Watch the bonus birdie

I'm a pessimistic person instinctively, so perhaps my naturally negative take is colouring my view, but I do wonder whether coverage of today's Barclays AGM isn't framing it as something that it isn't.

There has been a bit of a ding dong in the meeting by all accounts. Standard Life, which has voted against the rem report, had a public pop at Barclays over the size of the bonus pool, something which has aggravated some shareholders given declining profits. In return, the board seem to have told Standard Life it shouldn't raise these issues publicly, which would seem to call into question the whole idea of an AGM, but hey.

In the meantime, Saint Vince has written out to rem comms telling them to exercise restraint, several  months too late to have any realistic hope of having an impact this year. And he's got his name in the Barclays story, suggesting that it's a bit of a test for shareholders too.

Reading the runes, it seems that we can expect a big vote against the Barclays rem report, so everyone is a winner. Shareholders demonstrate they are cracking down on pay, Vince can say 'my reforms are working, shareholders are getting active' and the bank wins too.

You get that last bit right? Because while you were looking at the advisory vote on the rem report, there was also a forward-looking binding vote on remuneration policy, and a vote on raising the bonus cap from 100% to 200% of salary. Which of those three actually sounds like the least important one? To me it's the backward-looking advisory vote on the rem report. And, of course, it's the one of three votes on pay that already existed before this AGM season. So it's hard for Cable to claim it's a vindication of his policy, though he may try.

If votes go as expected, then Barclays can pay a higher proportion in bonuses and its current rem policy is potentially locked for three years. They get a day or two of bad press for sure, but their freedom of movement on pay has actually just increased compared to the worst case scenario, because shareholders will have assented to it.

If shareholders really wanted to bring Barclays to heel, surely the binding policy vote was the place to put pressure? And if bonuses are a genuine concern, wouldn't it make sense to vote against them being higher as a percentage of salary?

Ho hum.

UPDATE: the results couldn't be more stark. rem report has 24% vote against, and large number of abstentions, but the rem policy passes with 93% in favour, and the increase in the bonus cap gets 96% in favour.

Voting for bigger bankers' bonuses

There's an interesting piece on Financial News here about shareholder voting intentions on pay at Barclays and other banks. The short version is that asset managers are going to vote in favour of bankers being able to receive bonuses of up to 200% of salary, essentially raising the bonus cap of 100% of salary.

There's not much surprising about this, or the arguments that are used to justify it (war for talent, cost flexibility). But it does illuminate a very important point that left-of-centre types interested in corporate governance should be aware of - shareholder oversight of pay is a very limited tool.

It's a huge mistake to assume that tooling up shareholders, or providing them with more information, will by itself make any real difference. All this can really do is to make pay more like what shareholders think it should be like. And, given that most asset owners delegate responsibility for this stuff along with investment management, in practice it means that whatever influence such reforms have will be in the direction of making pay more like what asset managers think pay should be like. Woo and indeed hoo.

In terms of the bonus cap, asset managers are essentially being asked whether they think banks should be allowed to pay bankers a lot of money, with a large variable element. It seems the answer they are going to give is Yes. There's this year's shareholder spring then - voting to liberate the bankers from the tyranny of the bonus cap.

Whilst asset managers control the votes we're not going to get much of a bang out of binding votes and similar reforms. Other approaches are needed.

Fidelity's voting conflict

I blogged previously about the the tricky spot that Fidelity Investments puts itself in by making political donations to the Conservative Party. Digging around a bit I've found a second (here's the first) example where it voted in favour of a resolution seeking authority to make political donations put forward by a PLC that made political donations to the Conservative Party.

The 2010 annual report of Enquest is available here. If you turn to page 44 (or just search for 'Conservative Party') you can find the following statement:

Political and charitable donationsThe Company made charitable, social, community-related and political donations totalling US$71,145 during the year, which includes a political donation of US$13,300 to the Conservative Party.

Faced companies that make party political donations, many shareholders will oppose resolutions seeking authority to make them. But I have checked Fidelity's voting disclosure for May 2011 - which was the opportunity to vote against the company - and it voted for the resolution on Enquest's AGM agenda seeking the authority to make donations.

It should be noted that many shareholders did not feel the same way. The AGM results are no longer available on the company's website but I blogged at the time that the vote against was 30%. (For completeness, Enquest now states that it makes no party political donations, see page 17 here.)

So we have two real life examples of an asset manager that makes donations to the Conservative Party voting in favour of political donation authorities put forward by companies that made donations to the Conservative Party.

Doesn't look great does it?

Policing the pay gap

As I've blogged before, there's a consensus amongst left-leaning corporate governance types that the bit in the UK Corporate Governance Code that says that companies should be "sensitive to pay and conditions" when setting executive pay is widely ignored. Boilerplate reporting is commonplace, and it has been this way since the Code first had this clause. And most asset managers have zero interest in this issue so non-compliance has gone without challenge.

