I blogged previously about the fact that the bit of the UK Corporate Governance Code that is supposed to nudge companies to take account of how their own employees are doing when setting directors' pay doesn't really work.
I also mentioned the Unite commentary around the Greencore AGM. Note here that we have a case of a company cutting some employees' pay, and provoking a strike in the process. Yet it also paid out significant incentive awards to its directors. (Before anyone claims they may have been contractually obliged to make such payments, it's worth stating that the language in most contracts is very vague on bonus and incentive schemes. In addition, why has any company drafted contracts that might oblige it to breach the spirit of the Code?).
For info, at Greencore's AGM, the vote against the remuneration policy was tiny, below even the average level of opposition (resolution 5 here). So presumably shareholders felt that everything that was ok with the reumeration policy at the company.
Regardless of whether one thinks this is the right outcome, let's just think about why it's unlikely that shareholders would ever hold a company accountable if it looked like it was being 'insensitive' to pay and conditions across the group.
Well for one they may simply not know. In my experience most institutional shareholders pay very little attention to what goes on within the workforce of companies in which they invest, unless something very dramatic has happened. I suspect most Greencore shareholders wouldn't even know about the industrial dispute, and therefore it wouldn't form part of their analysis of the remuneration policy even if they decided they wanted to take account of such issues.
They may also not be interested. Again I think this is probably the default approach of most institutions. I don't mean that as a critical judgment, rather I think that they probably consider being a bit 'insensitive' is a pretty trivial offence in remuneration terms. For example, even Lonmin, which saw numerous striking employees shot dead in a violent strike last year, only got a 29% vote against its remuneration report at the following AGM (the interim CEO received an extra payment). It does make you wonder how bad pay and conditions have to be in order for a defeat to be inflicted!
Thirdly, they may consider that in a tussle between management and labour they would rather side with the former. Again, it's amazing how much institutions will put up with and how loyal they will be to an investee company management. Add to this that asset managers are more likely to have a view of the world that sees labour primarily as a cost, quite aside from any personal politics, and I reckon it's pretty clear where sympathies will lie most of the time.
As such, I find it very difficult to believe that shareholders can really do the job expected of them in respect of this bit of the Code, and I think companies routinely only play lip service to it.
However, think about that Greencore example again. What if the remuneration committee had included two employee representatives? I think it is much more likely that there would have been pressure to take account of what was going in the workforce, and therefore to restrain rewards for executives. It might only be a weak restraining force, but surely more than we have at present. If we want that bit of the Code to mean anything, there has to be a feed in taking account of worforce issues, and employee representation is by far the easiest way of doing it.
Sunday, 10 February 2013
Thursday, 7 February 2013
Opponents of co-determination
Following on from my previous post, one of the things I'm reading currently is this book (PDF) about employee control within firms. What I'm most interested in is where opposition is to employee empowerment is likely to come from and how it it can be overcome.
In light of this, there's an interesting section on co-determination in Germany. What I found striking about this is that most of the opposition to co-determination came principally from employers and their associations (no surprise I guess), not shareholders. Here's a quote from another book featured in this section:
It also suggests, to me, that for all the noise about how great our system is, and how important shareholder accountability is, if it came to a formal struggle over control rights many shareholders might not put up much of a fight. If you think about how little demand there has been from the mainstream for further shareholder rights perhaps this is another indication of the lack of desire for control. I'm also reminded of how often we hear the 'We don't want to micromanage' refrain from some investors.
What might be different in a discussion of workplace democracy in the UK now is that I suspect the business lobby would use their notional existing accountability to shareholders, as evidenced by things like the Stewardship Code, as a theoretical defence of their resistance to greater employee voice.
