Tuesday 30 July 2013

James Murdoch: popularity in 2012 vs 2011

As I've blogged previously, somewhat surprisingly James Murdoch got an easier ride at BSkyB's 2012 AGM than the 2011 meeting. This was despite getting slammed by both the CMS select committee and Ofcom inbetween.

To recap, in 2011 the vote against his re-election was 17.4% with 7.1% abstaining, the comparable figures in 2012 were 4.9% and 0.35%. So clearly some big shareholders backed right off. Today, whilst hoovering up the latest asset manager voting disclosures, I thought I'd take a look at votes on James Murdoch at BSkyB's 2012 AGM, versus those in 2011, to see who switched sides.

This is what I can find so far (2011 vote first, 2012 vote second)

Aberdeen - Oppose / For
Aviva - Oppose / Oppose
CCLA - Oppose / Oppose
F&C - Oppose / For
Goldman Sachs - Abstain / For
Hermes - Oppose / Oppose
Jupiter - Oppose / For
Kames - Oppose / For
L&G - Oppose / For
M&G - For / For
Martin Currie - Abstain / Abstain
Newton - Oppose / Oppose
Royal London - Oppose / For
Schroders - Oppose / Oppose
Standard Life - Oppose / For
State Street - Abstain / Oppose (yes, those are the right way around)
SWIP - For / For
Threadneedle - Abstain / For
UBS - Oppose / For 

These are just the ones I can find, but it tells the story. A lot of institutions backed off, despite (or, perhaps, because of) the intervention of both Parliament and the broadcasting regulator. Pretty unimpressive IMHO.

Sunday 28 July 2013

Lobbying and message discipline

A couple of stories in the papers caught my eye today. This one in the Observer about Philip Morris and its lobbying against plain packaging for cigarettes, and this one in the Telegraph where the head of payday lender Wonga argues the company is "a powerful force for good".

The main point I want to highlight in the first one is the way that lobbyists (whether in-house or external) try and boil their main arguments right down, and then repeat them.
The internal documents reveal how, over the past year, PMI sketched out a timeline for rolling out its key messages. These included the claim that plain packs would make the illicit trade in tobacco worse and the need for the UK government to "wait and see what happens in Australia [for two or three years] before walking into the unknown with no evidence it will reduce smoking".
The latter message was echoed by the government when it announced that it was abandoning the plan to introduce plain packs. The Department of Health's statement said: "The government has decided to wait until the emerging impact of the decision in Australia can be measured before we make a final decision."
This is an approach that I've become very familiar with when doing public policy work. In particular I've come across instances of lobbying lines being repeated over and over, to the extent that (as in the second para in the excerpt above) even those who didn't initiate the message end up mouthing it as if they had spontaneously thought of it.

Which brings me on to the Wonga story. As people are no doubt aware, the Church of England was a little embarrassed last week after it turned out that it invests in Wonga via a private equity manger. Why do I mention this? It's that phrase "a force for good". As I have blogged a few times before, clearly someone, somewhere gave the private equity industry some advice a few years back when the industry was suffering a public image problem. This seems to have included the suggestion that private equity firms present themselves "a force for good".

I first spotted the striking frequency with which this phrase was turning up in 2007. I then followed up in 2008 and 2009. The 2009 bit included a link to an interview with a strategic comms person about the industry could improve its image and he specifically suggests embracing the "force for good" role. Today if I Google "private equity" and "force for good" I get 350,000 results. It even crops up in a "responsible investment" guide to private equity and venture capital published by the BVCA.
Private equity and venture capital are increasingly recognised as a force for good in the UK, and in high growth economies around the world.
So as a lobbying/PR line it's well and truly established and regularly repeated about private equity without much thought, despite the rather contentious claim it represents. I have to say I have some sneaking respect for the corporate spinners that came up with and/or have enforced the line over the last few years. The frequencey with which it shows up demonstrates its they have done a good job.

