Change To Win target Bank of America chief

From the CTW Investment Group website:

CtW Investment Group Calls On Bank Of America Board To Remove Lewis Or Face Ouster Vote
FOR IMMEDIATE RELEASE
Thursday, March 5, 2009

CONTACT: Rich Clayton, 202-255-6433

WASHINGTON, D.C. -- In a letter to Bank of America (NYSE:BAC) Lead Director O. Temple Sloan, the CtW Investment Group called on BAC's board to remove Ken Lewis as Chairman and CEO in light of his disastrous missteps. Since the September 15, 2008 announcement of the merger with Merrill Lynch, BAC has:

Suffered a 90% drop in share price
Allowed Merrill to pay out $3.6 billion in bonuses, even as the firm was hemorrhaging money
Denied any active role in determining the size of Merrill bonuses, a claim subsequently contradicted by documents that have emerged in the NY Attorney General’s investigation
Failed to timely disclose over $20 billion in pre-tax losses at Merrill
Failed to invoke the Material Adverse Effects clause of the merger agreement to protect BAC shareholders from these losses
Removing Mr. Lewis is now a necessary prerequisite to restoring BAC’s credibility with shareholders, regulators and the public. If the board refuses to remove Mr. Lewis, CtW will call on shareholders at Bank of America’s Annual Meeting in April to vote against the re-election of Mr. Lewis, Lead Director Sloan and Corporate Governance Committee Chairman Thomas Ryan.

Dumbest TPA claim of the week

There's a great quote in the latest TPA 'research' on council pensions. The report says "it is possible for certain council employees to retire at age 55 and immediately draw on a pension as if they had retired at age 60". But it goes on to claim that "this level of generosity would be almost unimaginable in the private sector".

Er... Fred Goodwin? That didn't take much imagining did it? And it's actually... err... MORE generous (unreduced at 50). Perhaps the TPA should go and check out the RBS remuneration committee report to get a clearer idea of exactly how private sector DB schemes work. And RBS is hardly alone. It actually demonstrates how little the TPA know about pensions (except that public sector workers shouldn't be able to have decent ones) that they come out with this type of guff.

I don't care tired of saying this so here we go again. Public sector DB pension provision is not overly generous - it is comparable to what private sector workers could expect until a few years ago. And lots of private sector schemes (like RBS) would have similar discretion to provide an unreduced pension early. The problem is that private sector provision has been weakened, public sector provision has not got more generous. Therefore anyone genuinely interested in pensions policy ought to be focusing attention there primarily. All the TPA advocate is mindless levelling down.

A few snippets

First up, Myners comes out fighting. He says: "It is interesting that as far as I am aware not a single institutional shareholder has raised a single question about Sir Fred’s pension."

He's got a point. Actually the offer of an unreduced pension if you got the heave-ho is actually set out in the RBS remuneration report from last year. If it's such a terrible policy (and I think it is) how come shareholders didn't challenge it before?

Secondly, a bit old this, but the Personal Accounts Delivery Authority has published a report (PDF) on individual investment behaviour in terms of savings. Some familiar stuff here - more choices result in less choosing, many savers adopt naive diversification strategies that are heavily influenced by the available choice, few savers switch funds. I'm most interested in the findings in respect of information provision -

• Evidence from the US suggests that information provision and financial education has a limited impact on individual behaviour in relation to making investment fund choices (section 4.2) and fund switching (section 4.4).
• In Sweden, however, the communications strategy adopted by the mandatory pension scheme seems to have had a considerable impact on levels of active decision making (section 4.5).

This is surely worth more exploration. I'm sceptical about the ability of information provision to have a big impact on certain decisions, but it looks like sometimes it can be effective.

Finally there's a really interesting post from Willem Buiter here that is well worth a read. Here's a very short snippet:

The [effeicient markets hypothesis] is surely the most notable empirical fatality of the financial crisis. By implication, the complete markets macroeconomics of Lucas, Woodford et. al. is the most prominent theoretical fatality. The future surely belongs to behavioural approaches relying on empirical studies on how market participants learn, form views about the future and change these views in response to changes in their environment, peer group effects etc.

