Was this the week...?

This is off-topic, but I thought I'd google some of my least favourite political cliches and find out how often they come up.

How about "was this the week"? This is usually followed by "x won/lost the next election". So here are a few hits -

Was this the week Miliband finally headed for No 10?

Was this the week when the coalition's initial momentum finally faltered?

Was this the week that Ed Miliband began his unstoppable climb to power?

Was this the week that determined the result of the general election?

Was this the week in which Cameron signed up to Obama's re-election campaign?

Was this the week the Referendum was won?

Was this the week Gordon Brown lost the election?

Was This the Day that Barack Obama Lost the Election

I put the prevalence of "was this the week" down to political commentators desire to be seen to highlight the real turning points, even before their consequences have fully played out. So these are a bit like those "what level will the FTSE100 be at next year" bits in the personal finance pages.

What I really cannot excuse, however, is "champagne corks popping". And they seem to pop an awful lot - 

Expect to see champagne corks popping at Tory central office

champagne corks popping in the Leader's Office.

 There should have been champagne corks popping in CCHQ

Was that the sound of champagne corks popping at CCHQ?

That noise you hear is the champagne corks popping in No.10 at Ed Miliband's decision to rule out a Euro referendum.

The High Court's award of an injunction against the RMT's planned Strike Action will have champagne corks popping in Downing Street.

"I think I heard the putt-putt of champagne corks popping in No 11"

What I really don't like about this one is the idea that trigger-happy politicos are just waiting pop the corks off champagne over minor political advantages. But maybe that is just what Tories are actually like...

Finally, some people are still willing to use "speech of his/her political life". Please stop. Now. 

the most momentous speech of his political life

the most important speech of his political life,

Cameron makes the most important speech of his political life

the most important speech of his political life

Last year, Miliband gave the speech of his political life.

I'm just waiting to be able to say that this was the week that X won the election after giving the speech of their political life that left champagne corks popping in Number 10.

Beyond shareholder value and the governance of governance

I can recommend this collection of essays on corporate governance reform highly enough. There are a lot of interesting pieces in there, and some interesting contributors too.

There is simply too much in there to summarise easily in one blog post, and anyway Janet at the TUC has done a better job than I could here. So I thought I would just highlight the fact that a couple of the pieces talk about the need for the governance of bodies with an interest in governance issues to be reformed.

The LFIG piece is most explicit, with the following ideas:

The Takeover Panel, FRC and LSE should have far wider representation from other parts of society (e.g. employees, SMEs, local government, etc.) on the boards that develop and enforce good corporate governance practices. remits should be extended to include non Plcs over a certain size. These regulatory bodies, in turn, need to be more directly accountable to one or more of the following: BIS, an expanded Companies house, the HMRC. national and local government procurement (and possibly fiscal) policy needs to be more directly tied to good corporate governance practices. 

But there's also a reference in Dan Corry's piece:

as part of such a new approach we may need a new agency: replacing the FRC with a Companies Commission that could include non-investors, to provide market intelligence, promote best practice innovation from corporate experience and provide investor leadership independent of market pressures.

As I've blogged before, when you think about the issues at stake it is odd that corporate governance in the UK is treated as a subset of financial reporting. And it's even odder that accounting and legal firms, and other service providers, seem to have more influence than employees. It's an area that is ripe for change.

A few snippets

1. The NAPF put out a survey of pension scheme members' views on issues relating to stewardship last week. There's an interesting finding in there about what they think pension funds ought to be talking to investee companies about. Employee pay and conditions ranks above exec pay, environmental issues and so on. In practice I reckon it's near the bottom of the list of stuff that actually gets talked about. Here's the blurb:

If the primary fund of your pension provider were taking an active role in the companies they invest in, what do you think are the most important issues for them to consider?
Understandably the issue considered most important was the recent financial performance of the company (57%) with pay and conditions of employees (36%) and level executive pay (30%) a distance behind.
Notably despite the significant attention given to issues of executive pay, diversity and environmental impacts – all of which the NAPF agrees are important and material issues for many companies – these do not on the whole feature very highly for respondents.
Recent financial performance of the company57%Pay and conditions of employees36%Level (and structure) of pay for management30%Worth noting are the relative weightings given to the issues by the younger cohort. It is these employees with whom it is most important to engage with pension saving and whom will also be bearing the investment risk for the longest period of time. Given this context, it is worth noting that amongst 18-34 year olds the issue of pay and conditions of employees is considered on a par with the company’s recent financial performance (44%); in addition issues related to human rights and environmental impact are also considered significantly more important than they are amongst the wider population (28%). 