But in recent years the disclosure requirements on companies have become more than voluntary. Companies now have to show how they have taken account of employees' views, so this is a legal reporting requirement. And that, in turn, ought to mean that if companies don't do what they are asked they can be held accountable.

So hats off to the High Pay Centre for organising a letter to the Financial Reporting Review Panel to test the water. They have also come up with a couple of real-life examples where companies have skewed the sample of employees they look at.

The HPC's blog on this is here.

Let's see what happens.

Conflicts of interest of political donor shareholders

The more I think about it, the more troublesome I find it that Fidelity, and other institutional shareholders that make party political donations, have the right to vote on resolutions put forward by companies seeking authority to make political donations.

The important question is, how objective can an organisation that funds the Conservative Party (or any other party) be when voting on resolutions seeking authority to donate to the Conservative Party? In a real-life test case, we can see that Fidelity voted in favour of such a resolution. 

I am sure the intention behind giving shareholders a vote on political donations was not that politically networked asset managers could assist companies in making party political donations. So I think this does need dealing with.

I think there are two simple steps that would address this - 

1. Fidelity should disclose in its Stewardship Code statement that it has a conflict of interest when voting on resolutions relating to political donations. (It currently makes no mention of this conflict as far as I can see)

2. Fidelity should outsource the vote on such resolutions to a third party.  

This model could be applied to other asset managers faced with the same conflict.

More generally, maybe it would be a good idea for Fidelity and others to poll their clients on political donations. I suspect the large majority are unaware that it makes them. Given ongoing reforms to the funding of political parties, such as those relating to the unions' funding of the Labour Party, it seems a little odd that conflicts in financial relationships like those between Fidelity and the Conservatives are not being addressed. 

Fidelity bungs the Tories another £75,000

A quick update on "generally non-partisan" fund manager Fidelity. A quick look on the Electoral Commission register of donations reveals that they gave the Tories £75,000 during 2013, comprising three donations of £25k in April, August and November. This compares to £100,000 donated during the year before.

The drop in donations probably doesn't mean a lot, they seem to be a bit erratic. Also, if previous experience is anything to go by, we might see their donations rise quite a bit this year to help fund the Tories' 2015 campaign. In the year up to the 2010 general election Fidelity gave the Tories £300,000.

Also worth keeping a eye on Caledonia Investments. They have previously sought shareholder approval to make donations to the Tories. But I wonder if the Cayzer family are the sort who might switch to UKIP? Or simply give up of the Tories?

(nearly) 7 up

Just realised that this Saturday will mark the seventh anniversary of starting this blog. When I started blogging I had a) no kids b) a lot more time and c) a lot I wanted to get off my chest.

A big bit of my decision to start blogging was to try and get what I had learnt during my time at the TUC out to a wider audience. In particular I thought - and I still think - that the UK labour movement was behind its equivalents in the US, Canada and Australia both in terms of opportunities in the capital markets ('workers capital' type campaigning), and in understanding what the system is really like.

The experience of the financial crisis has greatly increased interest on the Left, and within the labour movement, in the financial system, and I think understanding has increased too. For example, this morning I was re-reading a 2012 briefing by the ACTU on high-frequency trading (PDF at the bottoms of the page). It's the sort of thing that I don't think was really around a few years ago. This increased interest and understanding partly reflects experience of the crisis (illusions shattered) and the fact that public policy has been been more critical in this area (though still fairly weedy) and there have been a lot more consultations to respond to. But whatever the causes it's very welcome.

It's worth reflecting on some of the things that have changed in the past five years. When I started blogging, a lot of the capital stewardship people in the unions worldwide were focusing on private equity. I think we can probably see now that the PE boom at the time had a lot to do with cheap debt, rather than a genuinely 'better' governance model than PLCs.

Also back in the late 2000s the emphasis was still very strongly on shareholder rights, and the extension of them. Post-crisis (and it was an emerging theme before) there is a greater focus on shareholder responsibilities. How effective this will be remains to be seen, but there is a shift there.

Finally, interest in different models of governance and, by extension, lines of accountability, has re-emerged. The 'shareholder value' model no longer seems as solid. So there is (in the UK) serious interest in employee representation in governance for the first time in years. And there is renewed questioning of whether accountability to shareholders alone is a great idea (especially given the changed nature of 'shareholders' - hedge funds, HFT etc).  

I'm operating a reduced service (!) for the next few months for reasons some people will be aware of. But I'm still convinced there is a lot worth saying on these issues from a pro-labour perspective. So I intend to come back re-tooled and re-armed later this year.