Saturday, 7 March 2015

Canadian Key Proxy Vote Survey

A quick plug for the annual proxy vote survey undertaken by SHARE plus the Columbia Institute and  Fonds de Solidarite FTQ. This is one of several survey undertaken by labour-oriented groups worldwide to assist trustees in holding asset managers accountable for how they vote.

The PDF is here.

Wednesday, 4 March 2015

Caledonia's sneaky Tory cash drop

Well this is interesting. It turns out that Caledonia Investments hasn't quite given up on using company money to fund the Tories after all. I speculated last June that they may have given up. My reasons for thinking this were a) they had made no donations since 2010 and b) they had not sought shareholder approval to do so since 2009.

This remains true, Caledonia has not sought shareholder approval to make political donations since July 2009 when almost 20% of shareholders voted against. As I understood it, because that authority was used (as donations were made during the subsequent 12 months) approval would needed to have been sought again to make further donations. As no authority was sought at the 2014 AGM (the last chance to do so before the election) it looked liked they weren't going to do it.

But then I spotted that Caledonia had indeed made a donation of £2,000 which was received by the Tories in mid December 2014, and looks like it has gone to the local party in Eastleigh, a key target seat to take from the Lib Dems. On the face of it this looks like it isn't permissible, but apparently there is a threshold for donations that require shareholder authority of £5,000 in any 12 months. Only donations over that amount require approval.

It doesn't look great does it? This is a company that knows that a) you are expected to seek shareholder approval for political donations and b) that its own shareholders do not like it making party political donations (as demonstrated by the July 2009 AGM vote). So it appears it has found a way to give the company's money to the Conservative Party without having to consult its shareholders and have a controversial vote. And this enables them to chuck a couple of grand into a key Tory target seat.

If you are a Caledonia shareholder, and/or a Lib Dem leaning corp gov type, you might want to have a look at this one. It looks to me like they are taking the mickey, and they might try and bung a few more quid over before the election.

Tuesday, 3 March 2015

More from the Future of Private Enterprise

Here's a further chunk of text from George Goyder's book setting out a good case for revisiting company law.
The Companies Act of 1862, on which all subsequent Companies legislation is based, gave to shareholders something which does not in equity belong to them, namely the exclusive control of industry. Authority to direct industry met flow from responsibility. The Companies Act of 1862 by removing the unlimited liability of shareholders, did away with the only possible claim of the shareholder to exercise unlimited control over industry, a control which he is under no legal compulsion to share with anyone else.
Handicapped as it is by an outworn and defective legal structure, the industrial system works as well as it does only because it is administered by able men who have to make the best of the system as they find it. The director is acutely aware that the company has responsibilities to others besides the company's shareholders. But the directorate is hindered from entering into full co-operation with the worker, the consumer and the community, because its primary and sole legal obligation is to the shareholder, and the shareholder's sole concern is with the financial stability and profit-earning capacity of the undertaking. We have established in industry, by our present company law, a fundamental conflict of purpose which vitiates the exercise by the directorate of its true function of balancing the claims of the four parties to industry in the pursuit of an agreed industrial directive.
A couple of quick thoughts. First, it's noticeable that Goyder shares a lot of common ground with Tony Crosland about the lack of correspondence between company law and the reality within business. Crosland said company law was "upside down" in giving shareholders the whip hand. But whereas Goyder saw this as a serious fault to be rectified, Crosland didn't think it was worth bothering given that in practice everything was thrashed out between management and unions. With hindsight, it looks like Goyder was better on that point.  

Second, we have obviously moved a long way from the position outlined - not surprising given that this was written 60 years ago! We have been through a prolonged period where policymakers have tried to breath life into the idea that shareholders 'own' companies, on the basis that this would be in everyone's interests. It hasn't worked out that brilliantly. Latterly they have tried to sketch out shareholders' responsibilities too, on a principles and voluntary basis in initiatives like the Stewardship Code and PRI, and something slightly different in cases relating to the OECD multinationals guidelines. One might argue that this is an attempt to patch up some of the holes caused by limited liability. But, in the UK at least, so far policy has been much more timid on trying to address this directly through company law.

Thursday, 26 February 2015

The richest decide the pay of the richest

There is a great bit of research out today from the TUC on the pay of FTSE100 remuneration committee members. It won't be any surprise to most people that the executives of FTSE100 companies are amongst the richest in the UK and indeed the world. But what hasn't been looked at before is how much those that set their pay - the members of FTSE100 remuneration committees - take home.

According to the TUC the average total pay of a FTSE100 rem comm member is £441,383, and this is probably a conservative estimate. That is more than 16 times full-time average earnings. This seems likely to have an influence on rem comm decision-making. If an individual is earning £441k themselves, deciding to increase an executive's salary by £27,000 (if they are on, say, £500,000) probably looks uncontroversial. To someone on £27,000 a year it it will look incredible.

The cognitive bias of anchoring may be relevant here. This seems to have a pretty strong effect even when the information is irrelevant. But what about when the first available info (the rem comm member's own earnings) is directly relevant? If rem comms are composed primarily or solely of those with very earnings themselves, should we really be surprised if they make decisions that those on more modest earnings find indefensible? It ties in quite well with the current political row over MPs with outside earnings. I suspect people like Malcolm Rifkind seem otherworldly when the complain about having to scrape by on £67,000.

