How to influence Companies' Human Rights behavior

How should, how can, shareholders influence Companies? The only solution I can see is a new platform to give them a say in the proxy process. As matters stand the existing (and pretty much unaccountable) oligolopy of profit-seeking proxy 'advisers' cannot be relied on to represent the views of the ultimate owners of Companies.

LinkedIn is facing pressure from senior MPs and academics to stop “bowing to Beijing” by censoring users who are critical of China.

The Times has identified scholars, businessmen, journalists, whistleblowers and a former diplomat whose accounts were blocked in China after the professional networking site found “prohibited content” on their profiles.

 Stop bowing to Beijing, MPs tell LinkedIn (The Times, PayWall)

Morrisons - Barbarians at the Gate (The Sequel)

Private Equity firms basically are Conglomerates in drag and should never have been allowed to slip under the regulatory mantel designed to protect retail investors from fraudulent investment firms. As a consequence PE promoters enjoy unfair advantages with respect to tax, corporate governance (esp corporate compensation), transparency, treatment of staff and clients. No wonder the universe of listed companies is shrinking fast - and will accelerate if regulations are not changed - FAST!

In this age of growing concern about Inequality it is a slap in the face of ordinary investors - let alone citizens - if more and more public companies get gobbled up by financial engineers and their conspirators among dominant shareholders and management. Apart from the problem that benefits of the Private Equity industry are disputed - there was hardly ANY private equity to speak of before the mid-1980s and the world was doing quite well without it - the distributional effects are clear for all to see: Who else but promoters of the industry can spend millions on a birthday party? why should public companies show restraint in relation to executive compensation when promoters and their hired guns in management don't disclose their pay packets? They probably get paid amounts that would sometimes be multitudes of what senior executives in public companies can earn. It is clear that mechanisms to protect public shareholders from having their companies taken away on less than attractive terms are not up to the task. Who cares about Wider Shareownership or the Shareholder Democracy? Rome's decline started when wealth got concentrated in the hands of the few.

There may well be agency problems at Public Corporations, though family firms often are also ridden with conflict in the C-Suite, especially between family members. But as long as Private Equity gets favorable treatment from a tax, regulatory and transparency point of view this trend away from listed companies will continue. The irony is that Private Equity needs the public market in order to sell its investments. The question of how citizens and workers can be made part of a capitalist system that is concentrated in a very small number of hands should not be forgotten - it may be the most important question after all!

But one aspect is forgotten (on purpose?) in this ongoing saga. For arguments sake let us agree that it is beneficial and fair to give entrepreneurs and investors a lower tax rate on capital gains. But the promoters behind Private Equity are not always putting sufficient funds of their own into the businesses they finance. Taxable income could easily be converted into capital gains if they award themselves a sort of founder's shares at artificially low prices - and voila, when the company/asset is sold they can book a capital gain that is taxed at a much reduced rate. Given the opaque nature of Private Equity one has to assume that this practice is quite prevalent in the industry. In addition, basing buy-out vehicles in offshore tax havens allows even more manipulation of tax levels. So while most of the money managed by 'Private' Equity ultimately comes (via financial intermediaries) from the Public the tax affairs of the promoters are the one aspect that is really private. Maybe a small part of all the noise and energy spent on reforming pay in the listed company sector would be much better addressed to shed more light on the pay practices in the Private Equity business.

The re-emergence of Dell as a Listed Company can only leave a sour taste in the mouth of anyone who supports a Market System that benefits the great majority and not just a few clever financial engineers.For a long time Pro Governance has argued that it is much to easy to take listed companies 'private' (a misnomer in the case of 'Private Equity' backed deals as PE firms are mostly working with money from Joe Sixpack even if it is allocated by fiduciaries in the money management food chain).

Most end investors - and even their often gullible fiduciaries acting as 'limited' partners in the Private Equity investment vehicles - are blissfully unaware of the myriad of fees that are charged to the funds they are invested in. So the current spat between some Private Equity big wigs allows a peek into this opaque world. Given that the disputed fees relate only to the money invested by three officials of the funds one can imagine the amount of money that was charged to the proportionally much larger amounts coming from the 'limited' partners (ultimately Joe Sixpack). Surprisingly the critics of executive pay in listed companies are mostly (all?) silent on the goings-on in the 'discreet' world of (not so) 'Private' Equity where most of the money really is invested on behalf of the general public.

Some call Private Equity and their close cousin, distressed debt investors, nothing but locusts that are out to make a fast buck. This judgment may be overly harsh, but given the short time between investment and exit that is the hallmark of some deals it may be difficult to disprove this judgment.One are of possible abuse, however, is the treatment of shareholder loans when an investment hits the buffers. Loans from major or especially controlling shareholders should be treated as subordinate to all other claims, pensions, wages, trade creditors and tax authorities.In the case of Private Equity 'Funds' it should also not be possible that the Fund washes its hands of an investment that had gone sour. The Fund should be treated as a going concern, much like a Conglomerate. This would instill a much higher level of commitment from the PE investors and prevent overly risky investments on the basis of 'heads we win, tails you loose
(20-June-2021)

 

Climate Data in Company Accounts?