Given all this it's perhaps not surprising to see a company (Wonga) that is a) taking a lot of flak and b) owned by private equity use it. It might be deliberate, and the result of some comms advice, or it may just have spread naturally. It will be interesting to see whether Wonga start using this line regularly. If so, my hunch would be that it does indeed demonstrate putting some comms advice into practice. 

More generally, this type of thing should make those of us who seek reform of the financial sector to be alert to the importance of a focused and sustained approach to key messages we want to get across. It's only a small part of what we need to do, but in my opinion it does need doing.

Friday 26 July 2013

A few links

1. An interesting corporate governance report from the ABI here. Worth a read.

2. The BIS committee report on the Kay Review here.

3. NAPF response to the above here.

Wednesday 24 July 2013

Competition Commission on audit

Not much to add on the main points of this one. Obviously a few investors will be disappointed that mandatory rotation has been ruled out, but the overall package of measures (below) looks pretty good to me. On mandatory tendering it's a tougher approach than the 'comply or explain' model that the industry had agreed with the FRC.

In addition, if mandatory tendering doesn't result if much difference within a few years I suspect that there will be pressure to consider mandatory rotation again. Also, we still don't know what the EU will end up doing on this issue.

The last point the CC makes below, that the FRC should amend its articles to have a competition objective, is very interesting for a couple of reasons. First, the trivial point. Obviously I know all policy people are on exactly the same page about everything and share the same overall objectives with absolutely no personal or organisational ambition affecting that whatsoever and, of course, no territoriality. But I do wonder if one regulatory body telling another what its job should be might be just a little bit unpopular.

But the more substantive point is what the CC seems to be implying - that the FRC should have greater concern about market concentration. There are those in the market who believe that the FRC is too close to, and influenced by, the big accounting firms. It does look like the CC feels the FRC needs to be a bit tougher. This point was picked up by the Telegraph yesterday, which wrote a very critical piece about the FRC that was flying around on email yesterday (will dig out a link).

Interesting stuff.

Excerpt from the Commission's release -
The main measures the CC has proposed are as follows:
  • FTSE 350 companies should put their statutory audit engagement out to tender at least every five years. Companies may defer this obligation to go out to tender by up to two years in exceptional circumstances. There will be a transitional period of five years before the measure comes into full effect.
  • The Financial Reporting Council’s (FRC’s) Audit Quality Review (AQR) team should review every audit engagement in the FTSE 350 on average every five years. The Audit Committee should report to shareholders on the findings of any AQR report concluded on the company’s audit engagement during the reporting period.
  • A prohibition of ‘Big-4-only’ clauses in loan documentation (ie clauses that limit a company’s choice of auditor to a preselected list).
  • A shareholders’ vote on whether Audit Committee Reports in company annual reports contain sufficient information.
  • Measures to strengthen the accountability of the external auditor to the Audit Committee and reduce the influence of management, including a stipulation that only the Audit Committee is permitted to negotiate and agree audit fees and the scope of audit work, initiate tender processes, make recommendations for appointment of auditors and authorize the external audit firm to carry out non-audit services.
  • The FRC should amend its articles of association to include a secondary objective to have due regard to competition.
The CC has decided against bringing in measures requiring mandatory switching of auditors, further constraints on audit firms providing non-audit services; joint audits; shareholder or FRC responsibility for auditor reappointment or independently resourced risk and Audit Committees.

Monday 22 July 2013

News Corp / BskyB news

It's been a while since I blogged about this, but things are hotting up again for a variety of reasons.

Most notably, the secret recording of Rupert Murdoch's candid chat with staff from the Sun, that was released to the world by the excellent Exaro News, has set all kinds of things moving. First Rupert Murdoch has been called back in front of the DCMS select committee to explore the differences between what he said on the tape, and what he has said previously. Personally, given what we saw in 2011, I wouldn't expect a lot from this, but worth keeping an eye on.

Second, the Foreign Corrupt Practices Act continues to loom in the background. Rupert Murdoch was asked about this on an analyst call and (largely) denied a Michael Wolff article suggesting that a record settlement with the DoJ was imminent. On these points I have come across an academic expert on the FCPA who has blogged on why a News Corp settlement might not be a blockbuster, but also (an oldie) why News Corp can be caught by the Act.

