USS conducts member survey on SRI

The willingness of a large pension fund to conduct a survey asking its beneficiaries about their preferences with respect to socially responsible investment options is commendable. It is a step in the right direction as there is a glaring deficiency in present practices involving the management of assets, be it in pension funds, insurance companies, mutual funds or private banks (and we should not forget rapidly growing Sovereign Wealth Funds).
There is a well-documented agency problem in the management of companies with a dispersed ownership, i.e. the majority of major corporations. But there is another agency problem involving the relationship between asset managers of every form and shape and the final (real) investors whose money they are safeguarding. If anything, this latter agency problem might be of more relevance as it is directly responsible for the agency problem that can be observed in the corporate sphere.
So while a survey about SRI is welcome it is but a step in the right direction. Hopefully other fund will start to follow suit and in due course the end investors will have a major say in all aspects of corporate governance.
(9 Dec 2014)

Bill Gross's pay at Janus kept secret

I am sure he will not be paid $200 Mio that Pimco supposedly paid him in 2011 but it will still be an eye-watering amount of money. So one can understand the concern at Janus and its refusal (Financial Times, Paywall) to publish his compensation package. The problem as I see it is that Asset Management firms should be even more upfront and 'politcially correct' about their compensation structures as they are the fiduciaries of the ordinary saver and investing public. As such they have the task to monitor the remuneration practices in the companies they invest in and should demonstrate that they are 'whiter than white'.
(21 Oct 2014)

APG Asset Management Issues Remuneration Guidelines

When a large Asset Manager like APG publishes Remuneration Guidelines in merits special attention given that APG is less conflicted than pure for-profit Money Managers. But the most important question is still waiting for an answer: How much pay is enough? 1 per cent, 10 per cent, 20 per cent (as claimed by 'alternative' fund managers, and this does not even include the basic management fee) or even more as some 'star' hedge fund managers think they are entitled to? As long as the fundamental mistake of believing in the merit of 'incentive-based' compensation is not accepted there will be no end to the ratcheting up of (senior executive) compensation. It is sad that the leading business schools and self-appointed management 'gurus' propagate and foster this myth. Commission-based compensation may work for car salesmen but do senior executives really get dangled carrots in front of their noses in order to do a good job. And why should all the success of a business be attributed to a few (mostly men) at the top of the hierarchy?
(19 Oct 2014)

Board should communicate more with shareholders

This suggestion by Sodali Chairman John Wilcox merits our attention. But is not a key problem that the (Chief) Executive has a major role in selecting his own supervisors? Naturally there are Board Chairman in several countries that are nominally in charge but still there is a dis-connect as the shareholders are rarely able - and/or willing - to play a major role in selecting board members. There may be a director tasked with the role of being the point of contact to shareholder queries but it is often all behind closed doors (thus creating conflicted investors that may obtain inside information). But again, without such a dialogue, how can one expect shareholders to 'engage' with the companies they invest in?
(17 Oct 2014)

Bosses paid too much?

It is all very well to say that Bosses are paid too much and most observers might agree with APG Asset Management's Herman Bots (FT paywall). But it seems as if even the voting behaviour of the largest institutional investors makes little or no impression on those who decide compensation policies for CEO's and senior executives in listed companies. And we do not even touch upon the secretive world of executive pay as practised in the world of 'Private' Equity. So we are still stomped for your views on how to put effective curbs on executive compensation.
(29 Sept 2014)

Proxy Advice - Should it be a business?

One can erect any number of 'Chinese Walls' in order to prevent conflicts of interest but I still wonder if the something as important as good corporate governance should really be handled by a profit-oriented entity, in particular one owned by a Private Equity firm which may or may not be in it for the long haul. What do you think?
(22 July 2014)

Stockholders do NOT approve Pay of WPP's CEO Sorrell

Another twist in the never-ending quest of the WPP management led by CEO Sorrell. Are they really so desperate to receive every Penny they can get their hand on? What do they have to prove? But apart from this question - which is more a subject for a psychology site - one can say one thing: the REAL shareholders of WPP - or any other listed company - are usually not the ones that approve the one-sided and completely unnecessary 'incentive' schemes that inflate executive pay for the 0.1% that design their own 'compensation' schemes. In fact, their fiduciaries, large investment institutions such as Pension Funds, Investment Management firms and Mutual Fund Manager as well as Private Banks are the ones that wave these schemes through. They should stand up and be counted and not hide behind spurious 'governance statements' or - even worse - proxy advisers that are just an extra cost for the investors and responsible to no one. 'Best Business Principles' for Proxy firms may have been released just recently, but again they basically are designed by insiders for insiders.
(26 June 2014)

How to streamline Governance 'Clutter'?

