Sunday 31 July 2011

What would Crosland say now?

Here's his view of power over public companies in The Future Of Socialism:
Top management today is independent not only of the firm's own shareholders, but increasingly of the capitalist or property-owning class as a whole, including the financial institutions. As compared with the inter-war period, a higher proportion of profits is ploughed back into the business, and a higher proportion of capital expenditure is financed internally and not by resource to outside capital. It is true that the Marxist prophesy of the transition to "finance-capitalism", as industry fell more and more into the clutches of the City and the banks, was never at any time wholly fulfilled in Britain. But the financial difficulties created by the depression caused at least a trend in that direction before the war; and there were certain important industries in which management was, in consequence extremely susceptible to outside financial pressure.

Today, however, a decade of prosperity and high gross profits, combined with a lower ratio of dividend distribution, has greatly fortified the financial strength and independence of most public companies. Despite the increased weight of taxation, undistributed profits are normally sufficient (taking industry as a whole) to finance the whole of industrial capital formation - with a good deal, indeed, to spare. Naturally some firms still ned to borrow or make new issues of share capital; but internal company savings, relative to investment, are now higher than before the war. The economic power of the capital market and the finance house, and hence capitalist financial control over industry (in the strict sense of the word), are now much weaker. This change alone makes it rather absurd to speak now of a capitalist ruling class.

Thursday 28 July 2011


My little family suffered a blow this week. Going to try and put all the negative feelings to some use by ripping into various people/organisations.


Thursday 21 July 2011

A couple of big votes

Work has been the blight of the blogging classes this week, back on the case soon. In the meantime today saw a couple of notable votes on remuneration related issues.

At Cable & Wireless Worldwide there was a 32.5% vote against an incentive scheme. Quite a lot of abstentions too, but can't be bothered to work out the figures yet.

At De Le Rue there was what looks like a mini revolt against the remuneration report- x% - but add in the huge number of abstentions and the vote in favour is just over 49%. A win is a win and all that, but if I were the company I would be a bit worried. Last Afren got less than 50% in favour, but won on a straight for/against split. This year it lost.

Friday 15 July 2011

First Group pay

Just scraped through RNS here. Just over 57% in favour on a straight for/against split is very bad. But add in abstains and this was only just majority active support - 51% to 49%. Ouch.

Thursday 14 July 2011

ICAP pay revolt

Whenever a company's RNS release on its AGM doesn't include the actual voting results (saying simply 'all resolutions were passed') it's worth having a dig around. So it was with ICAP yesterday. Their RNS statement:
ICAP plc announces that at its annual general meeting held at 11.00 am today, all resolutions proposed at the annual general meeting, as set out in the notice of meeting, were passed on a show of hands with the requisite majorities.
Over on their IR site you can get the full results (2011 Proxy Results file), which show a hefty 33.5% vote against the rem report.

Monday 11 July 2011


The second half of this sounds a bit like NOTW:
In the operation of modern markets, disruption of organisations has become profitable. While disruption may not be justifiable in terms of productivity, the short-term returns to stockholders provide a strong incentive to the powers of chaos disguised by that seemingly reassuring word "re-engineering". Perfectly viable businesses are gutted or abandoned, capable employees are set adrift rather than rewarded, simply because the organisation must prove to the market that it is capable of change.
From The Corrosion of Character.

Sunday 10 July 2011

The serenity Blair

God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.
I read something recently which suggested that when we communicate with each other we work from the assumption that the other person is saying something meaningful (in the most limited sense, that it means something). So we will look for meaning, even when there isn't any. Clearly when we are dealing with figures with some sort of expertise our ability to find meaning is even keener. Once you're seen as being some sort of expert you can come out with pretty much anything and people will find significance in it.

So I find myself a bit bemused by some of the reaction to Tony Blair's latest comments. If anyone else had said something like this
In the real world of the 21st Century there will be some pick and mix of policy. Sometimes it will be less left vs. right than right vs. wrong. Above all, today efficacy - i.e. effective delivery, motivated of course by values, matters as much if not more than ideology. Don't fear it. Embrace it. It liberates us to get the correct policy. And the best policy is usually the best politics. It is not a betrayal of principles. It is applying principles to changing times.

Or this
Parties of the Left have a genetic tendency, deep in their DNA, to cling to an analysis that they lose because the Leadership is insufficiently committed to being left, defined in a very traditional sense. There's always a slightly curious problem with this analysis since usually they have lost to a right-wing Party. But somehow that inconvenient truth is put to the side.
Would the reaction have been anything other than a "yeah, and" shrug? We shouldn't put ideology before practical policy, and in defeat we should not retreat into our comfort zone. Tony went on to say, to rapturous applause, that we should make an effort to spend more time with our parents as we get older, because we'll miss them when they're gone...