Needless to say, I completely agree with the TUC that this strengthens the case for worker representation on remuneration committees, and that this needs to be more than a single rep. Again thinking about the psychology of decision-making, it's going to be easier for people to challenge the super-rich consensus if they aren't a lone voice.

Finally, the TUC also has a list  in the report of the current highest-paid rem comms in the FTSE100. Probably worth keeping an eye on that group to see if they make any particularly bad decisions. Note that Burberry is the second highest paid rem comm in the list.

Monday, 23 February 2015

The Future of Private Enterprise

One of the more interesting books I read in the past couple of years is the Future of Private Enterprise by George Goyder. It's interesting for various reasons. For one, it's a reminder that when it was published (1954) mainstream views about the nature of the firm were very different.

For example, Goyder quotes from the 1944 Riddell Lecture given by the Conservative Lord Eustace Percy as follows:

"The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise - the association of shareholder-creditors and directors - is incapable of production or distribution and is not expected by the law to perform those functions. We have to give law to the real association, and to withdraw meaningless privilege from the imaginary one."

Goyder's own conception of future model of the company was broadly what we would now call a stakeholder one, balancing the interests of workers, shareholders, consumers and local community. In passing he was also critical of limited liability which he described as a "principle of evil".

Finally, it's also interesting to read a business-oriented book that draws on a wide range of sources to inform its argument. There are references to Kropotkin and R. H. Tawney in there but actually one of the quotations that I like the most is from a novel - Brensham Village by John Moore. How about this?

1.     “I think one of the most horrible and dangerous modern tendencies is this growth of what I’ll call anonymous tyrannies… In the old days, if a factory owner sweated his workpeople, sooner or later, if things got bad enough they stoned his carriage or booed him in the street. If a farmer was a wicked employer they burnt his ricks. And if a landlord was cruel enough and oppressive enough, they could break his windows, or at any rate march up to his house and caterwaul outside his front door. They knew who the industrialist was, who the farmer was, who the landlord was. Those people had names and faces, and it was common knowledge where they lived… But this new tyranny is quite different. You don’t know where the head of the combine lives, even if you happen to know his name.”

Thursday, 19 February 2015

Fidelity, the Tory-friendly fund manager

As the latest info from the Electoral Commission reveals, Fidelity is still funding the Tories. £25,000 donated in November took their total for 2014 up to £120,000.

They are also still paying Tory MP Sir John Stanley for advice on "business opportunities and risks" at the rate of £1,800 a month (so around £20K a year). As I've noted before his constituency is where Fidelity is based, so will be interesting to see if they continue this relationship with Sir John's  successor as he stands down at this election. It's a very safe seat so will return another Tory.

For those new to this story, it's worth noting that Fidelity have also - 

Voted in favour of political donations to the Tories by PLCs in which they are a shareholder

Sponsored meetings of the Tory business liaison group the Enterprise Forum

Donated £50,000 to the No campaign in the AV referendum

So, if you don't want to fund the Tories by accident you might want to check out if you have any savings managed by them and see if you can switch. I shifted our family savings away from Fidelity several years ago because of this. I continue to try and make non-Tories, including pension fund trustees, aware of this link between Fidelity and the Tories. It's up to individuals to decide if they are happy with it, or if they think it constitutes any kind of conflict, but they should at least be aware of it. 

Sunday, 8 February 2015

Pension funds giving up on hedge funds is just the start

One of the more inexplicable aspects of pension fund behaviour in recent years has been their tolerance for high fees, particularly in relation to alternatives. To state the obvious, high fees - especially where the manager takes a slice of your return - inevitably make it harder to deliver the returns you need in order to fund retirement benefits. What is more, the amount that leaks out of our pension system in fees has increased in recent years as funds have stuck more into alternatives - mainly private equity and hedge funds.

If you read some of the commentary from industry insiders you get a sense that they can hardly believe that clients put up with the fee levels. For example, Simon Lack has written a whole book basically arguing that hedge funds returns aren't worth the cost and that the industry is much better at making the managers rich than the clients, and Guy Fraser-Sampson's book expresses surprise at the lack of pressure on fees in private equity, see comments here.

But perhaps things are starting to change. In the last few months there have been several high-profile moves by pension funds to cut their alternatives allocation. CalPERS has closed it hedge fund programme, blaming costs, complexity and lack of scale. PFZW (PGGM) is pulling out of hedge funds, citing complexity and costs as a reason. In the UK, Railpen is cutting its hedge fund allocation significantly because of what is says is a poor cost/return trade-off, West Midlands is pulling out and LPFA criticised the industry's '2 and 20' fee structure. CalPERS is now also planning to cut the number of its private equity managers. Again, cost reduction is a driver.

These are small moves to be sure. The fee structure for alternatives is a rip-off, but there is plenty of leakage via 'traditional' asset management too. So there is a much bigger problem to tackle. But it is encouraging that pension funds are starting to challenge at least some of the most obviously wasteful investment activity out there.

I've thought for a long time that fees/costs in the pension system are an obvious place for the Left to intervene (only we can do it - the Right relies far too heavily on finance as a source of political and financial support to be able to act effectively). Since then there has been great work done on pension costs by Labour in opposition, and also on fund management fees by Unison. But this is just the beginning.

This is surely an issue where trade union reps in the governance of pension funds can be key. There is a great opportunity to reduce the costs that cut our pensions and, in doing so, challenge "socially useless" finance. It is a challenge we should embrace.