Third, in turn, Ofcom has confirmed to Exaro News that it will be having another look at the 'fit and proper' test in relation to BskyB. On first glance, this might seem to pose little threat, since Murdoch Senior is not on the board (whereas James Murdoch was chair). However, it's worth remembering that as part of the recent News Corp split, the company's shareholding in BSkyB also has to be dealt with. A recent BSkyB RNS shows that this is now held by 21st Century Fox, the broadcasting bit of the Murdoch empire. The importance of this is that at Fox Rupert Murdoch is still combined chair and CEO, whereas at 'new' News Corp he is the (backseat driving?) executive chair. In other words, his personal influence is, at least formally, much stronger in the former.

That may give Ofcom a reason to have a look, but it's clear the tape that has been made public may not be the end of the story. In September the trials of current and former News International journalists, including Andy Coulson and Rebekah Brooks, begin. As the existence of the leaked recording shows, trust has broken down inside the company. This does lead you to wonder if people with nothing to lose will start talking. Indeed, some news that has made it into the papers already suggests that they will.

And I bet there is still more to come...

Wednesday 17 July 2013

Employees in corporate governance

A quick plug for the new Smith Institute report Just Deserts which is being launched tonight. (Can't go as I'm home sick). The strapline should tell you that this is worth a read - Poverty and inequality: can  workplace democracy make a difference?

As always, I skip straight to the corp gov section which, in this case, is well worth a read. Here are the headline recommendations -
• A Corporate Governance Commission must be established as a matter of urgency after the 2015 general election to make recommendations for the reform of company law, with the specific aim of establishing a stakeholder model of governance in the UK, using either the existing unitary board structure or the two-tier structure that is well established in Germany. The commission should be
required to complete its work within 18 months so that legislation can reach the statute book before the 2020 general election.
• Swifter action can be taken in the field of executive pay and remuneration in listed companies, with new requirements imposed on corporations to achieve a higher level of transparency by publishing:
• the ratio of the pay of the highest earner to the pay of the lowest earners in the organisation;
• the number and percentage of employees paid at the national minimum wage;
• the number and percentage of employees paid less than the living wage; and
• the distribution of pay across the whole workforce, broken down by grade and pay level.
• Board-level representation can be effective only if there is a robust structure for employee participation at all levels of the organisation. Works councils, collective bargaining and workers on the board are mutually reinforcing processes. Extending worker participation in strategic decision making must go hand in hand with an effort to rebuild institutions for participation in the workplace.

Monday 15 July 2013

Colin Crouch on the politics of work

This interview with Colin Crouch in Renewal is a year or two old, but it is great and is what spurred me to get his most recent book on neo-liberalism. I remember thinking at the time that it was a more nuanced take on actually existing capitalism than you usually find on Left or Right. But I had forgotten he made some really interesting comments about workplace politics:
But there is a big ‘traditional’ issue that I think is critical to reconstructing political identities, which concerns the death of the workplace as a political arena. One thing New Labour did was to kill the notion that your working life had any political elements. As a citizen and consumer of public services you were encouraged to think politically. But your workplace was just somewhere where you got paid – it wasn’t a community.
We now have the most dynamic part of the economy in private services and finance where there is practically no worker-representation. The inability, not unique to the UK, of the trade union movement to reproduce itself in the new spaces of the economy is why people don’t have work-related identities. Labour has become a weaker and weaker actor in relation to working issues. Some of the campaigns I mentioned are connected to the unions internationally – particularly on supply chain issues. But if there is one thing we need more than anything else, it is the re-politicisation of work as an issue and as a generator of political identities.
This is very close to my view of the world. I personally worry about the Blairite inability to see workplaces as much other than spaces of individual opportunity for employees liberated by better education, particularly when made apparent in barely disguised contempt for trade unions. Whatever you might think about unions, they are a reminder that work is rather more complicated than that, and that if you're interested in empowering the ordinary punter it's a bit odd to exclude the workplace from this discussion.

