RBS pay vote looms

The (symbolic but ultimately meaningless) vote on the RBS remuneration policy is imminent. It will probably be the biggest vote against a remuneration report to date, driven by UKFI's decision to vote against. I'll post up the result when it's public. Of course the vote has no actual power, and Sir Fred can sleep easy on his money.

UPDATE: It's just over 90% against. Biggest vote ever against a remuneration report (maybe any resolution?) and the first time a bank has lost any vote.

Ownership meme

One of my recurring themes is the problematic nature of ownership in public companies. The shareholder-company relationship doesn't seem to function much like ownership (despite the best efforts of some of us) and at present I'm not sure the signs are good that it will in future (for example because of the DB to DC shift in pension provision, which will atomise share ownership further).

Both Duncan and Charlie are interested in this question too, so I'm passing the batton to you two to give your fellow bloggers a few ideas/comments on how we might make it work (or at least work better). What do we want pension funds, for example, to do? And pass this on to anyone else you think might have something interesting to say.

Shorting, market efficiency etc

Hat-tip to Zedman for pointing me in the direction of the IOSCO consultation (PDF) on the regulatory response in respect of short-selling. As he pointed out, IOSCO is basically positive about the role of shorting. This from the intro:

The Technical Committee believes that short selling plays an important role in the market for a variety of reasons, such as providing more efficient price discovery, mitigating market bubbles, increasing market liquidity, facilitating hedging and other risk management activities.

I admit my ignorance here, and I'm seriously considering buying a serious text book to get my head around such things, but I don't think I can share some of these views. As I've said before I'm broadly neutral about the impact of shorting, but the argument that it has benefits bothers me.

We have had market bubbles since shorting has become more widespread - so can we assert that it mitigates them? The academic evidence on the impact of shorting in this regard is mixed from my limited reading of it. In what sense does it aid market efficiency? This seems to rest on the assumption that markets are efficient in the first place, and even so they may only be informationally efficient and only in a limted sense (ie information is factored into price quickly, but it could still be the wrong information). Surely even the EMH allows that prices at a given time may not represent a realistic view of the future, so this 'effiency' might simply mean getting it wrong sooner.

Finally the term 'price discovery' is one of those (like 'portable alpha') that really grates with me. In practical usage it seems to actually mean price formation, and the semantics are important. 'Discovery' implies that something is there to be found - there is a fundamental truth to be uncovered - but 'formation' is more accurate IMO because it suggests that price is the aggregate of market exchanges and the views implicit in them. I don't accept that shorting is better than other trading in terms of price formation - I don't see why it would be unless shorters are somehow inherently more rational or more informed than others. And I don't accept that there is a correct price to be 'discovered'.

To finish up here's a nice quote from Benoit Mandelbrot that expresses my scepticism more eloquently than I can -

"Value is a touchstone to most people. Financial analysts try to estimate it, as they study a company's books. They calculate a break-up value, a discounted cash-flow value, a market value. Economists try to model it, as they forecast growth... All this implies that value is somehow a single number that is a rational, solveable function of information. Given a certain set of information about an asset - a stock, a bond, or a pair of wooden culottes - everybody if equally well-placed to act will deduce it has a certain value; they will all hang the same price tag on it. Prices can fluctuate around that value; and it can be hard to calculate. But value, there is. It is a mean, an average, something certain in a chaos of conflicting information. People like the comfort of such thinking. There is something in the human condition that abhors uncertainty, unevenness, unpredictability. People like an average to hold onto, a target to aim at - even if it is a moving target."
The (Mis)Behaviour of Markets, B Mandlebrot, 2004

A few more blogs to take a look at

Knowing & Making (which has a bit of a behavioural slant)
John Quiggin (Aussie social democratic economist doing a nice series of refuted economic ideas)
UKSIF Sustainable Recovery blog
RSA Tomorrow's Investor blog

McKillop steps down from BP board

I've already said my bit on this, so I think he was right to go. It also (rightly) tilts the balance back in favour of Paul Myners in terms of the RBS pensions row. But why stop at McKillop? The FT's Lombard column helpfully points out where some other ex-RBS directors currently draw a hefty salary. Bob Scott - also embroiled in Pension-gate (I'm joking) - is chair at Yell for example. One to watch.

Combined roles at M&S

There's more shareholder shenanigans underway at M&S, where the Local Authority Pension Fund Forum has filed a shareholder resolution. This seeks the appointment of an independent chair by July 2010 - in other words asking M&S to split the chair and chief exec roles combined by Stuart Rose.

An interesting test case, since separate chair and chief executive roles are the norm on UK companies, and it's a well-established governance principle here (unlike in the US). So why would any investor who claims to support the Combined Code vote against? Expect to see some tortuous arguments why not...

Just a bit more on Fred's pension

Last year's annual report says:

All UK based directors, with the exception of Guy Whittaker, are members of The Royal Bank of Scotland Group Pension Fund (‘the RBS Fund’) and are contractually entitled to receive all pension benefits in accordance with its terms. The RBS Fund rules allow all members who retire early at the request of their employer to receive a pension based on accrued service with no discount applied for early retirement.

This year's annual report says:

The RBS Fund rules allow all members, including executive directors, who retire early at the request of their employer to receive a pension based on accrued service with no discount applied for early retirement. The provision for an undiscounted pension on early retirement at employer request will not apply to any executive director appointed in the future. The RBS Fund is closed to employees, including any executive directors, joining the Group after 30 September 2006.

A couple of things. A lot would seem to hang on that word 'allow', which seems to imply that this is a discretion. In addition the 2009 wording seems to suggest that the discretion will not be used if future. That suggests that the RBS board could have let him take early retirement but with a reduced pension, which would contradict Tom McKillop's latest missive.

On the other hand, you could read the statement as simply setting out the current provision - no director appointed in the future will get the unreduced pension deal. But the scheme Goodwin was a member of is closed to new entrants anyway, so in a sense that is obvious. That could imply that this is a rule that has to be followed in early retirement situations.

There's an easy way to find out if McKillop is spinning or not. If there is any RBS employee out there who retired early and did not get an unreduced pension then clearly it was a discretion.