This is actually a pretty good speech, with a few caveats. First, presentationally he fluffs it a bit. He's not a charismatic speaker IMO, and he makes a few stumbles early on. Secondly I think he actually tries to have his cake and eat it in theoretical terms. He references a lot of different economic thinking, but I'm not at all sure the perspectives mesh together. It comes across like he is cherry-picking ideas that enable him to critique recent policy (which is fair enough politically, but makes for a less interesting speech).
But... there are a lot of good bits in here even if the message isn't coherent (yet). I'd love to hear a speech from a Labour MP that covered this kind of ground. Really talk about what we can learn from Robert Shiller or Hyman Minsky ought to be coming from the Left, but where is that happening? Of course Osborne may have his speechwriter to thank for all this, and in power the Tories' attachment to behavioural economics might last as long as Blair's attachment to 'stakeholder' capitalism. But however you cut it, this was a pretty good speech, and does suggest some thinking might be going on in the Stupid Party.
Tuesday, 14 April 2009
Aon and levelling down
Last week Aon gave everybody a bit of a shock but cutting contributions to its money purchase pension scheme. Now we're used to employers closing final salary schemes to new members, even current members in some cases, and replacing them with DC schemes into which they pay lower contributions. But cutting contributions to DC scheme is a new attack on pensions.
From a company's point of view I can see the logic. It's a straightforward way to reduce costs and you will have a prety good idea of how much it will save you. As such it might not be surprising to see more companies try this approach during the recession. However one argument that strikes me as slightly barking is that advanced by Rod Altman, who told The Times last week that the Government was in part to blame, because of the impact of Personal Accounts.
This doesn't make any sense to me, either in respect of the Aon story, or in general. In terms of the Aon story, though the company is cutting its contribution, the minimum appears to be 6% - twice the minimum level that employers will have to pay into Personal Accounts. If Aon really was levelling down because of Personal Accounts why not go the whole hog?
Ahh... you might say... obviously Aon knows a cut of such a scale would be too steep, but the minimum of 3% at least gives them something to aim off. True enough, but currently there is no minimum employer contribution to pensions at all. So actually Aon can aim off 0%, not 3%, and still look relatively 'generous'. So on those grounds we might expect the introduction of Personal Accounts to mitigate employers cuts to DC schemes, if more follow Aon's lead.
More broadly, if employers are going to level down, why not do it right now? Currently they could reduce their pension contributions to 0%, and only up them to 3% in 2012 when legally obliged to. Or reduce them to 3% now? If the introduction of Personal Accounts really is going to be used by employers as a way to mask major cuts in pension provision, as people like Ros Altman argue, what are they waiting for? The whole argument looks shaky.
Which brings me on to my final problem with such 'analysis'. It's classic billiard ball stuff. A will cause B to do C. But as always which such a simplistic view of how systems involving us shaved apes operate, it doesn't stack up to well against reality. The 'B' in this case are employers. Whilst I don't doubt that some will screw down pension costs, I think they will do it regardless (though they may tell pollsters that it's 'because' of Personal Accounts). Others clearly will not, maybe because they will make savings elsewhere, maybe because they fear it may damage employee morale, whatever. Employers have a choice how to respond, and will exercise that choice differently. How employers choose to respond will determine whether there is levelling down or not - not Personal Accounts. And actually experience so far shows that few employers are following Aon, and suggesting that levelling down is overplayed in any case.
It's a weak argument all round.
From a company's point of view I can see the logic. It's a straightforward way to reduce costs and you will have a prety good idea of how much it will save you. As such it might not be surprising to see more companies try this approach during the recession. However one argument that strikes me as slightly barking is that advanced by Rod Altman, who told The Times last week that the Government was in part to blame, because of the impact of Personal Accounts.
She blamed the Government for encouraging the trend. "From 2012, its proposed personal accounts will only require employers to contribute 3 per cent," she said. "I have consistently warned about the ‘levelling down’ this will entail as employers . . . cut pension contributions to the minimum ‘official’ 3 per cent level."
