Gravediggers of Shareholder Capitalism

When company executives (and company boards) look after their own interest rather than the interests of the shareholders no one should be surprised if shareholder capitalism - and as a consequence capitalism itself - gets a bad name.

Hewlett-Packard - one poor Acquisition after another

Hewlett-Packard could easily become Exhibit Number One for any future case studies about the dangers and pitfalls of hastily concocted acquisitions.

Time to end the time of the 'Imperial' CEO

That some employees at Citigroup may be in shock (Financial Times) about the sudden departure of the CEO speaks volumes about the fact that the role of the CEO in today's corporation is vastly exaggerated. While no one would deny that the decision of the leader is critical it does not mean that this is necessarily a good thing as many examples in business (and history) show. Relying on the judgement and predelictions of a single person creates risks that would be mitigated in a more collegial system of leadership.

PE firms accused of bid-rigging

While nothing is proven about the details of the bid-rigging alleged in a complaint opened by a Boston judge the accusation raises an important point

No more 'anger' or 'protests' about top pay

No more 'anger' or 'protests' over excessive senior management - and in particular CEO - compensation please. It is up to the 50 top global investment institutions (dare we say fiduciaries?) to get a handle of this (still growing) abuse. It is they who effectively have a controlling stake in all listed companies and are morally - if not even legally (due to various ethics codes and legislation to engage in corporate governance) – bound to put an end to excessive compensation for a tiny number of top executives. Or will legislation eventually be the only remedy? Voting by the Top 50 should be mandatory and public, any outcome should be binding on the company. To avoid endless discussion about each pay 'scheme' a few simple rules suggested by Pro Governance (a modified 'John Lewis' model) would do away with time-consuming and opaque 'consultations' (usually held behind closed doors).

Pay: Pru (UK) sets poor example

The corporate oligarchy does not seem to be capable - or willing - to learn. To shower excessive rewards on the few (Seven) is morally despicable apart from being totally unproven to contribute anything to company performance. A good salary and a company-wide reward scheme open to ALL employees on a salary-based pro-rata basis should be incentive enough. Keeping one's job should be 'reward' enough, and under performers will be shown the way out (is that not enough 'incentive' to perform?). A major institutional investor such as the Pru (do they know that they are actually only fiduciaries for the real investors, do they care?) is critically conflicted in terms of corporate governance and should be a shining beacon for good behaviour...o tempora o mores! Any reader who agrees with us should get in touch - only numbers count in the battle for better corporate governance. There are plenty of studies and organisations working on the issues but they are basically either talking shops (sometimes well paid) or headless chickens without leadership.

Shaming the overpaid is not enough

If people are shameless they will not have any problem with putting their pay into the limelight, they might even be proud of it! suggests that the pay for top executives should consist of basic pay and all bonuses, perks, pensions, 'incentives' (to get out of bed?) and 'rewards' should be strictly on a company-wide basis (John Lewis Principle) and the same percentage of base salary should be applied to all staff members when calculating such emoluments. This would radically simplify compensation structure and do away with expensive 'remuneration consultants'. There might still be a temptation to set the basic salary at too high a level. But this would be much easier to police than the thicket of remuneration schemes that only get more and more convoluted (to disguise the excess?).

Revolution in the City?

This headline (CityAM) caught our attention this morning. Given the tense political situation in the World we expected pictures of bloodshed and mangled bodies. But no, the revolution referred to the 'protest' votes against top executive pay that were cast by the (institutional) shareholders of several large UK companies. But so far, this protest is not much more effective than the protest staged by Occupy Wall Street. First of all, the votes are not binding. In addition, the opposition against admittedly excessive top executive pay lacks a reliable compass. Even if one optimistically assumes that pay awards will scaled back (unlikely) or at least not increased much more in the future (are pigs flying?) the fact is that the whole discussion about top pay needs to focus on the key question: what is fair and justified 'compensation' for top executives? Claiming that top pay is set by 'market' forces is no answer as there simply is no proper 'market' price for top executives' pay. If there would be, remuneration would not be pegged so as to be in the 'top' quartile of the peer group. Company boards would be hard at work to develop a strong group of executives below the CEO level hat could take over if the CEO finds his pay as being too low. In addition, remuneration consultants would point out those CEO's that get by with less compensation and suggest that the CEO matches their pay - or else. Ultimately the question boils down to how the boards and remuneration committees are appointed. As long as the CEO has a decisive hand in appointing his own supervisors the problem will never be addressed properly. Similarly, the major investing institutions - especially the top 40 who control nearly two thirds of all assets - have to take up their responsibilities as fiduciaries for the ultimate shareholders. Either there has to be a way to give the end investors a say in the voting policies of their fiduciaries or the door will open for politicians to interfere more and more in this aspect of corporate governance.