In light of this, there's an interesting section on co-determination in Germany. What I found striking about this is that most of the opposition to co-determination came principally from employers and their associations (no surprise I guess), not shareholders. Here's a quote from another book featured in this section:
"The main challengers of the law were not shareholders, but companies and employers' associations made up of company executives... the main issue in the entire proceeding was not whether co-determination would dilute shareholder value, but whether it interfered with the interests of the corporation and how it was managed"One could read a couple of things into this. First, it's an implicit acknowledgment that managers hold power in companies, not shareholders, and thus it is they who are most challenged by employee empowerment. Second, shareholders were not that bothered about ceding formal control provided that their financial interests were not damaged. Both perspectives don't really put much weight on accountability to shareholders, now such an unchallengeable and self-evidently 'good thing' in the UK corp gov microcosm.
It also suggests, to me, that for all the noise about how great our system is, and how important shareholder accountability is, if it came to a formal struggle over control rights many shareholders might not put up much of a fight. If you think about how little demand there has been from the mainstream for further shareholder rights perhaps this is another indication of the lack of desire for control. I'm also reminded of how often we hear the 'We don't want to micromanage' refrain from some investors.
What might be different in a discussion of workplace democracy in the UK now is that I suspect the business lobby would use their notional existing accountability to shareholders, as evidenced by things like the Stewardship Code, as a theoretical defence of their resistance to greater employee voice.
Wednesday, 6 February 2013
Individual empowerment stops at the workplace door
As is probably obvious, one of the things I am increasingly interested in is whether there is any prospect of a tilt towards to a greater role for employees in corporate governance and, if so, how this can be brought about. As I've blogged a fair bit recently, there are indications that, for the first time for quite a few years, these ideas are being knocked about again in Labour circles. I am aware of a least three bits of work going on that have relevance to this discussion that we should see this year & which I'll blog when they appear.
I think there are a number of reasons why these ideas are gaining more ground, including (in no particular order):
On the first point, if there is anything that has unified the 'centre ground' of politics in recent years it has been that individuals should have greater power to determine their own path in society. That has been taken to entail greater individual freedom to make our own lifestyle choices, greater choice within public services and so on. Those Tory 'Big Society' posters in the 2010 election even had an element of Paris 1968 about them.
And yet there is a curious silence about individual empowerment in the one place that we spend most of our time - the office, factory or other workplace. Certainly the attitude of the Coalition seems to be that employers need more power relative to workers, in the name of economic efficiency (see Beecroft proposals etc), and they have spoken about making it less easy for workers to take industrial action (eg increased threshold for strike ballots). I think the prevailing view (mistaken) is that if you don't like a job you can always get another one, rather than entertaining the idea that you could think about ways that employees could seek to push back. It's the employment equivalent of "if you don't like it here, move to Russia". All the emphasis is on exit, not voice.
This contrasts, by the way, with much of the historical interest in employee empowerment at work. There has always been a strand in those discussions about how principles we observe in other areas of life could carry over into our working life, which is why we have the term 'workplace democracy' of course. So it's odd, in the era of apparent individual empowerment, that many people still consider that a very authoritarian model at work isn't worth much discussion. This has always, to me, been a gaping hole in the self-professed 'libertarianism' of those on the Right, but I'm surprised many on the Left don't get it either.
Similarly, thinking specifically about TUs, it is a bit odd that there isn't more recognition of how much organising activity is about individual empowerment (this book is well worth a read on this). Rather, lots of people seem to be of the view that a 'servicing' model of trade unionism is 'modern', even though it may not tackle power relations at work, and essentially sees the member as a pretty passive 'consumer' as opposed to someone that can become personally empowered.
So, if we're going to see a serious push on the employee role in governance, perhaps a greater stress on why empowerment at work would be desirable/effective should be part of the strategy. It would both draw attention to the disparity with policy in other areas, and demonstrate why the labour movement is relevant to such a modernising drive,
I think there are a number of reasons why these ideas are gaining more ground, including (in no particular order):
- A sense that a UK-style market approach to corp gov has some big holes in it, such as the weak nature of shareholder oversight as a restraint on company behaviour;
- A belief that labour's share of wealth has declined too far, and needs addressing (this is tied up with the view that greater economic inequality is a social problem, not only 'unfair');
- An attempt to put some meat on the bones of 'pre-distribution';
- An understanding that corporate governance reform is, potentially, a cheap way of doing stuff whilst we're in a period of austerity.
