Monday, 20 June 2016

Inequality, human capital and investors

I've blogged before about the obvious weakness on the S in ESG. I'm someone who has come to responsible investment with a labour movement background and I have been frequently disappointed by how little attention labour issues get.

It isn't like these issues aren't in the public domain. Economic inequality - both within firms and across countries - has become the focus of renewed policy interest. Perhaps most significant is that the economic argument has shifted towards the position that inequality can be drag on economic performance. And, I will repeat forever, increased inequality correlates with declining union density and collective bargaining.

Yet it has seemed that the RI community is far more comfortable talking about corporate governance or climate change than the people outside the boardroom who create value for companies and their investors, and how they are treated and paid. This seems odd, given the emphasis on 'materiality' in RI, since employee engagement and productivity must surely be important to pretty much all businesses, regardless of sector.

Finally, however, things have started to shift. In the past few months I've seen several reports that look at the issue of inequality from an investment perspective. This is being looked at both in terms of inequality at the level of the economy - in response to evidence that inequality may be a drag on performance - and at the level at the firm. For example, MSCI published a paper looking at pay gaps within firms, and found that larger pay gaps were correlated with poorer performance. And a research paper from Kepler Cheuvreux that came out earlier this year takes a very thorough look at inequality and sketches out an engagement approach.

In the field of executive pay, we finally seem to be leaving behind the damaging idea that what really matters is structure, not scale. First, there has been an intellectual shift against extensive performance-related pay - some think it's flawed on behavioural grounds, others think it creates too much complexity, or a bit of both. So there is a lack of appetite for yet another round of structural reform. Secondly, the issue of scale is now a topic of polite corporate governance conversation. We are seeing cases where pay policies that are "structurally sound" but are felt to pay out too much money being challenged.

And finally, human capital management (hate the phrase, but investors seem to like it) has also started to gain greater attention. Both the Investment Association and the PLSA have projects that look at this in one way or another. There are at least two other initiatives I am aware of underway.

This stuff doesn't go as far as many of us would like, and it is often argued in ways that make us a bit uncomfortable, but the fact that research and activity of this type is taking place is a step forward. None of this will necessarily go anywhere, that depends on what use we make of the opportunities, but it does feel like there is acknowledgement of the importance of actual human beings, finally.

Thinking positively, I remember when the IIGCC was set up and, before that, when USS commissioned a report from Mark Mansley on climate change as an issue for investors. Back then, these things felt like they were on the periphery. Now climate change is taken seriously by a wide range of financial institutions, and even conservative houses back shareholder resolutions on the topic.

Perhaps a concerted effort to raise awareness of the importance of the people that actually work for the businesses that our capital is invested in can achieve something similar. Here's hoping.

Friday, 27 May 2016

Santa Rosa snippet

Before last year's AGM, National Express sent a report to shareholders attempting to rebut criticisms of the company made by two MPs in a report by the Trade Union Group of MPs. Notably this included a full-throated defence of the company's choice to refuse to accept the election result in Santa Rosa.

Here are a couple of extracts (my highlights):
  1. National Express has challenged the election process in Santa Rosa. The “technicality” referred to in the Trade Union Group’s report was the removal of the ballot box from the voting booth and it being taken outside to a car. We believe we have no other choice but to challenge the election process when we believe such a significant violation occurs... we believe such a fundamental breach of electoral practice cannot go un-challenged. 
Now compare that with what that US Court of Appeals said, some relevant extracts:
Petitioner’s second objection borders on frivolous... 
The Regional Director found that Petitioner [the company] did not allege that any unauthorized ballots were cast. Nor was there evidence that the Board Agent’s conduct in any way affected the election’s outcome. Petitioner does not dispute these findings...  
An objecting party is not entitled to a hearing merely by imagining fanciful acts of misconduct that find no support in the evidence. Rather, an objecting party must offer concrete evidence that is sufficient to give reasonable cause for concern and thus justify a hearing... In this case, Petitioner points to nothing in the record to support a claim that the Board Agent engaged in any conduct that might have tainted the election proceeding... 

