Monday 28 July 2014

Hacking news

A couple of unrelated bits of hacking news.

1. Yesterday the Indy reported that the cops are still looking at taking a corporate charge against News UK. An important thing to remember here is that if they do this using section 79 of RIPA the executives in the firing line don't need to have known about hacking, they can be found negligent.

2. Trinity Mirror reported today that it set aside £4m for dealing with and resolving civil claims relating to phone hacking. But they say that it's not possible yet to quantify other potential financial risks relating to hacking:
It remains uncertain as to how these matters will progress, whether further allegations or claims will be made, and their financial impact. Due to this uncertainty a contingent liability has been highlighted in note 18.

Wednesday 23 July 2014

The Crisp of death

Crispin Odey is an interesting character. The hedge fund manager and Tory, then Christian Party, then Libertas, then UKIP, then Tory again funder often seems to crop up on the wrong side in corporate governance fights. But perhaps he's also a bit of a counter indicator.

To take just two examples, he was very public in support of James Murdoch's continuing chairmanship of BskyB after he was caught up in the NOTW hacking scandal:
"James is a great strategist and should remain chairman, but at the moment BSkyB has got too many News Corp appointees. They need to take one of the News Corp appointees off," Odey told the Telegraph.
A few months later this happened:
James Murdoch, once thought of as corporate heir apparent to his father Rupert, is stepping down as chairman of BSkyB after concluding it would be too damaging to stay on and risk a critical verdict from a British parliamentary inquiry into phone hacking.
He's also been a high-profile supporter of the efforts of the board of Sports Direct to give more money to Mike Ashley.

Here he is in 2012:
Speaking to City A.M., Odey said of Ashley: “He’s a genius. If only there were more entrepreneurs in the country then it would be a better game.” 
Sports Direct subsequently abandoned attempts to introduce an incentive scheme for Ashley in 2013, and pulled another this spring before it got to a vote.

Still, you can't keep a good man down, and Crisp was again public in support of a new incentive scheme that would give Mike Ashley... well... we don't know because the company wouldn't disclose who would get what. But here is Odey again:
Founding partner Crispin Odey told the Evening Standard: “I just think he is a genius but he is also someone who needs motivating and that is what we are happy to do.”
And you can guess the subsequent outcome:
Sports Direct International plc ("Sports Direct" or the "Group"), the UK's leading sports retailer, announces that Mike Ashley, Executive Deputy Chairman of Sports Direct, after discussion with the Remuneration Committee, has informed the Board that he does not wish to be awarded any shares under the 2015 Bonus Share Scheme.
Here's hoping he backs the Tories next year then.

Monday 21 July 2014

Against performance-related pay

As many people will know, Andrew Smithers has written an interesting book on the link between incentive schemes for executives and factors like lack of investment, high short-term profits etc.

I personally liked the book, but I wasn't convinced that the incentive schemes drive the sub-optimal behaviour he identifies, nor did I agree with his proposed solution (changing what bonuses are based on). Here's what he has to say on his blog today.
The key is not the size of management’s pay, but the incentives that come from bonuses, options and other additions to basic salaries. Things would be greatly improved if chief executives’ incomes were limited to their basic salaries. Suggesting this would produce such a howl of rage that even putting the idea into the public domain would be a useful ploy. Faced with the threat, it may be possible to introduce a code of best practice in which bonuses were dependent on things other than profits. For example, minimum levels of growth in output and investment could be required before bonuses based on profit achievements would be payable.
What I find most interesting about this is his suggestion that a good outcome would be the elimination of variable pay (which is a tougher position than in his book). It's encouraging to see that a shift in sentiment against variable pay is underway in relation to the area where it is prevalent (boardrooms) 

Thursday 17 July 2014

Workers's capital in action

A very quick round-up of union shareholder activism just from this week.

Yesterday, Bruce Hamilton from the Amalgamated Transit Union attended the First Group AGM to highlight the conditions of workers in Greyhound bus terminals. The ATU wants Greyhound to negotiate a national contract covering terminal workers. The AGM was hit by a big vote against the rem report due to increased awards for the chief exec, something the ATU picked up on.

There's an interesting initiative at McKesson, where the Teamsters have filed a shareholder proposal targeting accelerated vesting of equity awards. This is also a company where union-led shareholder activism last year contributed to a say-on-pay defeat. 

The ITF has written to the SEC calling on the regulator to scrutinise the claims that Chevron has made about the development of its LNG project Gorgon off the North West coast of Australia. This follows an earlier union briefing to investors on cost over-runs.  

Wednesday 9 July 2014

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 Gordon Brown 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 - 


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. 


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.

Sunday 6 July 2014

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.

Wednesday 2 July 2014

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....