Thursday 11 July 2013

IIC audit paper, again

Just spotted that PwC also suggest that the IIC opposes mandatory auditor rotation, rather than saying some investors support the policy and some oppose it.

One of the most hotly debated issues is mandatory firm rotation (MFR). There is a divergence of view between MEPs: from those that do not favour MFR to those who support it for periods ranging from seven to 25 years. Supporters were influenced, in part, by a letter to the Financial Times by a group of minority investors. However, more recently the Institutional Investor Committee (IIC), comprising investors from the IMA, ABI and NAPF, has published a memo setting out its opposition to MFR.

Friday 5 July 2013

Why the IIC matters

Not many people will have heard of the Institutional Investor Committee (IIC), and even those that have, or have followed my burblings on here over the past few years, may wonder what the big deal is.

To recap, the IIC pulls together the three big investor trade bodies - ABI, IMA and NAPF - and, under its new terms of reference, has a focus on lobbying over policy issues. One of the issues over which the IIC name has been used to lobby is audit reform, both in the UK and Europe. The IIC has issued two papers on this subject in March 2012 and December 2012.

The important difference to note between these two papers is the position adopted on mandatory rotation of audit firm. In the March 2012 version it says:
However, the mandatory rotation proposed could be costly and disruptive [chuckle]. Mandatory rotation requirements could also mean that companies are forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit such as when there is a major acquisition or merger. It could also conceal the fact that an auditor has stood down for a particular reason and prevent auditors being reappointed when they are the preferred choice of both management and investors.
There is no sense that some investors might support mandatory rotation.

However the December 2012 version says that "most investors" don't like mandatory rotation, but that "a minority of investors, primarily pension funds, consider that the application of mandatory rotation at 15 years would be desirable". This reflects the fact that the position of one of the IIC's members (NAPF) is to support mandatory rotation (see their submission to the Competition Commission here) as do some other major investors like L&G.

I share the view, therefore, that the IIC shouldn't say anything on mandatory rotation since there is no consensus amongst its members.

What is particularly problematic is that the IIC paper is being used rather disingenuously to suggest that there is a consensus amongst investors against mandatory rotation when there isn't. 

For example, Deloitte, a firm which has some interest in the Competition Commission's work on audit, cites the December IIC paper in its submission to the CC's possible remedies as follows

the UK’s Institutional Investor Committee – made up of representatives of from the Association of British Insurers, the Investment Management Association and the National Association of Pension Funds, which together manage or own £4 trillion of assets – set out in a paper in December 2012 clear opposition to mandatory rotation. [my emphasis] The paper commented that:
A mandatory rotation requirement could mean that companies are forced to switch auditor at a time when the existing auditor’s familiarity with the business would benefit the audit such as when there is a major acquisition or merger. It could also conceal the fact that the auditor has stood down for a particular reason and prevent an auditor being reappointed when they are the preferred choice of management and investors. They consider that it should be for a company, possibly through its audit committee of non-executives, to decide the best time to change auditor, in conjunction with its shareholders/investors. A mandatory rotation requirement disenfranchises both. 

Deloitte cuts out the first sentence of this para, which starts "Most investors...." and I can't believe they didn't read the first sentence of the next para (the "A minority of investors.." one), which makes clear that some investors do support mandatory rotation. Remember too that this is Version 2 of the paper that has to acknowledge the fact that the members don't agree on this point, so Deloitte's selective quoting is particularly underhand.

The IIC paper is also cited by BHP Billiton in its response to the CC:

It is also worth noting that in their response to the European Union proposals on audit, the Institutional Investor Committee concluded that it should be for ‘a company, possibly through its audit committee of non-executive directors, to decide the best time to change auditors in conjunction with its shareholders/investors,’ and that ‘a mandatory rotation requirement disenfranchises both.’
Again, no hedging, the IIC is cited as if it represents a unified position.