So National Express told its shareholders that there had been a "significant violation" and "fundamental breach of electoral practice" in Santa Rosa. Yet the NLRB found and the Court of Appeals agreed that the company presented no evidence to show anything had happened to justify overturning the election. The company in turn did not challenge this (!) but argued that it should have been allowed a hearing anyway, because of what could have happened, even though it could not show anything did happen (because it didn't!).
 
And this farce has been defended by the board at the past two AGMs at least.

Wednesday, 18 May 2016

National Express hits the buffers in Santa Rosa

Last week, I went to my fourth National Express AGM, and the second since I joined the ITF. I have to say this is a company that I view with increasing exasperation and I know colleagues both within the labour movement and the responsible investment field feel the same way.

I want to focus in on one case because I think it is is illustrative of the problem. In February 2013 Durham School Services workers in Santa Rosa, Florida voted in election covering a little over 200 people for representation by the Teamsters. The result was about 60:40 in the union's favour so not even close (this isn't "hanging chad" territory). Yet more than 3 years later the company still refuses to bargain with the union.

The company has thrown up various legal objections with relation to the election result in 2013. Despite having lost at every stage the company continues to appeal, most recently to the US Court of Appeals in March. During this process it has used two law firms, and obviously has expended company funds in three years' worth of legal fees.

The company's defence of its record in general is that in any business there will be one or two bad cases, but this isn't indicative of the company as a whole. In the Santa Rosa case in particular there are a couple of points that board members repeat over and over -
  • We have offered to the union to re-run the election
  • The way the ballot box was handled during this election is an important point of principle
I think both of these points have pretty large flaws.

To take the first one, the National Labor Relations Board (NLRB) certified the election result as valid. It has reviewed the company's objections and rejected them. Why on earth should the union agree to re-run an election that the government agency responsible for labour law says was valid and which was won by a clear majority? The question should be why, if the company really does "respect" workers' right to form a union, doesn't it simply accept the clear result of the election? It could have done this at any point in the last three years, but has chosen instead to drag the case through the legal system.

The second point is more interesting. Anyone who attended last year' AGM would have felt that there was a very serious issue with the ballot box. I know some people were left under the impression that a union member had moved (or even stolen) the ballot box. At last week's AGM it was again suggested that the primary reason for continuing to contest the election result related to the ballot box.

Again, this is challengeable. First up, it's important to make clear that the company's objections relating to the ballot box are aimed at the conduct of the NLRB agent who ran the election, not the union or its members.

More importantly, the ballot box issue was just one of several objections raised by the company and and pushed by the two law firms that have fought this case on its behalf over the three years since the workers voted for the union. For example, the company also objected that the NLRB should not have run the election in the first place because the Board itself was inquorate. This argument was an important part of its legal position until as late as February this year, when it was dropped as the point was knocked back in a case involving a different company. Separately the company objected to the use of a photo of an employee on an election leaflet. This was even though the employee had signed a form giving the union consent to use it.

In practice, if you look at the company's legal submission to the Court of Appeals last year (this is using law firm Constagy Brooks Smith, which incidentally advertises "union avoidance campaigns" as part of their services), even then the weight put on the ballot box issue was far less than the flyer. Count the pages dedicated to each point for yourself, See Reply Brief to Court of Appeals here.