2. There's a been quite a lot about the motivational limits of financial incentives. I've said it before, but I do think there is a shift in opinion underway here, though the corporate governance mainstream seems absolutely determined to keep redesigning performance-related reward.

Anyway, Simon Wong has a good bit in the FT, and he's more optimistic than me that a rounder view of executive motivation is emerging. I completely agree with his ideas too - downplay financial incentives in the CG Code and make companies explain their approach to motivation. I would only add that we should make investors explain their motivational assumptions, especially when proposing another new idea to companies involving financial incentives.

There was also a bit in the NYT last week co-authored by Barry 'Paradox of Choice' Schwartz. And going back a bit, Katherine Birbalsingh gave some good comments on why performance related pay is a bad idea in teaching.

3. There was a bit in the Indy on Caledonia not donating to the Tories.

Investor Forum launches

So, today we see the formal launch of the Investor Forum, the body proposed by the Kay Review to help foster engagement with companies. The official blurb is here, and below are the objectives of the organisation.

The purposes of the Investor Forum are to improve long-term returns from investment in companies by: 

Promoting the value of long-term approaches to investment to match the long-term objectives of the individual savers who are ultimately the beneficiaries of the long-term returns delivered by investment management.Promoting cultural change throughout the investment chain – encompassing asset owners and their advisers, as well as asset managers and investee companies. Forming Engagement Groups to drive constructive change when there is a critical mass of support among Forum participants that a company is failing in some way that might compromise long-term returns.  

In line with Kay's recommendation, the governance of the Forum is separate from the investor trade bodies (which would presumably be whittled down in any case to just the new IMA/ABI and the NAPF). The Forum has both a chair and an executive director, both from within the investment management industry.

It's worth noting that this has been tried before. The former Institutional Shareholders Committee had a terms of reference that had a rather similar objective:

“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.”

It also had a mechanism - the case committee - for supporting collaborative engagement by shareholders  where there were concerns. In practice such activity was rarely undertaken, but perhaps we've got more used to the idea now. 

Most relevant, perhaps, is what happened to the ISC in the late 1980s. Already by then it had failed to live up to its promise, as acknowledged by Jonathan Charkham amongst others. So in 1988 there was an attempt to relaunch it, with a new director general and a greater focus on activism around strategy and performance. But the industry didn't like it, and by the early 1990s it was refocused back on general shareholder issues (and the DG quit).

I think that IFMA, the forerunner to the IMA, didn't actually join the ISC until relatively late into its existence. So it wasn't all about trade bodies not acting as effective proxies for investors.

Anyway, those that cannot remember the past....

Hackety hack

So, the verdicts in the hacking trial are in (though Coulson and Goodman may face a retrial on the bribery charge). The two big decisions - Coulson guilty, Brooks not - might seem to make this more of a political story now than a corporate one. And indeed the last two days have mainly seen Cameron in the frame.

But hold on. We now have convictions against several former News Corp employees (remember, away from the headlines, that several pleaded guilty). There is no question that extensive illegal activity went on, and now people have been convicted of it. One of those that pleaded guilty was Neville Thurlbeck, of the famous 'for Neville' email. And there are more trials to come.

One important unanswered question is whether a corporate charge is likely. It is obvious that the police were interested in this (as they should be). We now know that Rebekah Brooks and Andy Coulson were cautioned by the police in relation to a corporate charge, and Les Hinton was also reportedly interviewed.