So, ultimately, the IIC paper is being used to lobby against a reform that is supported by one of is own members, and I am sure these are not the only examples of the paper being used in this way.

The IIC's new terms of reference (updated in May this year) state that it will seek to provide "a single voice on issues of common interest". Clearly on the specific issue of mandatory rotation it cannot do so, because its members do not agree. Unfortunately, the fudged position that has been advocated in the December 2012 paper is, in any case, being used to claim that there is investor consensus on a very controversial issue.

Given that the paper is being used to lobby against the position held by one of the IIC members, and is being used to suggest investor consensus where there is none, wouldn't it be better all round if the paper was at least rewritten to remove any commentary on mandatory rotation, or even withdrawn completely?  

Thursday 4 July 2013

Policy Network/LFIG report on takeovers and public interest

Now this is interesting, as it advocates both the introduction of a public interest test and a new Takeover Code. Will read and properly blog soonish.

Wednesday 3 July 2013

On the trail of a big Tory donor

Readers of long standing may know that I've blogged a fair bit in the past about the financial and political relationship between asset manager Fidelity and the Conservative Party. On the Peter Cruddas scale, Fidelity are a "Premier League" donor. For example, they gave the Tories £300,000 in the year running up to the 2010 general election. Last year they gave them £100,000. They also employ the MP Srir John Stanley as a consultant. (They also chucked £50,000 at the No2AV campaign in 2011).

Oddly, over the years the way that Fidelity donates to the Tories seems to have changed. So up to 2008 they were listed as "Fidelity Investment Management" with the company reg number 2349713 or sometimes 02349713. 

But from 2008 to the start of 2012 they started appearing as "FIL Investment Management", again using the same company reg number. Then, for the remainder of 2012 (three donations of £25,000), they appeared as "FIL Holdings", using the company registration number 6737476. 

Since the start of 2013, however, there have been no donations have been reported using any of the previously used names or company registration numbers. Maybe they've stopped, or maybe they are reporting under a different name and company registration number? Or maybe they just didn't donate in Q1? Anyway, I'm keeping an eye on it.

Justin Fox vs shareholder primacy

This is worth a read, in light of previous blogs on shareholder primacy and the banks.

Tuesday 2 July 2013

"mandatory rotation" is "costly and disruptive"

Another quick post in my series of examples of the use of common lobbying lines. People with long memories may recall that a few years back I blogged (here, here and here) that the phrase "a force for good" was being used with surprising regularity by private equity people. I speculated that there might be a bit of media coaching going on, though maybe, in retrospect, it was more lobbying.

The recurrence of a popular lobbying line is also going on in respect of lobbying against reforms to the audit market. I picked the phrase "costly and disruptive" out from the Institutional Investor Committee policy document on audit (in part because I know that the IIC paper has caused a bit of a stink) and stuck it into Google with "mandatory rotation" (a policy the IIC paper has been used to lobby against).

It turns up a few interesting hits, including some papers issued by the investor trade bodies. As you might expect, both IMA and ABI docs use the phrase "costly and disruptive" (this is not that surprising, as both are, of course, members of the IIC). The interesting question is which came first. The earliest use (1st March 2011) of the phrase seems to be in the text of a verbal IMA report to the Committee on Legal Affairs of the European Parliament. In this context, what the IMA put in its annual report a couple of years back is also worth noting:
 “We issued a statement under the auspices of the Institutional Investor Committee, questioning the potential effectiveness of the proposals and their detrimental effect on audit quality, and have given evidence at a hearing in the European parliament.”  
The ABI also used the phrase "costly and disruptive" in its response to Competition Commission investigation into the audit market this year. In fact it's worth a fuller quote from the response, as it shows how lobbying text has been recycled over a few years:
Mandatory rotation would be likely to be costly and disruptive. Companies could be forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit, such as when there is a major acquisition or merger.
By comparison here is an excerpt from an IMA letter to the EU Commission in December 2010:
Mandatory requirements could mean that companies are forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit such as when there is a major acquisition or merger.
So the same policy position (opposition to mandatory auditor rotation) has been advocated using the same text, by two different organisations, and sent to two different recipients (with different geographical reach) two and a half years apart. And the chronology suggests the IMA created the text that has been reused.