On the first point, if there is anything that has unified the 'centre ground' of politics in recent years it has been that individuals should have greater power to determine their own path in society. That has been taken to entail greater individual freedom to make our own lifestyle choices, greater choice within public services and so on. Those Tory 'Big Society' posters in the 2010 election even had an element of Paris 1968 about them.
And yet there is a curious silence about individual empowerment in the one place that we spend most of our time - the office, factory or other workplace. Certainly the attitude of the Coalition seems to be that employers need more power relative to workers, in the name of economic efficiency (see Beecroft proposals etc), and they have spoken about making it less easy for workers to take industrial action (eg increased threshold for strike ballots). I think the prevailing view (mistaken) is that if you don't like a job you can always get another one, rather than entertaining the idea that you could think about ways that employees could seek to push back. It's the employment equivalent of "if you don't like it here, move to Russia". All the emphasis is on exit, not voice.
This contrasts, by the way, with much of the historical interest in employee empowerment at work. There has always been a strand in those discussions about how principles we observe in other areas of life could carry over into our working life, which is why we have the term 'workplace democracy' of course. So it's odd, in the era of apparent individual empowerment, that many people still consider that a very authoritarian model at work isn't worth much discussion. This has always, to me, been a gaping hole in the self-professed 'libertarianism' of those on the Right, but I'm surprised many on the Left don't get it either.
Similarly, thinking specifically about TUs, it is a bit odd that there isn't more recognition of how much organising activity is about individual empowerment (this book is well worth a read on this). Rather, lots of people seem to be of the view that a 'servicing' model of trade unionism is 'modern', even though it may not tackle power relations at work, and essentially sees the member as a pretty passive 'consumer' as opposed to someone that can become personally empowered.
So, if we're going to see a serious push on the employee role in governance, perhaps a greater stress on why empowerment at work would be desirable/effective should be part of the strategy. It would both draw attention to the disparity with policy in other areas, and demonstrate why the labour movement is relevant to such a modernising drive,
Friday, 1 February 2013
Unintended consequences and exec pay again
I've been thinking more about the repeated assertion that attempts to reform executive pay have suffered from unintended consequences. You know the arguments - disclosing more info on executive pay caused it to go up further, a bonus cap would cause rises in base salary etc.
As I've set out before, I think the major conceptual flaw in these arguments is that they suggest (unwittingly or otherwise) that there are only two things to focus on - policy A, and result B. Hence if A in enacted and B is the result, and if B wasn't what we wanted to happen, then we can say "Aha, stupid reformer, there's an unintended consequence".
My point is that there are (at least) four things to keep your eye on - policy A, result C, decision D and result B. In many cases of alleged "unintended consequences" result B actually comes about because of a step in the middle - decision D - not because of policy A. And what is more result B is usually the intended consequence of decision D.
In the unintended consequences version of exec pay disclosure it works like this -
A policy of greater disclosure of executive pay (policy A) is enacted. Executive pay goes up (result B). Therefore greater disclosure of executive pay (A) caused the increase in executive pay (B) to happen.
A revised intended consequences version of the same process would look like this -
A policy of greater disclosure of executive pay (policy A) is enacted. More data on executive pay is disclosed (result C). Companies use the resulting data to propose increases in executive pay (decision D). Executive pay goes up (result B). Therefore A causes C, and is intended to cause C, but D causes B and, again, is intended to do so. A does not directly cause B. Instead, I think, we have two intended consequences of two separate actions.
What matters in all this is objectives. When policies like executive pay disclosure have been enacted it is quite clear (including to companies) what the objectives of policymakers have been - to restrain executive pay growth. But companies (for a variety of reasons) do not share those objectives and instead have their own which they have the ability to pursue. That, in my opinion, is a better explanation of why the final result doesn't match the objectives of the policy.