There has been no forward movement on a corporate charge to date because the police needed to see what happened in the hacking trial. And - on the hacking issue alone - we now have several convictions of editorial staff. According to The Guardian they also agreed to not interview Rupert himself until the verdicts were in. Now they are, an interview looks to be on the cards.

I don't know much about corporate charges, though Section 79 of RIPA doesn't require knowledge for a director to be held liable, you can be negligent too (and plenty of senior News Corp staff seem to have had no idea what was going on under their watch...). A corporate charge would also have a bearing on 21st Century Fox's relationship with BSkyB. Surely Ofcom would have to revisit the 'fit and proper' test?

Also worth noting, in passing, that Tom Crone was arrested a second time last November. This is the guy who has claimed several times that he told James Murdoch all about the 'for Neville' email, and who was dumped on by Rupert Murdoch. He was previously arrested in August 2012 for conspiracy to intercept communications. I haven't seen what the second arrest was for.

And this is before we get into the business of payments to public officials and the Foreign Corrupt Practices Act and other possible action in the US. There's still quite a few challenges for the Murdoch empire (and Trinity Mirror may follow). This is (still) a long way from over.

And finally, I couldn't help but find this amusing (from here):

Brooks’s lawyers tried and failed to persuade the judge to ban all trade union members from the jury on the grounds that they were bound to be antagonistic.

Caledonia gives up on the Tories?

An interesting little snippet, today the investment trust Caledonia Investments issued its notice for the forthcoming AGM which includes the list of resolutions that will be put to the meeting. The thing I looked for straight away was if they were seeking authority to make political donations, as the company has been a regular Tory donor in the past, and quite noisy about it.

But there's nothing there - no such resolution. And this is, of course, the last AGM before the election where the company could seek such an authority. It looks to me like they may have, finally, backed off. For completeness, I checked whether the Cayzer Trust, the major shareholder in Caledonia, was still making donations, and indeed it is.

But the majority of Caledonia shareholders are not linked to the Cayzer family, and that's why I've always thought it was inappropriate for the company's money to be spent supporting a particular political party (though others - like Fidelity - obviously disagree).

So, hopefully, it looks like common sense has prevailed.

Andy Haldane vs 'win win'

Andy Haldane gave a very interesting speech recently on inequality. What particularly caught my eye was the section at the end where he talked about the competing claims on firm resources, and how corporate governance structures can favour one outcome (and one party) over another.

There's a regrettable tendency to focus on 'win wins', and how there aren't really any competing interests, if we only look to The Long Term. I don't think this is true, and it would be better if we focused on the need to mediate between competing claims. So it's nice to hear someone a lot smarter than me making the same point.

Here's the key bit:

If there are legs to this story, then one important element is corporate governance. This defines decision-making within firms - how much to invest, how much to distribute, and to whom. Company Law in a number of countries, such as the UK, gives primacy to the interests of shareholders when defining the objectives of a company and its decision-making. The objectives and rights of a broader set of stakeholders, including workers, suppliers and wider society, tend to be secondary (Mayer (2013)).
This governance structure has stood the test of time. But it is not without distributional consequences. If power resides in the hands of one set of stakeholders, and they are short-termist, then we might expect high distribution of profits to this cohort, at the expense of ploughing back these profits (as increased investment) or distributing them to workers (as increased real wages). To some extent, this matches the stylised facts on rising inequality - rising executive and shareholder compensation and faltering real wage growth. The shareholder model may, ironically, have contributed to unfair shares.
If so, this suggests that one avenue worth considering further is corporate governance reform. A set of corporate incentives which had as its fulcrum long-term company value and which more fully reflected the interests of a wider set of stakeholders might help rebalance the scales - for example, towards investing rather than distributing. Such an alternative model is certainly not without precedent. It is found in a number of countries around the world (Mayer (2013)).
Inequality and corporate governance are deep, structural issues. Central banks do not have many, perhaps any, of the solutions to these problems. But the stakes - a more stable, faster-growing, fairer society - could not be higher. There is a collective public policy interest in getting them right.