But in a way that's the easy stuff, look at the range of other uses of the phrase "costly and disruptive" in relation to auditor rotation -

The Investment Company Institute (lobby group for mutual funds I think?)
US Chambers of Commerce
E&Y (which suggests to corporate clients what they might like to think)

A bit like the private equity example a few years back, my initial reaction to this would be to conclude that it's just a good lobbying line that is getting mindlessly recycled. But the more I see of this kind of stuff (and I think I'm still just scratching the surface) the more I wonder.

Shareholder primacy and the PCBS report

I'm a bit surprised by the lack of a reaction to the PCBS report recommendation that shareholder primacy be removed from the Companies Act, at least in respect of banks (see previous blog here). Although I've argued that this really only reflects the underlying reality (given the role of regulators etc) it's still quite a big deal, and obviously once the principle is conceded for banks why should it not be questioned elsewhere?

So far the only organisations that really seem to have appreciated the significance of this bit of the PCBS report are the FRC and the TUC, with interestingly different takes on it. The FRC and TUC both see the significance, but are the former are worried by it, the latter more encouraged by it.

The FRC says:
An amendment to the Companies Act to remove shareholder primacy could have a profound bearing on investors willingness to commit capital and might set precedents for other sectors.
The TUC says:
This begs the question, however – why just the banks? While the consequences of bank failures have been particularly stark, there is no reason why shareholder primacy should work well for every part of the economy except for the banks. 
Worth keeping an eye on. 

Incidentally, perhaps this bit of the PCBS report shouldn't be a surprise. When the Commission was taking evidence there were a couple of times when John Thurso MP in particular challenged the idea that greater shareholder engagement with the banks was necessarily a good thing (see here and here). It looks like his scepticism had an impact on the final report.

Monday 1 July 2013

Against performance pay

Great Reuters blog here arguing that exec pay should be far more about salary and far less about variable reward. Again, I do think opinion is starting to shift on this one. Love this para summing up what's wrong with current approach-

In sum, the usual arguments for complicated remuneration packages are all specious. These arrangements do not motivate. They do not encourage long-term thinking. They do not align executives’ interests with anything helpful. They do not make pay rewards more just. Rather, they are misleading to outsiders and distracting to insiders.

Another case of cut n paste PLC lobbying

I've been looking at responses to the Competition Commission's provisional findings and proposed remedies in relation to audit. Have found some very similar text again.

Here's what GSK said about mandatory rotation of audit firm:

Our audit committee wishes to appoint the best firm for GSK and its shareholders. If having conducted a formal tender process it happens to be the incumbent auditor who can deliver the best audit, it makes no sense to appoint an alternative, especially given the length of time and resources required in the early years following a new appointment. This proposal also undermines the role of the Audit Committee which as noted above had developed hugely in recent years and which is now the dominant influence in tendering decisions and the final arbiter in appointing the auditor
Here's what SABMiller said:

Our audit committee wishes to appoint the best firm for the company having completed its necessary review. If the outcome of a tender process confirms that the incumbent auditor is best qualified for the role, it makes no sense to appoint a second best alternative given the length of time and resources required in the early years following a new appointment. The proposal also fails to give due recognition to, and undermines the role of, the audit committee which, as noted above, has developed hugely in recent years and which now is the dominant influence in tendering decisions
And here's what the GC100 said:
Audit Committees will wish to appoint the best firm for their company having conducted a formal tender process and if that happens to be the incumbent auditor, it makes no sense to appoint an alternative given the length of time and resources required in the early years following a new appointment. The proposal also undermines the role of the Audit Committee which as noted above has developed hugely in recent years and which now is the dominant influence in tendering decisions.
As I blogged previously, I think the generic PLC responses may take the GC100 text as their inspiration in some cases.

More to come on this one...