Any student of the Corporate Governance debate that has evolved during the past 30 plus years (especially here in the UK) will sometimes be confused by all the different codes that have been published. So a call to 'clean up this clutter' by a prominent participant (Guy Jubb, Standard Life Investments) in the current governance debate has to be welcomed. But this leads again to the key problem: who shall be in charge of setting the governance code, shall it be the companies themselves, the investment institutions, government or the real investors themselves? And that still leaves out the 100 pound gorilla that dominates so much voting on corporate and governance issues, the proxy advisers.
(10 June 2014)

Minority Investors get better protection in UK markets

While not necessarily enough, the new  rules for 'premium' listings are a step in the right direction. But are they enough?
(2 June 2014)

Employee Buyout - next revolution in Finance

If anyone would have predicted in 1985 that Buy-out firms would grow to the enormous size they have reached now you would not have been taken for serious. Like Hedge Funds the LBO firms were at the margins of the financial markets. So my prediction that Employee-led buyouts (EBOs) may well be the next frontier for financial markets will be laughed at by most - if not all - my readers. But just look at an - admittedly extreme - example: the purchase of a major sports team in the US. With a little bit of organisation - and help from some investment bankers keen to participate in this new trend - the players AS A GROUP (Union?) could easily demand a seat on the table during the sale negotiations. Would any potential purchaser really want to proceed with a transaction against the wish of the key asset that he might want to pay an immense amount of money for? Key problem: any employer would like to take the 'divide et impera' approach and outmanoeuvre employees or their representatives. That is why 'alternative' unions would play a key role. They may actually be outsiders who sign up staff and then hire investment bankers to act on their behalf. These outside professionals could not be picked off by employers as they are not under their control. EBOs would go a long way to alleviate the problems of rising income and wealth disparity and move towards a proper shareholder democracy.
(30 May 2014)

Proxy Advisers - how are they selected?

I want to leave the question of whether or not the cost of employing proxy advisory firms can be justified for another day. But more importantly I would like to raise this point: on what substantive basis are investment institutions selecting a proxy firm. Surely it cannot be on price alone and must be somewhat related to the policies and rules a specific firm applies before it makes its recommendations. So hopefully there are major and detectable differences in the yardsticks each proxy firm applies - if not, why are there different firms, and can their different governance policies stand up to scrutiny? Which leads to the question: how do the investment firms justify the choice of a proxy advisory firm?
(29 May 2014)

McDonald's CEO Pay: Charge of the Governance Brigade

Nothing demonstrates the state of the debate about 'Executive' (or better: CEO) Pay better than this quote from Aeisha Mastagni, a CalSTRS Investment Officer, who stated  that "The compensation at McDonald's, in the grand scheme of things, it's quite reasonable".
Opinions may differ about the correct level of compensation for senior and top management but it would be helpful if clear yardsticks are set by investment fiduciaries and their paid advisers in the proxy industry. Constant ad-hoc battles on a case-by-case basis are a losing proposition that will regularly be won by incumbent management and their tame supervisors in the boards (they are by nature beholden to those who appoint and feed them).
(21 May 2014)

Pay: Nothing succeeds like Excess

It is simply amazing that CEO's of some colleges in the USA can rake in seven-digit compensation (24/7 Wall St). The drive to ever-higher executive compensation must be grounded in some deep-seated cultural or institutional trait as logic would dictate that any well-run organisation should have the capability to replace the man/woman on top of the heap with a cheaper alternative. The staff pyramid is rapidly widening from the top down and developing a deputy for any position should always be a managerial top priority.
(20 May 2014)

Strict Rules needed to protect (end) investors

This quote about the structure of the planned IPO for Alibaba demonstrates the need for rule-based governance. "You can't afford not to invest in these things. But if something goes wrong, you are left with nothing". The large investment institutions that are meant to be the fiduciaries for the real end investors (aka you and me) are not able or willing to draw a line over problematic practices that put the interests of their investors at risk.
(11 May 2014)

Reading List

Another trick used by bidders and activists - fair to other shareholders? (Harvard Law Blog)

Finance Capitalism - does it benefit the Economy or just the One Percent? (Business Insider)

Warren Buffett betrays his conviction, approves Coca Cola Pay Plan (Institutional Investor)

Blame Investment Managers for failures of Governance?

Daniel Pinto, a co-founder of the New City Initiative, a campaign to promote better corporate governance, blames (institutional) investors for being too much focused on short-term moves in share prices (The Times, February 3 2014). The problem as I see it is that just one more 'initiative' will at best bring a marginal improvement - and even that at a glacial pace. Lack of coordination among all the proponents of better corporate governance - and lack of accountability linking major investment fiduciaries and the real investors, i.e. the man on the street - are the main obstacles to a real change in corporate governance.
(4 Feb 2014)

Google to pay $3.2 bio for a company with revenues of.....$15 mio

Another sign of how unhinged the market for technology companies has become is this transaction where Google agrees to pay an absurd multiple for a tech start-up. Apart from the question whether or not this decision is commercially sensible (not even mentioning the privacy problems it might create) it also raises the issue of how much control shareholders should have over any sizable spending on acquisitions. That our pension systems are supposed to rely on a sort of ponzi-finance that equity markets have become (and an engine for wealth generation that is benefiting above all the 0.001 percent) is another prickly issue for politicians and regulators. Buying 'assets' at astronomical multiples is certainly not the right way for any pension system to match its liabilities to ordinary people.