Put it in a different context. Your team and my team have different objectives - I want to score a goal against you, and you want to score one against me. Just because I want to to achieve a certain objective (scoring a goal against you, restraining executive pay) does not preclude you from trying to prevent that objective or, indeed, seeking a different objective contrary to mine (scoring a goal against me, increasing executive pay). But if I seek to achieve my objective, but you prevent me and instead you achieve your objective, no-one would argue that my seeking my goal had the unintended consequence of your scoring of your goal.
Yet this (trying to score a goal against you causes you to score a goal against me) is, basically, what those who argue that attempts to control executive pay have the unintended consequences of increasing it are claiming. Right?
Personally I feel that unintended consequences claims are often very politically problematic, as they both disguise the real processes at work and undermine the belief reformers have in their ability to achieve change. The more important question, I guess, is whether those are themselves intended consequences of using this form of argument?
As I've set out before, I think the major conceptual flaw in these arguments is that they suggest (unwittingly or otherwise) that there are only two things to focus on - policy A, and result B. Hence if A in enacted and B is the result, and if B wasn't what we wanted to happen, then we can say "Aha, stupid reformer, there's an unintended consequence".
My point is that there are (at least) four things to keep your eye on - policy A, result C, decision D and result B. In many cases of alleged "unintended consequences" result B actually comes about because of a step in the middle - decision D - not because of policy A. And what is more result B is usually the intended consequence of decision D.
In the unintended consequences version of exec pay disclosure it works like this -
A policy of greater disclosure of executive pay (policy A) is enacted. Executive pay goes up (result B). Therefore greater disclosure of executive pay (A) caused the increase in executive pay (B) to happen.
A revised intended consequences version of the same process would look like this -
A policy of greater disclosure of executive pay (policy A) is enacted. More data on executive pay is disclosed (result C). Companies use the resulting data to propose increases in executive pay (decision D). Executive pay goes up (result B). Therefore A causes C, and is intended to cause C, but D causes B and, again, is intended to do so. A does not directly cause B. Instead, I think, we have two intended consequences of two separate actions.
What matters in all this is objectives. When policies like executive pay disclosure have been enacted it is quite clear (including to companies) what the objectives of policymakers have been - to restrain executive pay growth. But companies (for a variety of reasons) do not share those objectives and instead have their own which they have the ability to pursue. That, in my opinion, is a better explanation of why the final result doesn't match the objectives of the policy.
Put it in a different context. Your team and my team have different objectives - I want to score a goal against you, and you want to score one against me. Just because I want to to achieve a certain objective (scoring a goal against you, restraining executive pay) does not preclude you from trying to prevent that objective or, indeed, seeking a different objective contrary to mine (scoring a goal against me, increasing executive pay). But if I seek to achieve my objective, but you prevent me and instead you achieve your objective, no-one would argue that my seeking my goal had the unintended consequence of your scoring of your goal.
Yet this (trying to score a goal against you causes you to score a goal against me) is, basically, what those who argue that attempts to control executive pay have the unintended consequences of increasing it are claiming. Right?
Personally I feel that unintended consequences claims are often very politically problematic, as they both disguise the real processes at work and undermine the belief reformers have in their ability to achieve change. The more important question, I guess, is whether those are themselves intended consequences of using this form of argument?
Wednesday, 30 January 2013
Some interesting Unite stuff
Unite put out a couple of press releases over the past couple of days that are worth a look. The first one was about strike action at Greencore, or more precisely its plant in Hull. Notably they tied this to the company's AGM and its executive pay.
The second one was about RBS bonuses. This one is interesting because it specifically focuses on the key shareholder - UKFI - excerpt below:
My only extra point would be that they could have pushed for an oppose vote on the rem report (which was passed, though voting figs haven't been released). Perhaps the timing wasn't right for them, but if we're going to be seeing more cases like this, building a shareholder angle in order to up the pressure wouldn't do any harm.Greencore CEO enjoys ‘millionaire’s lifestyle’ as low pay strike looms
28 January 2013Greencore’s blatant disregard of employment tribunal rulings has forced 500 of its workers in Hull to take strike action on Wednesday (30 January) to reverse wage cuts of up to £2,000-a-year, Unite general secretary, Len McCluskey said.