And if you want to see how much weight is attached to the ballot box issue this year I would recommend listening to the audio of the hearing in front of the Court of Appeals in March 2016 (at this point Durham is represented by a second law firm, Seyfarth Shaw). You can find it at the link below and click on the audio file next to Durham School Services LP v. NLRB.

https://www.cadc.uscourts.gov/recordings/recordings.nsf/DocsByMonday?OpenView&StartKey=20160320160314&Count=12&scode=1

The words "ballot box" are never spoken. If this really was the killer issue in Santa Rosa as the board has suggested then I'm surprised that the law firm they are paying to fight the election result didn't even mention it in the short window of time available with the Court of Appeals. (In reality the company's main argument against the NLRB seems to be a process point, but leaning heavily on the flyer issue)

In light of all this I really struggle to accept the board's presentation of Santa Rosa as being all about the ballot box, though it no doubt sounds better in public than arguing about quorums. It's also troubling that people apparently don't really know what is being argued in this case after three years, and it being raised publicly at AGMs. In addition, as should be pretty clear, the company's fire has been overwhelmingly aimed in this case at the NLRB itself, not union members or the Teamsters. This makes the company's "offer" to the union to re-run the election even more ludicrous.

You don't have to just take my word for it. Yesterday National Express/Durham lost at the Court of Appeals. In the decision (I have a copy if anyone is interested) the argument relating to the ballot box is completely demolished, and is described as bordering on frivolous. It concludes there was "nothing in the record to support a claim that the Board Agent engaged in any conduct that might have tainted the election proceeding" and that the company "raised no reasonable concerns regarding the propriety of the election". The company, in other words, got spanked on this point.

I hope the company learns from this, though experience to date makes me sceptical. More importantly I hope that the workers in Santa Rosa get justice, and the union representation they clearly voted for over three years ago.

Friday, 13 May 2016

Ladbrokes: at it again

Last week Ladbrokes saw a 42% vote against its rem report. This was in response to a termination payment, and the company in turn issued a very solemn statement as part of its AGM results acknowledging the vote.
The Board notes the vote in respect of the Directors 'Remuneration Report. Ladbrokes understands the concerns expressed by some shareholders towards the termination arrangement with Ian Bull.  The Board is very aware of shareholder observations and these will play a key part in the Board's thinking as remuneration is considered for the business going forward and the potential merger with Coral.
Much like last year, when it.... errr... issued a very solemn statement in its AGM results in response to... errr.... a large vote against its remuneration report over... errr.... termination arrangements.
The Board notes the vote in respect of the Directors Remuneration Report. Ladbrokes has spoken with several shareholders about the termination arrangements for Richard Glynn where his contract required that any settlement had to be determined in line with UK damages principles.  The Remuneration Committee confirms that contracts of this type are not appropriate and termination arrangements for the current executive team, including Jim Mullen who was appointed CEO on 1 April 2015, are determined on payment in lieu of notice (PILON) principles in line with best practice.  The Remuneration Committee further notes that Jim Mullen was appointed on a lower salary and shorter notice period than the previous CEO.
I suppose it's an improvement of sorts. Although the underlying behaviour is the same, the company is now making solemn statements. This compares to 2011, when it... err... issued a statement in response to.... errr.... a large vote against the rem report, which said, basically, "whatevs"
We have noted the disquiet expressed by some of our shareholders and have recorded it for future reference.



