Monday, 24 November 2014

"As shareholders...."

A few years ago I was sitting in a meeting about a proposed corporate governance campaign when one of the younger people in the room began a sentence with the words "As shareholders, we...."

It really jarred with me at the time, and still does, so I thought I'd try and articulate why this is. Part of it was probably just an age thing. I guess it always feels a bit odd to hear someone quite young seek to present themselves as the voice of an institution, financial or otherwise.

But I think that merely served to make it more obvious how problematic it is to invoke the identity of "shareholders" in support of particular objectives. There are a couple of ways of looking at this. First, what is the location of the "shareholders"? Is it the share register, where usually the asset manager is the primary name, or do we need to look behind that to a beneficial owner (an asset owner)? Or is it even further back, say in the membership of a pension fund?

The politics here are interesting. It's obviously the beneficial owner or beneficiary that has the economic interest in the shares held. But both corporates and much of the finance sector are much happier viewing the asset manager - the intermediary - as the 'shareholder'. Of course partly this reflects the reality that asset owners delegate, but it's striking that some people seem to like it that way, and oppose reforms that might allow beneficial holders to behave more like shareholders.

Second, even within investment institutions there's a question over where the "shareholder" identity is located. Many people in the RI field understandably worry about ESG-focused staff being separated from the "investment process". But then that suggests, again, that the "real" identity of the "shareholder" is a mainstream asset manager. This looks like prototype theory in action, as applied to corporate ownership - mainstream asset managers are for many people the best example of "shareholder-ness". (And in return, many of us trying to change things are happier labelling the asset owner as the 'real shareholder'.)

But that isn't the end of it. A further identity problem arises if we consider the gap between the behaviour of the 'best example' of a "shareholder" and public policy expectations. In the policy world, "shareholders" should "act like owners" and therefore they need the tools to undertake this activity. Yet, as I've blogged many times before, in reality many mainstream asset managers have actually opposed the extension of shareholder powers. Similarly, both the current and previous administrations have prodded "shareholders" to undertake the kind of activity (value-focused engagement) that is supposed to be in their own interest.

This has the interesting effect of the state trying to create a new shareholder identity, as expressed in certain behaviour, because the actual behaviour of these 'best examples' of "shareholders" isn't close enough to how the state thinks financial market participants should behave. So there is an idealised notion of what "shareholder-ness" should be, to which actually existing shareholders are being encouraged to adhere.

On reflection, both the identity of "shareholders", and the property of "shareholder-ness" are a lot more up for grabs than you might imagine.

Tuesday, 18 November 2014

Socialising responsible investment

Responsible investment is a bit lopsided really isn't it? When you look at the commitment to the analysis of, and engagement over, 'ESG' issues it's pretty clear that the 'S' is somewhat silent.

Corporate governance (or, at least, a distilled group of shareholder-friendly CG principles) is almost completely mainstream now, and most asset managers take it somewhat seriously. Meanwhile the range of environmental initiatives which institutional investors are involved in is pretty impressive - IIGC, INCR, Climate Bonds, Carbon Disclosure Project, plus specialist service provides like Trucost, Climate Change Capital etc etc. It is quite clear then that asset owners - and trustees - are able to mobilise the capital under their stewardship, and they have done so in support of both 'E' and 'G' issues.

But social issues, and particularly employment/labour issues, lag a long way behind. What is more if you raise 'labour issues' in a responsible investment context most people are probably going to expect that you want to talk about supply chains and/or developing countries.

There is a strange disconnect here. After all, much of the capital that the RI community wants to mobilise exists because of collective bargaining a few decades back, and the governance of many asset owners includes employee representatives, often nominated by unions. What's more there is some evidence that beneficiaries care more about bread and butter issues like pay and conditions than they do about climate change or executive pay. And the Law Commission report on fiduciary tells us we're allowed to take account of beneficiaries' views when addressing ESG issues.

Overall, the priorities of the RI community can look a bit 'well-meaning, well-off green/liberal'. It's great that a lot of good work is being done, but the issues on which there is focus seem a bit out of step with beneficiaries. And, to be fair, this isn't helped by the fact that unions haven't always been proactive in trying to shape the RI agenda, so maybe we shouldn't be surprised that our issues are so low on the agenda. Equally, if we aren't trying to support our trustees and give them confidence to ensure labour concerns are taken seriously they may be more comfortable trying to do a bit of good by supporting 'mainstream' RI.