But tomorrow (Tuesday, 29 January) in Dublin, the company’s CEO Patrick Coveney will be seeking to inveigle the shareholders’ annual meeting to give him an enhanced 1.7 million euros pay package so he can enjoy ‘a millionaire’s lifestyle’.
The second one was about RBS bonuses. This one is interesting because it specifically focuses on the key shareholder - UKFI - excerpt below:
Unite, Britain's biggest union, has repeated its call to meet with UKFI (UK Financial Investments Ltd), to urge the organisation to be more proactive in the interests of staff and the taxpayer. UKFI was set up in 2008 by the government to manage its shareholding in the banks.Interesting stuff.
Unite national officer Dominic Hook said: "Once again, it looks like ordinary bank workers and taxpayers will pay the price for the greed at the top of RBS. It is time George Osborne put his foot down. This is no way to repay the country's patience.
"The RBS division implicated in the Libor scandal is set to reap huge financial rewards, but innocent bank workers in call centres and branches up and down the country are having their jobs cut, pensions slashed and terms and conditions eroded.
"Unite has written to the chair of UKFI to call for an urgent meeting to discuss how UKFI can be more proactive in the interests of staff and the taxpayer."
Wednesday, 23 January 2013
"sensitive to pay and employment conditions elsewhere in the group"
When the first burst of corporate governance reform that created our present system in the UK took place in the 1990s, one of the issues that was of concern was executive pay. In particular it was felt that companies needed to be aware of how escalating executive reward might be seen if their workforce was facing a tough period.
As a result a little sentence was put into the guidance on remuneration which now appears in the UK Corporate Governance Code. The current version gives the following guidance to remuneration committees:
Having read quite a few remuneration reports, I would said that in practice companies deal with both the Code and the Companies Act in a very perfunctory way. This is both in terms of disclosure, where companies often simply state that they have considered the posistion of employees when making decisions (rather than giving details), and actual policy. We've seen some cases of people declining bonuses because of other factors (ie bankers, James Murdoch etc) but you don't really see if because of what is going on in the wider workforce.
Of course in part that was because we were on the way up for a long time. But now we are in a period of austerity, these issues come into sharper focus. There are now plenty of companies where pay and employment conditions are not looking great. So shouldn't we be seeing a real freeze on rem comms?
I think this is worth pursuing further. In particular here are a few issues for left-leaning corp gov types to consider -
Have any companies reported that they are freezing exec pay, or waiving bonuses or other incentive awards because of what is going on with employee pay, or employment levels? What about Lonmin for example?
Have any companies where employees are facing a pay freeze or job cuts decided to delay bonuses, salary rises etc to take advantage of the top rate tax cut?
In light of these issues are any investors voting against remuneration reports because the rem comm hasn't demonstrated sensitivity to employment conditions?
To be honest I suspect some institutional investors have never opposed a company remuneration policy on the grounds that the rem comm hadn't been sensitive to employee pay and employment conditions. That means that there is no real oversight of a bit of the Code that attempts to address the issue of fairness within companies. If investors don't start taking this seriously in this difficult economic environmentthen I think we can conclude that this bit of the Code is basically meaningless, and as such we should be looking for other solutions.
As a result a little sentence was put into the guidance on remuneration which now appears in the UK Corporate Governance Code. The current version gives the following guidance to remuneration committees:
They should also be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases.In addition, if I remember the Companies Act now requires companies to state how they take account of these factors.
Having read quite a few remuneration reports, I would said that in practice companies deal with both the Code and the Companies Act in a very perfunctory way. This is both in terms of disclosure, where companies often simply state that they have considered the posistion of employees when making decisions (rather than giving details), and actual policy. We've seen some cases of people declining bonuses because of other factors (ie bankers, James Murdoch etc) but you don't really see if because of what is going on in the wider workforce.
