CEO moving on to role of Chairman

We fully agree that allowing the outgoing CEO to move on to the role of Chairman poses serious problems for good corporate governance. But as we do not really think that the separation of the two roles is essential for the running of a company we consider this discussion to be a sideshow. The United States have a perfectly efficient economy and most companies combine the role of CEO and Chairman (and President) in one person. The problem with excessive remuneration of CEO's (and other senior corporate executives) cannot simply be explained with the fact that the two positions are held by one and the same person.

Absurd treatment of owners in Proxy Access battle

That companies can try to derail the SEC's proposed changes in the rules governing proxy access in the United States can only be called absurd. After all the companies ARE the same as the owners and should not bloc themselves. The only explanation is the self-interest of a narrow and interbred clique of senior managers and board members that do not want insolent owners disturbing their cushy - and lucrative - sinecures.

Pension Fund Trustee forced out

The news that the Chaiman of the EMI pension fund trustees was forced out for supposedly demanding that EMI tops up the fund shows that the regulation of pension funds is inadequate and creates similar problems of moral hazard as can be found in other segments of the financial service industry. Employees are generally discouraged not too put too many eggs in one basket and avoid excessive exposure to the shares of their employer. That way they avoid being hit by a double whammy should their employer hit trouble. In that case, not only would they risk losing their jobs but their investment would also be diminished at a time when they need it most. (This is a dilemma for all advocates of increased employee share ownership participation). Having one's old-age retirement provision dependent on the fortunes of the employer - over which the average employee has no influence at all - is a risk that should be eliminated in any sensible pension fund legislation. Companies subject to financial engineering that has very little to do with sound management but more with boosting the personal wealth of a few managers at the control - mostly in the so-called 'Private' Equity sector - are most at risk of neglecting the best interest of the pensioners past and present.

Sulzer - another victim of poor takeover protection

The fact that a Russian 'Oligarch' can exercise control over a century-old company like the Swiss Engineering firm Sulzer is an indictment of the system of corporate governance that is allowed by 'free-for-all' takeover rules. While this system may just be acceptable for football clubs (and a simple rule change limiting the votes for each owner to a modest level would be welcome there as well) it is questionable whether the interests of good management and wider stakeholders (employees present and past, customers, the community the company is based in) is really served well by giving individual shareholders too much influence just on the basis of a minority stake in the company (even if it is 31%). Minority governments are bad enough (The UK suffers from this for more than 30 years now) but there is no reason to replicate this in listed companies. If Mr. Vekselberg, for example, thinks he has a superior business plan for Sulzer he could either (1) try to convince the other shareholders and/or management about the quality of his ideas or (2) try to gain control about the majority of the share capital in a supervised auction process that avoids premature squeezing out of Shareholders that see long-term growth potential in the shares and do not want to be deprived of it due to weak takeover controls.

Equal Pension treatment for all employees

In bygone times the majority of the larger companies in the UK offered their employees participation in a defined-benefit (DB) pension scheme. While these schemes produced their share of iniquities (treating early leavers poorly) they offered stability to the workforce and appeared to represent a fair deal for employer and employee alike. A variety of factors which we will not discuss here contributed to the decline in DB schemes during the past 15-10 years. This is contrary to efforts in many other countries to introduce a 'second leg' for retirement provision (in addition to the state pension and private savings which are the third leg). The result is that the majority of employees - and certainly those on middle and low incomes - face a period of penury in their old age. What makes the decline in DB schemes particularly galling to those employees is the fact that the managerial class - and in particular the top executives - escape from this dilemma. Not only are they compensated particularly well during their working life, in addition they also arrange to pay themselves pension contributions that are way above what they are willing to pay for the general workforce. In the interest of good corporate governance it is essential that all pension payments are made on a strictly pro-rata basis based on base salary with no distinction between different types of employee.

Mintzberg: Eliminate Executive Bonuses

We have to make a few observations about the radical view on executive bonuses espoused by McGill University's Henry Mintzberg. First of all we do think that the main problem of all executive incentive schemes is the fact that it is arbitrarily allocating too much glory (and blame) to the CEO of a business. That may or may not be justified - individuals CAN make a massive difference as is demonstrated in sport, art and science. But there is the question of the right degree to which this is possible - and morally justified. Otherwise the US President could demand to be paid a share in the growth of the GDP during his period in office. Our position is that all incentive schemes that benefit the CEO and the top executives should only be those that are made available to ALL employees on equal terms and should be calculated on the basis of base salaries. This should include all perks and benefits (pension, health insurance, share options etc). Not only would this system be equitable and fair, it would also be transparent, easy to understand and not easy to game by top management. At the same time it would probably reduce the gap in compensation between top management and the average employee. This link between pay levels would in all likelihood also put general downward pressure on compensation for top management.

Executive Pay Grab accelerates

A new study by James F. Reda & Associates comes to a surprising conclusion: instead of tying executive compensation more closely to long-term performance the incentive plans tend to put more emphasis on short-term results. This should surprise no one given the sad fact that the majority of institutional shareholders and their industry organisations still take a cavalier attitude to corporate governance issues and at best pay only lip service to it.

Lording it over the shareholder peasants

Not much has changed in German Corporate Governance - Governments of the Left and Right come and go, commissions publish their reports, regulators slumber in their plush offices and collect their secure salaries and pensions (at least no bonuses there!). The farce that just seems to come to an ignominious end with the takeover of Porsche by Volkswagen illustrates all that is wrong with Corporate Governance in Germany - one of the leading industrial nations but still stuck in deep 19th Century ideas of shareholder democracy. The German expression 'Gutsherrenmanier' comes to mind as the most appropriate word to sum up the way that the political and business 'Elites' carve up the control of businesses that are owned by the shareholder community (which comprises not only German investors and savers but also those from many other countries). How is it possible that Volkswagen agrees to pay a price for Porsche that many analysts describe as overly generous and has not been discussed properly with the public shareholders? How can people that have an economic interest in both companies be allowed to be party to the merger discussions? How can a government (The state of Lower Saxony) be part in this questionable arrangement? All we can say: anyone considering investing in German Shares does so at his own peril and should demand an extra premium to be at least partly protected against these shenanigans.

Friends Provident Shareholders to be sold out?

By sheer coincidence (or foresight?) your author bought a few FP shares during the darkest days of the credit crunch. It looked like a nice bet at a time when the banks were shaky and there was no light at the end of the tunnel (yet). So when talk about a 'rapprochement' between the FP board and management and Resolution started again during the past few days my blood started to boil about this sell-out by the shareholder representatives. By looking at the FP chart any idiot (only a strong word will do here!) could see that the share is building a bottom formation and that the shares are still in seriously cheap territory. Of course, news flow is still poor - but otherwise the shares would be flying. So why sell now to a predator? If management is not up to the task it could be changed (again). And the unnamed institutions (and fellow-travellers in the media) that push management and the board to talk to Resolution, are they blind or do they really want to sell out at the bottom (or for a short-term flip if they were lucky and bold enough to buy during one of the downwared spikes in the winter months)? Maybe the Institutional Shareholders are really not the right forum to oversee corporate governance and should be limited to play in the secondary markets.