So it strikes me that there is some work to be done here to make sure the 'S' in ESG isn't forgotten, and to ensure that the RI world remains close to beneficiaries. For our part, unions could be better about getting our issues across to investors in a digestible format, in speaking up for beneficiaries (many of whom would benefit from more attention on issues like low pay, zero hours etc) and in supporting our trustees. Perhaps the RI community in turn could make a conscious effort to address the weakness on 'S' issues, and give a bit more time to considering what employee representatives have to say.

Monday, 10 November 2014

Two workers' capital snippets

1. A major international trade union statement on pension funds and tax avoidance has been published today. It is available on the TUAC website here. It has also been covered by the FT.

2. There is a very useful briefing for investors on human capital risk in the construction sector in Qatar that had been produced by the Committee on Workers' Capital available here.

Monday, 3 November 2014

Labour pains

I saw two speeches recently that contained points that I reckon are worth repeating. First, I was lucky enough to see James Galbraith speak about inequality at a recent conference. I won't rehash his argument, but one thing that stuck with me was his criticism of the idea that "a rising tide floats all boats". Aside from the fact that this may be questionable in its own right (e.g. if you look at real wages of the lower paid in recent years), he said the implication was that we don't have do anything in order to become better off. He argued that, if we want to address inequality, then this is time to return to struggle. If we want change we will have to organise and fight for it.

Second, I saw Adair Turner speak at an Equality Trust event, and he made some interesting comments about technological change. Part of what he said was essentially rehearsing the 'rise of the robots' argument, and the fact that a whole range of jobs are threatened, including middle class professions like accounting. But he also gave a qualified defence of luddites. He said that while it was true that overall and over time we benefit from technological advance, the economic damage done to specific groups of people could be quite long-lasting. Certainly long enough for people to not recover their economic position within their lifetime.

These things resonate a lot with me now I'm back working in the labour movement again. They help (me) see that economic and political processes are long in duration. They take serious effort to change, and there can indeed be good reasons for seeking to address the short-term pain they generate even if they have benefits over the long term. People don't experience life at the level of increases of GDP, or aggregate benefits from technological change. I think if we want to see real change again in the future it's going to require serious effort, not just expecting others (politicians mainly) to deliver it. And this has implications for politics as well as unions.

Thinking back to my time at the TUC, I remember a comment that John Monks made about many in the Labour Party seeing the unions as a bit like the uncool relatives at a party. The implication was that the political part of the movement was at the cutting edge, the industrial part stuck in the past. And there continues to be plenty of criticism along these lines from to the party to the unions.

But when I look at UK politics right now, I wonder who really has the bigger problem. Unions here have to run to stand still. Membership is not going up, and is still considerably weaker in the private than the public sector. But the industrial wing of the labour movement seems to me to have a much clearer sense of what its purpose is, and, for the first time since I've been seriously interested in politics, looks in better shape than Labour.

The debate about inequality, which both Galbraith and Turner were focusing on, gives us a few clues. Most analyses accept that the decline of organised labour is at least a part of the explanation for increased inequality. But the unions and the Labour Party may draw different conclusions from this. For some in Labour, a weak position for organised labour may be just what modern capitalism looks like. They may feel the tools to address inequality lie elsewhere (transfers, education/skills) and/or they may feel that there isn't a whole lot anyone can do about it.

For unions this trend is an existential threat - we need to reverse that decline in order to survive. This means rebuilding membership, convincing millions of people who have no experience of unions that they can do better if they become part of the movement. Of most importance is to demonstrate to people, not just tell them, that unions can deliver real change. To me this points to an organising agenda, and to relearning some old lessons. But it does at least give unions a very clear sense of what they need to be doing.

