Report to UK government: investors should engage with unions

A committee report to government recommends that institutional investors talk to union officials to gain a deeper understanding of companies:

The success of a company is determined not only by its management but also by the attitudes and activities of its workforce. Institutional investors should therefore have regard to the relationship between management, employees and trade unions in the companies in which they hold shares. This is not merely a matter of passive observation. In appropriate cases they could often with advantage hold discussions with trade union officials to learn their views about the company and to inform them about matters that are of concern to them. The promotion of exchanges of this nature should be to the advantage of all concerned.

A very sensible suggestion, from the report of the Committee to Review the Functioning of Financial Institutions, published in... err... June 1980.

Some great stuff in here (hat-tip: Brendan) which I'll no doubt be posting up. Get a load of this:

On occasions when there is a general dissatisfaction with management performance, and where it is felt appropriate to co-ordinate an even broader approach to the board, an [investor representative group] can refer a case to the Institutional Shareholders' Committee (ISC). This was set up by the four institutional investor associations in 1973 at the initiative of the Bank of England and with a terms of reference which require it:

To co-ordinate and extend the existing investor protection activities of institutional investors with a view, where this is judged necessary, to stimulating action by industrial and commercial companies to improve efficiency

...the ISC acts primarily through the creation of case committees, though in practice many of the cases coming to it have been referred back for action [other investor groups] or by individual institutions. Between its formation and the end of 1979 it had dealt with 37 cases, of which seven led to formal case committees and 19 were felt more appropriate for independent action. The remaining 11 had either already gone too far for anything to be done or were resolved in some other way.

So the terms of reference under which the ISC was set up required it to facilitate collaborative engagement. And at an earlier point in its history this is actually what it did in practice. And compare that to what the ISC's terms of reference say now, for example:

· consider whether there are any such matters on which member organisations should co-ordinate their activities or representations to UK Government and regulators; European institutions; and, any other relevant international legislative, regulatory or standard setting bodies; and

· make joint representations on occasion and by mutual agreement.

So its mission has changed broadly from co-ordinating investor engagement with a view to improving performance to co-ordinating the lobbying activities of its member associations.

Performativity

This is an idea that has cropped up a few times in posts on here. There's a really simple take on it here. Interesting stuff.

BIS consultation on narrative reporting

Is out, here, and is intended to meet the coalition's objective of reinstating the OFR. Could be interesting, get a load of this:

Should there be an advisory vote on the Business Review to allow shareholders to express their view on the directors’ performance and the company’s future prospects on the basis of the directors’ description of the company’s performance, forward looking strategy and principal risks?

I think I know which asset manager might have been pushing that one....!

Also seeks views on remuneration reporting, which is an opportunity to address the 'sensitive to pay and conditions across the group' issue. Also maybe time for BIS to look at disclosure of directors' pension entitlements?

Incentives in one sentence

From John Kay again:

There is a role for carrots and sticks, but to rely on carrots and sticks alone is effective only when we employ donkeys and are sure exactly what we want the donkeys to do.

Interesting vote at Invensys

On the remuneration report, AGM results here. Looks like a high, but not very high vote against on the face of it. But look at the total votes on the resolution, they are way lower (as in over 220m votes lower) than on the other resolutions. That suggests a big block of abstains, and in fact if you assume a similar turnout on the rem report to the other resolutions this looks like another report that passed on minority active support.

Agency theory vs trust

A nice little snippet from John Kay's Obliquity:

There is nothing wrong with using 'I trust him' or 'I don't trust him' as a basis for decision. Finding individuals you can trust, or establishing trusting relationships with them, is the most effective - often the only effective - means of achieving the delegation that is necessary to accomplish objectives and goals in large organisations. Successful decentralisation relies of the transmission of high-level objectives, not just intermediate goals and basic actions, to the agents who will implement them. This is a world apart from principal-agent models that treat social organisations as mechanical systems in which agents respond to stimuli that incentive structures impose.

Lib Dems hit the ground flying

Wow, down to 12% now in the latest YouGov poll. Bound to be a rogue, but they seem to be down to about 14% on average. And this before the cuts really bite. Can they drop to single figures?