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)