Wednesday, 27 April 2016

Transport unions unite to condemn National Express

Top transport unions condemn National Express over labour violations

Senior representatives of the transport sector in the global trade union movement have condemned National Express over on-going labour rights abuses at its US school bus subsidiary, Durham School Services.
The executive board of the International Transport Workers’ Federation (ITF) has fully endorsed the invoking of the ITF charter on responding to corporate violations of workers’ rights against National Express by its North American member union the International Brotherhood of Teamsters (the Teamsters). The charter triggers action across the ITF’s affiliate base when notification is given by a member union that a multinational company has breached core labour standards and/or is engaging in union busting activities.Affiliates in the UK, where National Express is based, are leading condemnation of the company backed by unions from around the globe. A number of executive board members represent unions organising workers in countries where National Express operates, including in Spain, the Netherlands and Germany. The multinational is also seeking to grow its business in the Arab World ­ specifically Morocco and Bahrain ­ a region where the ITF has a strong and active presence.During the executive board meeting ITF general secretary Steve Cotton said: “We’ve seen evidence of labour rights violations across the North American school bus operations of National Express and we have serious concerns over the systematic denial to workers of their right to freedom of association and collective bargaining. We are bringing affiliates together ­ both in the UK and globally - to develop and execute actions to bring about a real change in the corporation’s behaviour. That’s what needs to happen and we won’t accept anything less.”Steve Turner, assistant general secretary of UK affiliate Unite the Union added: “Multinational companies that think that they can isolate workers and treat them differently depending on where they are in the world and what power they have locally are wrong – we are a global family of trade unionists watching out for union busting activities across the globe. The actions of National Express in this instance are unacceptable and we are building the necessary coalition of trade unions and political leaders to put a stop to them."We’re seeking an urgent meeting with the chair and CEO of National Express to address these issues and hold the company here in its home country to account for the actions of its management teams across the globe, ending what is clearly a deliberate strategy to obstruct union organising efforts of our sister union in the US the Teamsters. Further, the board will be made acutely aware of shareholder concerns over the company’s decision to deny a resolution demanding an investigation into the group’s actions in the US at the forthcoming AGM. Attempting to shut down a legitimate debate among shareholders is undemocratic and an abuse of the board’s power that should raise wider concerns.“Silencing shareholders, like threatening and intimidating workers or denying the basic international right to join a union, is not good business and the company’s reputation will be damaged as a result. We hope our message is clear and that the company will act urgently to change its approach.”

Monday, 25 April 2016

Ballax about bankers bonuses

I've been meaning to blog about this for a few weeks, and only now have time. I think the bonus cap is another issue where it is important that we look at what the industry (and other interested parties like rem consultants) told us would happen, and what actually happened.

So, we were told that a bonus cap would lead to banks sharply increasing fixed pay, which in turn would both increase their fixed costs significantly and thus reduce financial stability.

PwC provided a typical claim:
“If they do put caps in, this could have disastrous unintended consequences. It could result in significant increases in fixed pay,” said Jon Terry, global head of human resources consulting at PwC. “It substantially affects the flexibility of the business.”
Here's what actually happened - fixed pay for most bankers didn't increase sharply, there wasn't a significant increase in banks' fixed costs and there wasn't a risk to financial stability. That's the view of the European Banking Association anyway. They did find a large increase in the fixed pay of a small number of UK bankers, but this wasn't widespread enough to affect overall fixed costs or financial stability.

This is another example those who want to reform the financial sector should remember. Finance is important to the UK economy, and it's understandable that some people worry about the impact of reform on that sector, and whether the potential costs outweigh the benefits. Fair enough, but there's also a danger in taking too much of the finance sector's propaganda at face value. The reality of the impact of the bonus cap versus what we were told would happen shows us that baseless claims continue to be made in very strong terms (i.e. potential threat to financial stability). Remember that next time.

Wednesday, 20 April 2016

Solidarnosc win in Gdansk

Ridiculously pleased about this -

Celebration as Polish dockers’ union wins new deal 

“The ITF family has stood shoulder-to-shoulder with them as they have fought against the belligerent and intimidatory tactics of previous management. We are hopeful that dockers there can have better standards that are consistent with those in neighbouring countries. It is no less than they deserve.”
That from ITF dockers’ section vice-chair Torben Seebold after a collective bargaining agreement was signed between ITF-affiliated Polish dockers’ union Solidarność and Deepwater Container Terminal (DCT) Gdansk. It brings an end to a bitter three-year dispute that has included complaints from the union over victimisation and harassment by the employer and the firing of union leaders. There has been support from the global trade union community with demonstrations at DCT Gdansk and in other European countries targeting the bank that owns the port, Macquarie.The historic agreement, valid until 31 March 2019, covers pay rates, hours of work, holidays and general conditions for 600 workers at the fast-growing new terminal in northern Poland. A second terminal is due to open next year and the workforce will grow to 1500 workers as the port seeks to become the main gateway to Russia and central Europe.Seebold said: “We are sending out an important message to all port owners; we will not let you get away with trying to drive down pay and conditions by building new ports and employing cheap labour.”