Status Seeking - nothing changed for 5,000 years

Reading a book about Egypt's ancient history recently I could not help but be reminded of today's corporate oligarchs. Officials in the time of the old kingdoms tried to outdo each other by ever more spectacular tombs, being as close as possible to the Pharaoh's tomb etc...what you see in Wall Street is not much different, the same atavistic instincts reign supreme, the apartment on the right spot (overlooking Central Park if possible), the weekend home in the this all the progress humanity made during the past 5,000 years?

How to move governance from theory to practice

How can the corporate governance discussion move forward from the study/discussion stage it is trapped in at the moment? There have been more than enough studies, discussions - even laws and regulations - in the past and in theory we should all live in a corporate governance paradise. But sadly this is not the case. So we would love to hear suggestions about what could/should be done to move things forward. Not more 'theory' please but practical measures that could easily be introduced.

Domino's (UK) pleased with 'consultation' on top pay

We are not surprised. After another 'protest' against pay for top management the company can go back to business as usual. No one knows what these 'consultations' with larger investors entailed, who the lucky and priviledged few were and what was said by whom. So no holding them to account.

Goldman board changes - are sidedeals acceptable?

Pressure by individual shareholders to effect changes in corporate governance may appear to be a good thing but it creates its own problem. The case of Goldman Sachs is a topical example. Agreeing to changes in board structure just to save the post of chairman for the CEO is not an arrangement that should point the way forward to improved corporate governance. Individual shareholders should communicate their wishes first of all to fellow shareholders and not try to get special deals from management - behind closed doors or openly. Changes to board structure should not be tailored to individual companies but should follow a general principle that is applied to all public companies. There is no point in fighting the governance war over and over again, without any reference to clear principles. This just leads to endless (and mostly futile) discussion and allows company managements to evade demands for decisive changes.

Many large M&A deals value destructive

This quote from Aswanth Damodaran underlines the need for stricter supervision of merger activity by the shareholders of both the acquiring and the acquired companies.

"There is strong evidence that many large M&A deals are value destructive for acquiring company's stockholders. While it is true the valuations from investment banks grease the wheels for these deals, it is also true that the managers of the acquiring firms are just as much to blame as investment bankers. Intent on spending stockholder money to gratify egos and build their corporate empires, these managers are less interested in honest advice from investment banks and more so in their deal-making prowess. In fact, I think that many corporations use investment banks as shields against having to take responsibility for bad decisions, with "It was not our fault, since the investment bank told us it was okay" becoming the post-failure refrain"

J K Galbraith on Executive Pay

"John Kenneth Galbraith once described executive pay as a warm personal gesture by the beneficiary to himself. In today’s world of remuneration committees, it is more often a warm personal gesture by friends to each other." (John Kay, FT)

UBS - curious selection of new board members

What is the 'politically correct' composition of a company board? We are not sure that board members are more than an in-house management consultancy. They certainly are far removed from the real owners of the company and even the fiduciaries in the asset management world have little say in the affairs of a board. But news that UBS has appointed two women to its board - one an academic economist and the other one lawyer - raises some questions. Given the appalling track record of economists (you all know the many jokes about economists, as for example: An economist is a trained professional paid to guess wrong about the economy) one can not be too hopeful about these latest appointments. Don't forget the lawyers though: Q: Why won't sharks attack lawyers? A: Professional courtesy. Maybe selection by eye colour would be more effective. There may be a good cause for more women on company boards but we doubt that giving in those who expect miracles from this will be proven to be right in the long run. Whether or not a bank run by economists (Axel Weber, the incoming Chairman of UBS is another one) only time will tell.

Dual CEO'S - if anything a formula to be promoted

The recent troubles at Blackberry manufacturer Research in Motion seem to suggest that dual leadership can be damaging for an organisation (FT). But Rome had two consuls during its rise to dominance, and they were limited in their power to a tenure of one year. Goldman Sachs in the late 1970s and early 1980s had co-chiefs - and that was when the firm laid the foundation to its rise to dominance. The challenge for boards and shareholders is to make sure there is a deep bench of talent - a thing that is sorely missing in many companies, why else would a company ever look for an external candidate for any of its top positions?

CEO pay - Heads I win, tails you (shareholders) lose

A perceptive article by Eleanor Bloxham - but sadly it also does not offer a real way out of the CEO quagmire. She is not alone in this and a much more forceful and determined effort is required to stamp out this abuse. By now there are enough learned studies and the time for action has arrived. And anyone willing to get engaged can be sure of one thing - he will not be required to camp out in a tiny tent in the middle of a cold night. The aim is clear, now it is only a question of getting organised!

Cameron vows to tackle executive pay

For once we can give wholehearted applause to the British Prime Minister - if he stays the course. As reported elsewhere, it is regrettable that the ABI and the NAPF - these guardians of the investor's best interest - have already put the spanner into these proposals. One should not forget that these organisations are deeply conflicted and their own governance needs to be put under closer scrutiny. Have they ever bothered to find out the opinions of their ultimate paymasters - the people who are insured or whose money they manage?