on Friday, Hermes Equity Ownership Services, the shareholder advisory service affiliated with Britain's largest pension fund, urged investors to vote against the reelection of all Murdoch family members, Siskind and Knight.

The annual general meeting of the media group, under fire for a phone hacking scandal, is scheduled for on October 21.

Friday 14 October 2011

News Corp news - Hermes opposes Murdochs

Good round-up from The Grauniad here. Bit on Hermes position below.

Hermes Equity Ownership Services (Hermes EOS) is the latest shareholder advisory service to advise its clients not to support all the members of the News Corp board at the annual meeting on 21 October in Los Angeles.

Hermes EOS, linked to the old BT pension fund, said on Friday it had stepped up its discussions – or "engagement" as it is known in the corporate governance world – with the media company since the phone-hacking allegations.

Explaining Hermes EOS's decision to withhold support from five directors - Rupert Murdoch, James Murdoch, Lachlan Murdoch, Arthur Siskind and Andrew Knight - Jennifer Walmsley, director of Hermes EOS, said:

News Corp has not reacted with sufficient urgency to investor concerns about its board composition and corporate culture. The time is right for the company to appoint an independent chairman to rebuild trust, help correct the governance discount, and ensure that the interests of all investors are properly represented.

Wednesday 12 October 2011

Misys remuneration revolt

Dunno how I missed this (pdf). I'm always a bit sceptical when larger companies' RNS statements on AGM results simply say that 'all resolutions put to the meeting were passed', and this is a good example why. Technically 100% accurate, but disguises a 37.5% vote against the remuneration report, which will put the company amongst this year's outliers.

UPDATE: Actually to be fair, having checked, Misys took the same approach to their AGM statement last year.

Monday 10 October 2011

News Corp news - ISS recommendations

And it's not getting any better for News Corp...

Investor adviser Institutional Shareholder Services said owners of News Corp. stock should vote against 13 of the media company’s 15 directors, including CEO Rupert Murdoch and his sons, in light of the phone-hacking scandal at the company’s former News of the World tabloid.

ISS, which advises institutional shareholders on corporate-voting matters, said the phone-hacking scandal “laid bare a striking lack of stewardship and failure of independence” of News Corp.’s board, according to an executive summary of the report released Monday by ISS.

News Corp. owns The Wall Street Journal.

The company said it “strongly disagrees” with the ISS voting recommendations. “The company takes the issues surrounding News of the World seriously and is working hard to resolve them, however ISS’s disproportionate focus on these issues is misguided and a disservice to our stockholders,” News Corp. said in a statement.

News Corp.’s 15 directors are standing for election at a shareholder meeting Oct. 21 in Los Angeles. The two News Corp. directors that received ISS’s support are Joel Klein, a News Corp. executive, and venture capitalist Jim Breyer. They are newly appointed to the board.

Amid questions about the oversight of News Corp.’s board, Rupert Murdoch in August said the media-and-entertainment company’s board is “very strong.”

Sunday 9 October 2011

News Corp news - Glass Lewis recommendations

Picked this up over the weekend, Glass Lewis (a big proxy adviser influential in the US market) has put its report on News Corp out. Not good reading for James Murdoch (or Lachlan). Next up will be ISS presumably. If they come out against JM things could get interesting. The digger can account for 40% of the votes, plus he has some investor allies, so it's very unlikely a director will be unseated. But I think we'll see some big votes against this year.

Thursday 6 October 2011

LAPFF statement on News Corp

Here it is:

Pension funds want a line drawn under hacking scandal

News Corp can only move on from the hacking scandal if it overhauls its board structure in the wake of the phone hacking scandal, according to the UK’s leading shareholder activist body.

The Local Authority Pension Fund Forum (LAPFF), whose 54 members have combined assets of £100bn, has issued a voting alert to its members this week on News Corp. Having undertaken extensive research into the phone-hacking scandal, and having engaged with News Corp directly, LAPFF has reached the view that board change is necessary. The Forum believes that lead director Rod Eddington is well placed to take this process further.

Although LAPFF would have preferred to see a fully independent process put in place, the Forum has also taken the view that Viet Dinh’s internal review in response to the hacking scandal must be given time to reach its conclusions.

Therefore LAPFF has recommended that its members vote for the election of Rod Eddington and Viet Dinh. LAPFF has also recommended a vote in favour of Andrew Knight, who has also played a positive role in engaging with the Forum.

The Forum believes that the News Corp board must take responsibility for the hacking scandal and that this would be best achieved by a change to its existing membership and structure. LAPFF believes that James Murdoch’s continued presence on the News Corp board is causing significant reputational damage to the company and is no longer in shareholders’ interest. The Forum has therefore recommended that its members oppose James Murdoch’s election.

LAPFF also wishes to see a separation of powers at the head of the company, and the appointment of a genuinely independent chair. The Forum has recommended that its members oppose the election of Rupert Murdoch, who currently holds the combined roles of chair and chief executive.

Forum chairman Ian Greenwood said: “News Corp and its shareholders desperately want to draw a line under this scandal, but that will only be possible if the board accepts the need to demonstrate real accountability. That requires a change in the structure and the make-up of the board. Whilst these are difficult issues for the company to address, we believe that to secure News Corp’s long-term future such reform is necessary.”