This doesn't make any sense to me, either in respect of the Aon story, or in general. In terms of the Aon story, though the company is cutting its contribution, the minimum appears to be 6% - twice the minimum level that employers will have to pay into Personal Accounts. If Aon really was levelling down because of Personal Accounts why not go the whole hog?
Ahh... you might say... obviously Aon knows a cut of such a scale would be too steep, but the minimum of 3% at least gives them something to aim off. True enough, but currently there is no minimum employer contribution to pensions at all. So actually Aon can aim off 0%, not 3%, and still look relatively 'generous'. So on those grounds we might expect the introduction of Personal Accounts to mitigate employers cuts to DC schemes, if more follow Aon's lead.
More broadly, if employers are going to level down, why not do it right now? Currently they could reduce their pension contributions to 0%, and only up them to 3% in 2012 when legally obliged to. Or reduce them to 3% now? If the introduction of Personal Accounts really is going to be used by employers as a way to mask major cuts in pension provision, as people like Ros Altman argue, what are they waiting for? The whole argument looks shaky.
Which brings me on to my final problem with such 'analysis'. It's classic billiard ball stuff. A will cause B to do C. But as always which such a simplistic view of how systems involving us shaved apes operate, it doesn't stack up to well against reality. The 'B' in this case are employers. Whilst I don't doubt that some will screw down pension costs, I think they will do it regardless (though they may tell pollsters that it's 'because' of Personal Accounts). Others clearly will not, maybe because they will make savings elsewhere, maybe because they fear it may damage employee morale, whatever. Employers have a choice how to respond, and will exercise that choice differently. How employers choose to respond will determine whether there is levelling down or not - not Personal Accounts. And actually experience so far shows that few employers are following Aon, and suggesting that levelling down is overplayed in any case.
It's a weak argument all round.
Monday, 13 April 2009
Stuff
1. Random TPA quote generator. Saves journos even having to phone the conservative lobby group to get their opinion.
2. VAT cut - hey, maybe it did work.
3. Some more on ownership, this time from Boffy.
4. Don't forget that Guido apparently sees himself as part of Project Cameron.
2. VAT cut - hey, maybe it did work.
3. Some more on ownership, this time from Boffy.
4. Don't forget that Guido apparently sees himself as part of Project Cameron.
Sunday, 12 April 2009
Barclays deal
I have to admit I've not been following this one as closely as I should, but Pesto has and there's some incredible stuff in there:
Is all this to simply avoid any state ownership? If so this independence is coming at a very high price.
But it's not a sale in the sense that most of us would recognise. Because it has lent the buyer, the private-equity house CVC, £2.1bn of the purchase price...
What's even more delightful for the purchaser, Barclays will pay CVC £120m if it rats on the deal by securing better terms from another bidder (there's also provision for both Barclays and CVC to receive between £34m and £120m if either side walks away for other reasons).
Is all this to simply avoid any state ownership? If so this independence is coming at a very high price.
Politics versus business
Interesting to see Damian McBride fall on his sword, and the right thing to do in the circumstances. The meejah are in a feeding frenzy about this, understandably. On Breakfast, the presenter tried to get Liam Byrne to say that McBride should never work in Government or for the party ever again, which he sort of did (whilst clearly being uncomfortable about the commitment he was being asked to make). Realistically there's going to be heavy meejah flak if McBride does get a decent job elsewhere soon.
But does the same standard apply to business people who mess up? For example, one thing that is not in question in the Fred Goodwin pension debacle is that the early retirement deal was agreed to by the board. However you cut it, Fred Goodwin got a pension enhancement, despite having led the company to the point it needed state life-support. That is no question a reward for failure, and it took place in the midst of a financial crisis. It was an apocalyptically bad decision. So then should we conclude that the directors involved with (probably) the most high-profile reward for failure in UK corporate history have suffered enough by no longer being directors of RBS, or should if affect their other directorships?