Of course in part that was because we were on the way up for a long time. But now we are in a period of austerity, these issues come into sharper focus. There are now plenty of companies where pay and employment conditions are not looking great. So shouldn't we be seeing a real freeze on rem comms?
I think this is worth pursuing further. In particular here are a few issues for left-leaning corp gov types to consider -
Have any companies reported that they are freezing exec pay, or waiving bonuses or other incentive awards because of what is going on with employee pay, or employment levels? What about Lonmin for example?
Have any companies where employees are facing a pay freeze or job cuts decided to delay bonuses, salary rises etc to take advantage of the top rate tax cut?
In light of these issues are any investors voting against remuneration reports because the rem comm hasn't demonstrated sensitivity to employment conditions?
To be honest I suspect some institutional investors have never opposed a company remuneration policy on the grounds that the rem comm hadn't been sensitive to employee pay and employment conditions. That means that there is no real oversight of a bit of the Code that attempts to address the issue of fairness within companies. If investors don't start taking this seriously in this difficult economic environmentthen I think we can conclude that this bit of the Code is basically meaningless, and as such we should be looking for other solutions.
Sunday, 20 January 2013
Against the business case
One of the things that I find most depressing about the responsible investment movement, if it can be described as such, is the enthusiam for 'business case' arguments to address a particular issue/company/whatever. I understand why this happens, and I recognise that some very smart people have done some great work showing how issues that might have previously been seen as 'soft' are actually financially material.
But, personally, I find it problematic for a number of reasons. First, it's a bit of a lock in. Once you've committed to applying a test of financial materiality to whether or not an issue matters, how do you deal with issues that aren't material but would seem to deserve attention from any investor who considers themself responsible? Being a labour-oriented person, this is a particular concern as essentially I believe the share of wealth generated by a firm that goes to labour has declined too far and this should be reversed. It's difficult to make a business case type argument for this - you can talk about staff morale, turnover etc but most asset managers will just be thinking of increased labour costs.
Secondly, in practice this leads to the kind of decisions that seem inexplicable to ordinary punters. Take the re-election of James Murdoch as a non-exec at BSkyB last year, overwhelmingly supported by most shareholders. I suspect this decision was based on factors such as him having already given up the chair, having useful operational knowledge of the business (though of course this makes him non-independent) and it, basically, noy being worth one more heave to get him off the board. Yet his re-election came after he was criticised by both the parliamentary committee investigating phone-hacking and the broadcasting regulator Ofcom and despite there being obvious questions about his version of events in terms of News International's knowledge of hacking.
I guess what is at the heart of what I don't like is that making business case arguments implies that the merits of whether or not an issue can or should be addressed can be established by running a few models. I think these things are inherently political, and always have been. In contrast, one of the things you often hear in the responsible investment/corporate governance microcosm is that we need to be wary of 'politicising' issues or being seen to 'campaign' on them. (I heard a few asset managers express concern about the NOTW/BSkyB stuff being 'politicised', as if there had never been any political element to News Corp's operations in the UK.) As a tactic, or a presentational concern, I see the point. But as a way of thinking about what we are doing I think it is deeply flawed and cedes far too much ground to existing ways of operating within the financial system.
I do wonder if using business case arguments isn't also a bit 1990s. Given what we have gone through in the past few years, a faith in market-based 'solutions' to questions about how firms are run (both in terms of objectives and governance) has taken a bit of a battering. Will Davies' excellent paper on neo-communitarianism looks at what may be happening to broadly neoliberal ideas at the level of public pubic policy. I think this process may also occur at the micro level of corporate governance reform, with proposals being argued in different ways. Lynn Stout and Cass Sunstein have both argued for certain corporate governance ideas in 'behavioural' terms, for example.
Thinking responsible investment, I would also flag up Rory Sullivan's great article from last year where he argues -
Having said all this, it's important to recognise that business case/financial materiality is probably the dominant approach in the RI world currently, and likely to remain so for some time. But it will be interesting if public policy discussions head off in a different direction, as Will suggests, yet much of the RI sector remains wedded to arguing largely in business case mode alone.
