Pay 'revolts' are pointless posturing

Another day, another pay 'revolt' - with equally predictable results. Shareholders of Britain's FirstGroup may feel better after 42 per cent of those that voted rejected a 'retention' award for the Chief Executive. ProGov continually argues that all perks and special payments to Chief Executives and senior directors - apart from the level of basic pay - should be banned. This would level the playing field and avoid time-consuming and ultimately futile discussions about any exceptions, special cases and other excuses to line the pockets of those senior executives in an arbitrary way.
(16/07/2011)

Cavalier attitude towards pensioners

The provision of pensions for ordinary citizens (not the executives and politicians who allow themselves gold-plated schemes) is becoming more pressing by the day in most western 'democracies'. That relying on government-sponsored regulators offers little hope - and even less help - is demonstrated by instances where venture (vulture?) capitalists or those whose primary activity is shuffling around corporate assets can escape from their obligations toward their past and present workers in order to maximise their personal profits.
(03/06/2011)

Cadbury Takeover: Closing the Stabledoor after horse has bolted

There is no point in British MPs complaining about the 'dismissive attitude' of Kraft's CEO now that the takeover has long since been executed. Better regulation of takeover law and corportate governance is indeed required and would help in cases such at the takeover of Cadbury by Kraft.
(23/05/2011) 

Erste Bank doubles compensation of Supervisory Board

Without judgement on the merits of this particular case we get surprised reactions about the fact that the Supervisory Board members of Austria's Erste Bank will have their remuneration doubled to a total of Euro 750 000 (for the whole unit). This is not accounting for the attendance fees of around Euro 160 000 they received in the last year. A delicate detail is that the head of the Austrian investor's protection association is among those benefiting from this largess. This highligts one of the main problems of good corporate governance: What are Corporate Boards meant to achieve? In the German tradition the Supervisory Board exists to oversee the company management and defend the interests of the shareholders while in the Anglo-Saxon tradition the board is a mixture of executive managers and non-executives that are elected to advise and supervise management at the same time. In both cases the management - and in particular the CEO - plays a decisive role in appointing board members and therefore to a certain extent controls himself! The same can be said for the setting of compensation which procees on the basis of 'I scratch your back if you scratch mine'.
(13/05/2011) 

Starbucks CEO Schultz blames 'speculators' for high coffee prices

Anyone who has visited a Starbucks coffee shop - or any copycat business - will have wondered why the price of a cup of coffee (more often than not served in a cheap plastic cup) is so high. The contribution of the coffee that goes into a cup is minute compared to the price of the finished product. So we were bemused when Howard Schultz, CEO of the Starbucks coffee chain, delivered a rant about speculation in the Commodities Markets. A look at the P&L of the company - and Schultz's extremely generous compensation package - makes it clear that Schultz - and many other commentators - want to pin the blame for high food prices on speculators when long-term economic and demographic factors may in reality be the driving factors behind the recovery of many commodities from a decades-long slump in price.
(12/04/2011) 

Insider Dealing brought to light

The detection of a year-long insider scam by the US authorities may well serve as a deterrent to those tempted to perpetrate such a scheme. But the fact that wire-taps play such an important role in helping to uncover illegal insider transactions is also worrisome. When criminals stop using telephones to communicate with each other it may become more difficult to detect illegal schemes. High-risk sectors of the financial industry are another area where prosecutors find it hard to uncover illegal transactions as they can easily be hidden behind a smokescreen of large numbers of unrelated transactions.
(7/04/2011)

Board Members and Conflicts of Interest

News that Peter Brabeck, Chairman of Nestle and member of the board of Credit Suisse has borrowed a total of Sfr 14 million from the bank that paid him a total of Sfr 500,000 last year highlights the potential for conflicts of interests when a board member has senior positions in companies that are doing business together. In the days of the 'Old Boy Network' it was easy and convenient to invite people to sit on one's board as one knew them already and could be confident that they would see their role more as friendly advisor rather than as objective controller. Pro-Governance repeatedly warns that the practice of board members being selected by exactly the people they are supposed to supervise is deeply incestuous. When a board member is connected to a financial institution and a company that is in business contact (as client or investor) the possibilities for abuse multiply.
(25/03/2011)

Pension Risk transfers - who monitors the Risk?

A report by Hymans Robertsons documents the trend in the United Kingdom towards shifting the risk borne by companies offering final salary pensions to insurance companies and banks. One can only hope that these companies are ready to survive the next financial tsunami. While they may be more stable in the long run than the companies that originally stood behind the pension obligations one has to wonder who really has the interest of the pensioners at heart. The companies on both sides of these transactions will above all be interested in the short-term boost to their profits, the managements will focus on the boost to their bonuses and will long be gone if ever one of these transfers runs into trouble. And the regulators? I think we all know the answer.
(23/03/2011)

Kick-back Fraud in M+A transactions

News that German authorities investigate up to 30 employees of Bayerische Landesbank in connection with the takeover of Hypo Alpe Adria raises an important but often neglected point with regard to Merger and Takeover transactions. We do not even want to delve into the fact that many are value-destroying at least half the time. This has been proven in many academic studies and any experienced investor will have watched in disbelief when supposedly smart managements engage in deals that make no sense for one of the two involved parties. While better corporate governance will help to alleviate many weaknesses of the merger process little attention has been paid to a darker side of this process. As the abuse is incredibly difficult to prove not many instances of outright fraud have come to light over the years. Of course, situations where incumbent management of the takeover target or one of the merged companies is promised attractive new terms in the combined business do not pass the smell test. The practice that option and share awards to management are 'crystallised' and can be cashed in before their nominal due date can also be considered to be a questionable inducement to go ahead with a business combination. Passing on explicit bribes such as hard cash is even more difficult to detect but can never be excluded as long as decisions about major transactions are often made by a small circle behind closed doors. Only the restriction of all decision making to the full body of shareholders - and even then in a process subject to strict regulation - will prevent Merger and Takeover deals from being influenced by corrupt practices.
(28/02/2011)

'Rip Off' referendum in Switzerland shows danger of inaction

The long-delayed Swiss referendum about limiting the pay of senior managers in listed companies demonstrates the danger that politicians and politics take over the debate about senior executive compensation. The public's fiduciaries in the fund management business in most countries would be well advised to heed this warning and speed up discussions about how to effectively curb excessive pay that a small group of executives awards to its members year in year out with not change in trend in sight despite growing public opposition and anger.
(26/02/2011)