Which would be alright, if of no particular importance, but for the fact that it is welded to yet another defence of New Labour. This version went a bit further and said that the last three years in power were not NuLab. What I find odd about this is the rigidity of the position adopted which, to me, is the antithesis of what was valuable about New Labour in the first place. Obviously we should seek to focus on 'what works' rather than ideas we have emotional attachment to. But who in Labour these days is most guilty of wanting to cling the past, and of seeming to believe there is One True Path? I would suggest those who talk about not budging one millimetre from the previous approach have a pretty good claim. New Labour had a powerful appeal, both within Labour and outside, because it did, as Tony suggests, liberate us. But now it most often seems to be the keepers of the Blairite flame who are talking about what can't be done, and can't be changed.

It's notable that the party is therefore frequently issued with warnings about abandoning the centre ground, but often these betray a view where the centre ground is unshifting. Again this seems to be a reversal of the optimism, and achievements, of New Labour. Whilst aware of where the public were, it also had an aspiration to move the consensus on issues. Now Blairites seem to be far more pessimistic about what you can achieve. And it's principally for this reason, I think, it's a busted flush. Optimism is attractive and inspiring, pessimism is not, though it is comfortable and less risky.

When you go back and read Tony's old speeches they drip with optimism, and when you hear him speak he still has that. But his loyalist supporters seem to have hardened his worldview into a rigid approach to politics that now leaves me cold. And 'efficient delivery of services' is a guiding principle for a mobile phone company or something, it is nothing like enough to inspire a political movement.

Ultimately as a party we have to have some assumptions about what we can realistically change and what we just have to accept and work within. But, as events both this week and the last few years in the financial crisis have shown, we can get some pretty fundamental assumptions wrong. When that happens we have to redefine what we think is changeable. Otherwise even radical reformers can end up as conservatives.

Saturday 9 July 2011

Hopey, changey stuff

What a mad week. I'll try not to repeat too much of what other people have said but first a few thoughts:

1. the speed with which News Intl was able to provide emails to the police surely demonstrates that News Corp knew far more about the extent of hacking, and who was responsible. This should become a Corp gov issue for News Corp now. James Murdoch should not be considered untouchable.

2. the Bskyb deal must now be too toxic for the govt to allow. It simply won't matter even if Ofcom gives it the all clear, because public opinion has hardened. It's v like Iraq inquiries in that respect. If the answer the public expect isn't provided this will lead to greater anger.

3. isn't it great that, for once, cynicism about what you can do in politics has been overtaken by events? Last week taking on Murdoch was suicide in the conventional wisdom. Now, perhaps temporarily, not tackling him is the risky option. Ed is right to try and push these issues hard, and quickly. Similarly, those righties who basically accused The Guardian, Tom Watson etc of pursuing a non-story for political reasons have been disproven in the starkest terms. Don't let them forget it.

4. I can't gloat about the demise of NoTW. I'm not one of these people who have overnight discovered what a great paper it was, and mutter about press freedom. I wonder if such people were regular readers, as it was a fecking comic in large part. But sacrificing hundreds of jobs to save a takeover bid is not something I'm going to celebrate.

In terms of wider impact what I would say, based on what I have seen in the policy world in the wake of the banking crisis, is that when something like this hits you need to push as far as possible as quick as possible. The forces of reaction will push back, and successfully, therefore it's important to try and get as far as possible whilst they are in a weak position. I don't think Labour went as far as it could have when the banks were on their knees, and the banking lobby is now strong again. Obviously we're in opposition now, but can't make the same mistake again.

More generally I agree there are important similarities with MPs' expenses here. What was taken for granted - in this case turning a blind eye to hacking and seeking Murdoch's support - rapidly became utterly unjustifiable. Maybe this week end someone will write a good piece explaining exactly how it happened/what triggered it, because I am still not clear. But it's interesting to reflect that the bulk of the professional commentariat (be it politicos or media) got this one badly wrong and were overtaken by events. That makes me very hopeful for the future.

So here's where I go next... I think that there are big questions about the way that executives of public companies are paid. Their rewards frequently have little link to performance, and have risen rapidly at a time when the rest of the population is facing real cuts. They continue to award themselves all kinds of unjustifiable extras - differential pension provision being my personal hate - that go almost unchallenged. Lots of people know this - the execs themselves, institutional shareholders, rem consultants, business journos - but everyone simply repeats the line that change or challenge would be dangerous. It's an evil that we must tolerate in return for 'wealth creation'. This is the conventional wisdom that has solidified over recent years, with many shareholders playing a supporting role, and voting for pretty much all but the worst remuneration policies.

At the moment the clear consensus in the business/city/financial commentariat is that a) sky high exec pay is a problem at the margin b) you can't do much about it anyway and c) well, everyone else is doing it, so is it really that bad? Currently it looks solid. But so did the conventional wisdom about the media, and Murdoch in particular, last week. Do we have a potential trigger to cause the professional consensus around exec pay to unwind? I think it's worth a ponder.

Of course, future events will change the course of things. Maybe this won't turn out to be a turning point in terms of Murdoch's influence. Maybe, like the banks, he'll rapidly regroup his forces. Maybe there won't ever be a tipping point over executive pay, and the cynics are right that too many people have an interest in doing little or nothing to restrain it. But at least this week, for a moment, there is hope that we can arrange things differently and tackle the things that the professional commentators of the status quo say cannot be changed. I personally find that hugely encouraging.