NB. I recognise that the RI community is diverse, and some still do take an explicity ethical appproach. But, IMO, this is a clear minority, and the 'movement' in general is closer to the view I set out.
But, personally, I find it problematic for a number of reasons. First, it's a bit of a lock in. Once you've committed to applying a test of financial materiality to whether or not an issue matters, how do you deal with issues that aren't material but would seem to deserve attention from any investor who considers themself responsible? Being a labour-oriented person, this is a particular concern as essentially I believe the share of wealth generated by a firm that goes to labour has declined too far and this should be reversed. It's difficult to make a business case type argument for this - you can talk about staff morale, turnover etc but most asset managers will just be thinking of increased labour costs.
Secondly, in practice this leads to the kind of decisions that seem inexplicable to ordinary punters. Take the re-election of James Murdoch as a non-exec at BSkyB last year, overwhelmingly supported by most shareholders. I suspect this decision was based on factors such as him having already given up the chair, having useful operational knowledge of the business (though of course this makes him non-independent) and it, basically, noy being worth one more heave to get him off the board. Yet his re-election came after he was criticised by both the parliamentary committee investigating phone-hacking and the broadcasting regulator Ofcom and despite there being obvious questions about his version of events in terms of News International's knowledge of hacking.
I guess what is at the heart of what I don't like is that making business case arguments implies that the merits of whether or not an issue can or should be addressed can be established by running a few models. I think these things are inherently political, and always have been. In contrast, one of the things you often hear in the responsible investment/corporate governance microcosm is that we need to be wary of 'politicising' issues or being seen to 'campaign' on them. (I heard a few asset managers express concern about the NOTW/BSkyB stuff being 'politicised', as if there had never been any political element to News Corp's operations in the UK.) As a tactic, or a presentational concern, I see the point. But as a way of thinking about what we are doing I think it is deeply flawed and cedes far too much ground to existing ways of operating within the financial system.
I do wonder if using business case arguments isn't also a bit 1990s. Given what we have gone through in the past few years, a faith in market-based 'solutions' to questions about how firms are run (both in terms of objectives and governance) has taken a bit of a battering. Will Davies' excellent paper on neo-communitarianism looks at what may be happening to broadly neoliberal ideas at the level of public pubic policy. I think this process may also occur at the micro level of corporate governance reform, with proposals being argued in different ways. Lynn Stout and Cass Sunstein have both argued for certain corporate governance ideas in 'behavioural' terms, for example.
Thinking responsible investment, I would also flag up Rory Sullivan's great article from last year where he argues -
The critical first step is for us to be much more explicit about the goals and outcomes we wish to see from responsible investment. If responsible investment is not about the delivery of social or environmental purposes (beyond investment returns), then I suggest we retire the term ‘responsible investment’, and return to talking about investment (or, at a stretch, ‘enhanced analysis’) and wait for a new generation to take on the challenge of ensuring that the capital markets make a meaningful contribution to the goals of sustainable development.That sounds about right to me. Mainstream asset managers used to get criticised by SRI types for asserting that they already factored ESG issues into investment decision-making (even though you couldn't tell from the outside). Yet with all the emphasis on business case argumentation, materiality and integration, isn't the responsible investment in danger of ending up not far away from that, but just with better processes for getting there? If the outcomes aren't much different what has been achieved? Incidentally, notice the same trend is at work looking at the slightly broader question of 'ownership'. After years of stressing the universal owner type model, note the renewed interest in concentrated portfolios with a limited number of stocks. Kind of where the mainstream asset management industry used to be before the rise of indexing, no?
Having said all this, it's important to recognise that business case/financial materiality is probably the dominant approach in the RI world currently, and likely to remain so for some time. But it will be interesting if public policy discussions head off in a different direction, as Will suggests, yet much of the RI sector remains wedded to arguing largely in business case mode alone.
NB. I recognise that the RI community is diverse, and some still do take an explicity ethical appproach. But, IMO, this is a clear minority, and the 'movement' in general is closer to the view I set out.
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