Obviously I think that it should call into question their competence as directors, but actually BP (for example) is already spinning that Peter Sutherland is not under threat, and there doesn't seem to be (so far) much pressure on Bob Scott at Yell either. Now clearly there's a case to be made in their defence (Sutherland's going to retire anyway, him and Scott were not as central at RBS as MacKillop etc). But you do rather get the impression that if you mess up in business it only gets held against you at that one company, and if you're a 'name' you get to see your time out because it's a bit disrespectful to challenge your credentials. What's more you get a lot more cash for doing a bad job than a spinner.
In the big scheme of things which is the bigger outrage and has done the most damage - letting a bank destroy itself and giving the chief exec a pension boost for his hard work, or plotting some stupid (and no question highly distasteful) web gossip that never actually got aired? I'm in no way seeking to excuse McBride and Draper, just making a comparison of how we treat different types of people. In the case of politicos we seem to want to burn them at the stake, or a least destroy their careers, but in the business world people continue to draw massive salaries in other jobs despite having cost the taxpayer millions because of their failures.
Just seems a bit lop-sided to me.
But does the same standard apply to business people who mess up? For example, one thing that is not in question in the Fred Goodwin pension debacle is that the early retirement deal was agreed to by the board. However you cut it, Fred Goodwin got a pension enhancement, despite having led the company to the point it needed state life-support. That is no question a reward for failure, and it took place in the midst of a financial crisis. It was an apocalyptically bad decision. So then should we conclude that the directors involved with (probably) the most high-profile reward for failure in UK corporate history have suffered enough by no longer being directors of RBS, or should if affect their other directorships?
Obviously I think that it should call into question their competence as directors, but actually BP (for example) is already spinning that Peter Sutherland is not under threat, and there doesn't seem to be (so far) much pressure on Bob Scott at Yell either. Now clearly there's a case to be made in their defence (Sutherland's going to retire anyway, him and Scott were not as central at RBS as MacKillop etc). But you do rather get the impression that if you mess up in business it only gets held against you at that one company, and if you're a 'name' you get to see your time out because it's a bit disrespectful to challenge your credentials. What's more you get a lot more cash for doing a bad job than a spinner.
In the big scheme of things which is the bigger outrage and has done the most damage - letting a bank destroy itself and giving the chief exec a pension boost for his hard work, or plotting some stupid (and no question highly distasteful) web gossip that never actually got aired? I'm in no way seeking to excuse McBride and Draper, just making a comparison of how we treat different types of people. In the case of politicos we seem to want to burn them at the stake, or a least destroy their careers, but in the business world people continue to draw massive salaries in other jobs despite having cost the taxpayer millions because of their failures.
Just seems a bit lop-sided to me.
Friday, 10 April 2009
Galbraith on regulators
From The Great Crash:
[R]egulatory bodies, like the people who comprise them, have a marked life cycle. In youth they are vigorous, aggressive, evangelistic, and even intolerant. Later they mellow, and in old age – after a matter of ten or fifteen years – they become, with some exceptions, either an arm of the industry they are regulating or senile.
Thursday, 9 April 2009
Voting disclosure
The disclosure of shareholder voting records by institutional investors has been a bit of a crusade of mine for a number of years now. Slowly but surely more fund managers have started putting more information in the public domain. If you're lucky, 6 months after an AGM has taken place, you might be able to find out how half of the company's large UK shareholders voted, or be able to have a guess (because some managers only report votes against or abstentions, so if you know they held the stock you can assume they voted in favour).
This voluntary disclosure regime is, I humbly submit, a crock of ****. I've recently been doing some research into how fund managers were voting at bank AGMs in recent years. If you believe - as many profess to - that shareholders are the owners of companies, and therefore have a responsibility to engage with them where they think there are problems, then surely now the question of how those ownership rights were exercised in respect on the banks is a matter of considerable public interest.