I'm not sure the same is true of the Labour Party. There are multiple signs that it faces significant trouble. The defection of white working class voters to UKIP, the defection of Scottish voters to the SNP, the possible defection of left-wing voters to the Greens. I can't shake the feeling that a lack of sense of purpose is the common theme. I actually think Ed Miliband probably has a good idea of what he thinks Labour should be doing, but feels unable to articulate it because he's not convinced the public will bite. So we end up with a really mixed message, not helped by the fact that Ed has failed to connect with voters.

Perhaps this is a passing storm, but when you look at centre-left parties across Europe things look grim.  This challenge to Labour isn't made any easier by the fact that the echo chamber of professional political commentary seems desperate to find the answer in the 'centre ground'.

Exhibit A:
Labour under Miliband are pitching leftwards with the introduction of a mansion tax. Homes where I am from in Liverpool, or in Harlow, Stafford or South Ribble, are not going to be worth more than the £2m threshold, but – as some Blairite Labour MPs are acknowledging – the tax sends an anti-aspirational message to those who dream of working hard to climb the property ladder.
This is language is alien to me and I doubt I am alone. I want my family to do well, but how many actual living human beings "dream of working hard to climb the property ladder"? Isn't it much more likely that most people simply want a decent home for their family, rather than a £2m one? Don't most people want this in exchange for spending a reasonable amount of time working, but also having enough time left to have a decent family life (rather than "dream about working hard")? And how many of them plan their lives in relation to a tax threshold relating to property values that they are very unlikely to ever breach? If "Blairite MPs" worry about this being "anti aspirational" I think that says a great deal about the problem that Labour has. These people simply don't represent the interests of the average punter, so what are they doing there?

Something isn't right.

Tuesday, 21 October 2014

Work is the blight of the blogging classes

A couple of quick links, while I continue to struggle to find time to blog:


1. There is a great TUC report on executive pay vs average employee pay here (PDF). The press release is here.

2. Interesting report in The Independent from a week or so back on how poor safety threatens real financial risks for Menzies Aviation (part of John Menzies).

Wednesday, 8 October 2014

Getting infrastructure wrong

There was a very interesting piece about the Pensions Infrastructure Platform in the FT the other day. This was the Government's great wheeze to try and tap up pension funds to invest in infrastructure projects.

It's fair to say that the labour movement views this kind of initiative with a mixture of interest and trepidation. On the positive side, there may be opportunities for pension funds to invest in greenfield projects that both deliver decent financial returns and societal benefits. If this was tied up with commitments to good jobs on such projects this would clearly be a desirable outcome.

On the downside, unions have a number of questions/fears. Would such investments really deliver financially, and thus be in scheme members' interests? Is this a better option than the state borrowing at low cost to fund such projects (and potentially create good public sector jobs)? Will the money actually go into new projects, or will funds end up mainly invested in the secondary market for existing projects, including PFI deals?

Well, the experience of the PIP so far seems to bear out a lot of those concerns. In particular it is only picking up existing PFI contracts in the secondary market. As the FT article makes clear, this is a very long way away from the original vision and you have to question what the point actually is, since that kind of "investment" is already available. All in all it looks like a useful lesson in what not to do.

Tuesday, 30 September 2014

quasi-Trot nonsense

Below is one of the silliest things I've seen a senior Labour person say for some time. In response to this bit of Ed Miliband's speech:
‘One Nation Labour has changed from New Labour – businesses have a responsibility to pay their taxes, respect their customers and treat their workers fairly.’
John McTernan wrote (for Progress):
It is a malicious, ultra-left, quasi-Trot smearing of the best British government of my lifetime.
I can understand some people on the right of Labour don't like Ed advancing a marginally more critical view of business, but there is no need to turn into the Daily Mail about it. "ultra-left" and "quasi-Trot"? Seriously? I think Trots, God bless 'em, have slightly different views on solving issues like the power of energy companies than creating a more competitive market.

If John McTernan finds that bit of a speech to be "ultra-left" what will he make of the clear call for class war advanced in this part of an article by Miliband in the Staggers:
The sense of disempowerment can be economic, in workplaces that lack the collective power of trade unions and where employee satisfaction and opportunity are limited. .....In truth, the “Third Way” discussions of the 1990s were too weak in addressing issues of economic power, in the workplace and elsewhere. 
That's David Miliband, of course.