Thursday 7 July 2011

What is ownership really about?

I've thought for a while that the way that people approach the governance/ownership varies quite dramatically. Even when using the same terms they are thinking in very different ways.

It isn't helped by the fact that the mechanisms of public company governance blur the boundaries somewhat. Think about It, the language is really political in nature, with elections, activism, accountability, 'one share, one vote', 'shareholder democracy', etc. The mechanisms of governance look like they are trying to apply political forms of legitimacy - elected representatives serving terms - to the management of companies. And when those mechanisms are either abused by the representatives, or under used by the electorate, some question the legitimacy of the system.

Yet to others in the same field the language of accountability is not about fulfilling the mandate given, but about the agency problem, about ensuring that the agents are doing what they are paid to do. It's much more about a contractual view of the relationship. Provided that the job is done roughly as expected then governance doesn't matter too much.

You can see these competing conceptions at play regularly. Those more inclined to the political conception often seem like they are concerned with relatively abstract issues (combined chair/chief exec? Hey it's just a job title!) even when the company is doing well. Contractual types are happier to let niggles go - provided that the returns are coming in. There's also a diference in the way issues are raised with companies. Political types seem more happy to go public, perhaps as 'opposition' is conceived, in common with politics, as a necessary part of the process in reaching acceptable decisions. Contractual types seem to believe it is better that concerns are expressed privately, precisely to avoid the appearance of dissension.

The most obvious divergence comes in approach to director elections. Political types seem to view this as a vital form of accountability, and raise concerns about the thumping votes in favour most directors receive. Contractual types seem more inclined to see voting against a director as an extreme move, the nuclear option, and also expect to be able to remove problem directors without a vote.

It's obvious where I sit, but I do genuinely think neither approach is the 'correct' one. There is scope for both, and one will dominate more than another at different time. Particularly if the Stewardship Code etc are intended to use shareholder oversight to achieve public policy goals then inevitably a political conception looms larger. But in practical day to day terms the contractual mindset seems more common amongst many investors. My slight concern is that we mistake one approach for another, or that when the boundaries are blurred we aren't achieving what we think we are. Again in relation to asset managers there's a danger that they will simply re-describe what they do already to appear more in the political mould than they really are.

Tuesday 5 July 2011

Looking back on the first half of 2011

A few snippets from the UK AGM season. We reckon that the average vote against a remuneration report is up a bit on last year, and so far we've had three reports defeated in 2011. Still, the large majority of remuneration reports are being passed with very little opposition (ie under 5%). More notable this season too is the attitude of some companies that 'a win is a win', even if they are registering a high level of opposition. It makes me even more sure that those asset managers who express reservations privately without backing it up with votes are a) making a mistake and b) depriving the market of valuable information.

Average vote against a director election is up a bit too, but the average is under 2%, so again there is a long tail of very low votes against. No wonder someone recently compared board elections to soviet elections. Most companies can be comfortable in the knowledge that they are extremely unlikely to face any serious opposition. And it's the same story on auditor appointments.

There is one area where opposition is rising - on those notice for meeting resolutions. I personally think this is ridiculous but you pays your money. Interestingly though the votes on these types of resolution do tell you a bit about which plcs have overseas ownership (assuming UK investors aren't dumb enough to just follow an adviser's house policy of routine opposition),

Finally, I was depressed to hear recently that some asset managers are using the 'bank bashing must end' line to justify not opposing resolutions at UK-listed banks. It's this kind of thing that makes you sceptical about legitimacy of the governance system.

Saturday 2 July 2011

Is 'best practice' working as intended?

There are a couple of notable trends in UK plc boards this year that may tell us something about our corporate governance regime. First up, it's clearly the case that the majority of FTSE350 companies have introduced annual elections for board members, and looking just at the FTSE100 compliance is especially high. Given that most company opinion was negative, the scale of change maybe surprising to some.

Second, according to The Grauniad, the number of female board appointments so far this year is already significantly up on the whole of 2010. The numbers involved are actually pretty small, so change can be exaggerated, but the increase is definitely there. This may well be a reaction to the Davies Review which hasvset out a voluntary 25% target for female board membership.

In both cases companies are under no obligation to adopt the new policy, and indeed the 25% target suggested by Davies isn't even in the Corporate Governance Code, which instead is being amended to suggest disclosure of diversity policy and reporting on its application. And in both cases there was also antipathy on the part of companies to any intervention. Yet now that both bits of best practice guidance are now in place, companies are responding.

So what's going on? Do companies over-egg their opposition to reform in public but privately accept the need for change, is it a delaying tactic? Is it that they feel once something is best practice then the 'flexibility' of non-compliance has costs that outweigh its benefits? Maybe companies believe that non-compliance would be seen as a red flag by investors, with potential financial ramifications. Perhaps in relation to the Code in particular they feel that... ahem... box-tickers will force them into compliance anyway.

Whatever the explanation, or combination of them, it looks like 'best practice' is operating more and more like regulation. Which in turn makes you wonder whether regulating some aspects of governance wouldn't be a simpler approach.