I am pretty confident that I am one of the few UK-based people who knows this area in any depth. I can't think of many people in the UK who have spent as much time looking as this as I have. I know where to look for the info (not always obvious, believe me) and what to look for in the data. But the reality is that there simply isn't much there. In the course of this research I have only been able to find data for a bit over a third of my target group of fund managers in respect of 2008 AGMs, less then a fifth for 2007 AGMs and about one in ten for 2006 AGMs. You basically can't put together a comprehensive picture of how institutions voted at the banks.
The voluntary regime allows this - there is no prescription on issues such as the level of disclosure (so some just disclose headline stats), the timeliness of disclosure (some disclosures are only updated months later), or the provision of archived info (even some of those who make full disclosures don't give you access to previous years' data). The result is a mess of information that frustrates proper analysis. If I was a trustee of a pension fund trying to compare my fund manager against others I would give up.
Imagine if the same thing occured with performance - fund managers only telling you the results they decided, in the format they decided, in a timeframe they decided. It wouldn't be acceptable, so why is it in respect of their ownership performance, for want of a better term?
The UK also contrasts with markets like the US and Canada where initiatives like FundVotes.com and ProxyDemocracy provide the data for direct comparisons of fund managers (and some othe institutions). The AFSCME report I mentioned the other day gives you a practical example of how mandatory disclosure can provide a way for interested parties to hold institutional investors to account for own they exercise ownership. This just isn't possible in the UK because of the fudged voluntary disclosure regime the fund management industry managed to buy the Government off with.
But it does not need to be like this. The Treasury judiciously took a reserve power in the Companies Act that would enable them to mandate public disclosure. The voluntary system is not (New Labour-ism alert!) fit for purpose, and this is dramatically demonstrated by the lack of data on bank AGMs. Therefore let's tackle this issue once and for all and make it compulsory to disclose voting records, and in a standardised form.
OK?
This voluntary disclosure regime is, I humbly submit, a crock of ****. I've recently been doing some research into how fund managers were voting at bank AGMs in recent years. If you believe - as many profess to - that shareholders are the owners of companies, and therefore have a responsibility to engage with them where they think there are problems, then surely now the question of how those ownership rights were exercised in respect on the banks is a matter of considerable public interest.
I am pretty confident that I am one of the few UK-based people who knows this area in any depth. I can't think of many people in the UK who have spent as much time looking as this as I have. I know where to look for the info (not always obvious, believe me) and what to look for in the data. But the reality is that there simply isn't much there. In the course of this research I have only been able to find data for a bit over a third of my target group of fund managers in respect of 2008 AGMs, less then a fifth for 2007 AGMs and about one in ten for 2006 AGMs. You basically can't put together a comprehensive picture of how institutions voted at the banks.
The voluntary regime allows this - there is no prescription on issues such as the level of disclosure (so some just disclose headline stats), the timeliness of disclosure (some disclosures are only updated months later), or the provision of archived info (even some of those who make full disclosures don't give you access to previous years' data). The result is a mess of information that frustrates proper analysis. If I was a trustee of a pension fund trying to compare my fund manager against others I would give up.
Imagine if the same thing occured with performance - fund managers only telling you the results they decided, in the format they decided, in a timeframe they decided. It wouldn't be acceptable, so why is it in respect of their ownership performance, for want of a better term?
The UK also contrasts with markets like the US and Canada where initiatives like FundVotes.com and ProxyDemocracy provide the data for direct comparisons of fund managers (and some othe institutions). The AFSCME report I mentioned the other day gives you a practical example of how mandatory disclosure can provide a way for interested parties to hold institutional investors to account for own they exercise ownership. This just isn't possible in the UK because of the fudged voluntary disclosure regime the fund management industry managed to buy the Government off with.
But it does not need to be like this. The Treasury judiciously took a reserve power in the Companies Act that would enable them to mandate public disclosure. The voluntary system is not (New Labour-ism alert!) fit for purpose, and this is dramatically demonstrated by the lack of data on bank AGMs. Therefore let's tackle this issue once and for all and make it compulsory to disclose voting records, and in a standardised form.
OK?
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