A bit more on UKFI

This is all from the framework doc:

[W]e will operate like any other active, engaged shareholder to protect and create value, operating on a commercial basis and at arm’s length from Government.

In order to ensure we meet this standard we will follow in full the Institutional Shareholders’ Committee’s Statement of Principles. This includes:

Monitoring performance. We will maintain an active and regular dialogue with our investee companies’ boards and senior management. We will seek to satisfy ourselves that the boards are operating effectively, and that the companies’ strategies protect and enhance shareholder value.

Intervening when necessary. Should we have concerns, for instance about strategy, operational performance or acquisitions/disposals, we will intervene with the board.

Voting. We will vote all our shares wherever practicable to do so; we will inform the company in advance of our intentions and rationale; and we will disclose how we have voted.

Evaluating and reporting. We will provide regular updates to our client – the Treasury – on the performance of our investments and the effectiveness of our engagement with investee companies.

Much of our focus will be on formulating and implementing a strategy for selling down our holdings over time in an orderly way, consistent with the Government’s firm view that it has no wish to be a permanent investor in UK financial institutions.
We will also engage robustly with banks’ boards and management, holding both strategy and financial performance to account, and taking a strong interest in getting the incentives structures right on the board and beyond – accounting properly for risk and avoiding inefficient rewards for failure.

We will also need to understand the views of and, where appropriate, consult with other investors.

Although we will engage actively as a shareholder, we will respect the principal responsibility which directors – not shareholders – have for deciding their companies’ strategies. In doing this we expect directors to take account of our views, within the overall context set by the Companies Act that directors have a duty to promote the success of the company for the benefit of its shareholders as a whole, including consideration of the need to act fairly between those shareholders. We will not cut across the fundamental legal duty of boards to manage their companies in the interests of all their shareholders.

And from the appendix:

7. Preservation of Investe Company Independence

7.1 The Company will manage the Investments on a commercial basis and will not intervene in day-to-day management decisions of the Investee Companies (including with respect to individual lending or remuneration decisions).

The Investee Companies will continue to be separate economic units with independent powers of decision and, in particular, will continue to have their own independent boards and management teams, determining their own strategies and commercial policies (including business plans and budgets).

7.2 The nature of the Company’s engagement with the Investee Companies will be proportionate to HM Treasury’s ownership interest:

(A) Wholly-Owned Investee Companies: For these financial institutions, the board of the Investee Company will report to the Company, which will actively engage with the Wholly-Owned Investee Company in a manner similar to that in which a financial sponsor would engage with a wholly-owned portfolio company. The Company will, in addition to the rights attaching to the Investments in these companies, exercise all rights and discretions conferred on HM Treasury under the framework documents which apply to these companies, subject to the provisions of this Framework Document.

(B) Listed Investee Companies: For these financial institutions, the Company will engage actively with the Investee Company in accordance with best institutional shareholder practice. The Company will (subject to the other provisions of this Framework Document) exercise the rights attaching to HM Treasury’s Investments in these companies, including voting rights.

TUC guide on investor engagement

This looks like it could be a very helpful guide for TU members who are pension fund trustees, or who have an interest in capital stewardship.

UKFI snippet

I imagine most people will have seen this already but UKFI has set out its stall in a framework doument published on Monday and which is now available on the website. My own area of geeky interest - how it deals with the 'ownership' side of things - is explained in a section on page 9 of the doc. It says that UKFI will intervene in there are concerns about strategy, performance or acquisitions (!) or disposals. It also says that UKFI will vote its shares, tell the investee companies in advance how it will vote its shares, and disclose how it has voted. It will also report ton HMT on the effectiveness of its engagement. The doc also talks about consulting with other shareholders where necesssary.

There's more detail in the appendix, which I'll probably post a bit more about when back at work.

Punditry means never having to say you were wrong

Janet Daley, March 2009:

Big Government is roaring back with a hubris and moral self-righteousness that would have seemed inconceivable even a year ago.

Janet Daley, June 2008

The notion that Big Government (whether in the central or the local form) could solve all social problems, and through its interventions achieve absolute justice and harmony, is collapsing. And in its last moments, in its disbelief and agony at its own failure, it is lashing out in every direction...