From my days as a part-time journalist during my years at University I remember one thing very well: The way you formulate the headline already implies a value judgement. So it is in this article. Asking for the sense in excluding Climate Change Data lets the reader automatically register some - however small - reaction in favor of not excluding this 'Data'. And I put it into inverted comma as data (in relation to how company accounts are affected by Climate Change) implies a false sense of precision.

Excluding the question if - and if so by how much - climate change is affected by human activity (or excessive breeding) - any effort to incorporate the data into company accounts in a meaningful way is fraught with huge problems.

Minor influences that progress literally at glacial speed (to use a pun) are hardly worth the bother. All the data collection will only provide (well-paid) jobs for a myriad of new-styled 'Climate Change Analysts' and assorted experts (such as the author of the article).

But what about major changes? Should any company report on the likely impact of sea levels rising by 3 metres or more? Or a rise in temperatures in certain region above the 40 or 45 degree mark? Making accurate predictions depend on the accuracy or inaccuracy of predictions about future changes in the Climate.

Company accounts are already a tender construct that is being abused all too often and this further complication would just make them even more liable to be distorted. Anyone with a brain should be able to form a judgement as to the risks inherent in an economic activity.
(12-June-2021)

Where's the sense in excluding climate change data from a company's accounts? (FN London, PayWall)


ESG: How will 'Racial Justice' be measured?

This initiative has the potential to become a never-ending saga. How many angels can dance on the tip of a needle? Will rating agencies become the arbiters? (and charge you a hefty fee for this?)
(7-Aug-2020)

Racial Injustice Will Have Greater Weight in ESG Scores, S&P Global Says

The real problem with Buy-Backs

Most debates about pros and cons misses the point: buy-backs are an ineffective way to 'return' capital to shareholders. Managements have as much insight about future share prices as the average investor, be it Joe Blogs or a 'Professional'. If shares are bought at too high a level it is obvious value destruction. One might as well have given shareholders cash and let them make a decision about whether to buy more of the company's shares at a certain level or deploy the returned capital elsewhere. The same applies to situations where management considers the shares to be undervalued ((and this does not even mention the aspect of executives playing a somewhat conflicted game of boosting the value of their share or option packages).
So basically all the buy-back activity is nothing but guesswork and punting on the share price that should not be the task of management. It should just do the job of running the business.
Of course, there is an element of price manipulation - and that seems to be the major factor behind all the buy-back activity. But the sad example of General Electric demonstrates that management should not be able to roll the dice in the stock market casino.
Returning money to shareholders should not mean that some sellers get a (manipulated) exit price while those shareholders that don't sell get no cash - and may or may not benefit from a short-term boost to the stock price. For when buy-backs stop the share price may rapidly drop to the undisturbed neutral price it would trade were there not buy-back activity
(31-July-2020)

China: all the ESG Talk is just that, Talk!

When the Corporate Governance - in particular the ESG fanatics - are called to perform there is just silence, golden silence!
(27-July-2020)
Wall Street turns a blind eye to atrocities committed in China

ESG creates quagmire for Fund Managers

And business in general. The demands from lobbies and interest groups will expand and no action by managers and businesses will be enough to satisfy them. Once pandora's box is opened issues that really should be settled in the realm of politics will lead to never-ending complications for what should really be the priority for business and investment - obtaining profits or a satisfactory performance for savers.
(27-July-2020)
Boohoo supply chain allegations reveal challenges facing ESG investors

C.E.O.s Are Qualified to Make Profits, Not Lead Society

The self-appointed Governance activists in business and finance should take note. They stray from the original purpose of good Corporate Governance (how companies should be governed in the insterests of the shareholders). Other stakeholder interests can be guarded by proper laws after they have been determined in a democractic process.
(26-July-2020)

Interesting Contribution from Gregory Mankiv

Blackrock's commitment to sustainability - on whose orders?

Pious intentions may be to investor's tastes but has Blackrock - or its self-mportant group of Sustainability experts - received any specific mandate from the investors whose money is at risk?
(24-July-2020)
Blackrock: our commitment to sustainability

Private Equity basically a Conglomerate in Drag

That the Head of this 'Private' Equity firm openly states how he controls the CEOs of the companies he controls gives away the fact that PE firms basically are Conglomerates in drag and should never have been allowed to slip under the regulatory mantel designed to protect retail investors from fraudulent investment firms. As a consequence PE promoters enjoy unfair advantages with respect to tax, corporate governance (esp corporate compensation), transparency, treatment of staff and clients. No wonder the universe of listed companies is shrinking fast - and will accelerate if regulations are not changed - FAST!
(6-Dec-2019)
Marketwatch