Myners Report: 10 Years On

Last week the Financial Times ran a number of articles on the anniversary of the Myners Report which was published in March 2001. This report was written by Paul Myners, former fund manager, Chair of Marks & Spencer and of course, a Labour finance minister in the last government.

In 2000 Myner was asked to review institutional investments and whether investors were acting in the best interests of beneficiaries.  The poacher turned gamekeeper concluded they did not and made a number of recommendations.

I was quoted here in the article here about the role of auditors and my view that there had been despite Myners a "spectacular failure" by asset owners to stop the Banking crisis.  This was due (in part) to scheme fiduciaries not acting as owners of capital. 

While Myner’s report helped turn me from being a trade union observer on my pension scheme investment panel in 1996 (with no formal speaking rights -I did of course speak, no rights to attend all meetings, to question or to receive information) to being a full voting member of an investment committee. However, this is nowhere near enough.

The banking crisis showed that there is still grossly insufficient governance. Owners of capital (pension and insurance funds) failed to take their responsibilities of ownership seriously and allowed their money to be squandered and even stolen by the managers they paid to be “on watch” and look after their assets. How ridiculous that we continue to allow this? Not only did we lose big chunks of our savings but as taxpayers we then had to bail the banks out and are now suffering huge cuts in basic public services to pay for it.

The dangers of ownerless assets is well known, even Adam Smith warned about this over 200 years ago.  Part of the solution is that trustees and representatives should undertake an in depth management and scrutiny role with our funds.  I compared the role of pension trustees with that of scrutiny panels in local councils, who meet monthly, go on visits, have specialist staff tasked to support them, co-op experts to assist and can call witnesses to be questioned about their performance.

I also gave a plug in the interview to the  Association of Member Nominated Trustees (AMNT) which I think will play an important role in better governance.

The FT concluded with a quote from Paul “You don’t wash or service a rented car because you expect to give it back. I still get the impression that shareholders treat their holdings like a rented car. For the efficient use of capital, that attitude has to change.”

Sack the RBS Board!

I've just struck a blow for shareholding democracy by joining the Facebook group "RSB Directors Resign NOW".

Those (w)bankers on the Board of the bankrupt bank RBS which we as tax payers own say they will resign en mass if the Govt stops them paying out £1.5BN to their greedy banker chums.

We say as shareholders what are you waiting for?
GO NOW!!

Which I thought all sounded a little "sell out reformist" so I'm thinking of forming a group called "Sack the RBS Board". Which will no doubt make all the bastions of capitalism tremble.

Seriously I think that the government should hold firm and not submit to crude blackmail by the RBS Board and if necessary accept their resignation and replace them with people who realise that times have changed and things have moved on.

After all, we are the 84% masters now...

Nassim Taleb and the Black Swan Cameron

On Tuesday I went to a breakfast seminar at the Royal Society Arts to hear Nassim Taleb (left) speak for the first time recently in London about the current worldwide economic crisis. He was here 30 months ago when he ridiculed by some for his predictions of a pending financial meltdown. Now of course he is the “hero of the hour” (as was Shiller).

Nassim is “Mr Interesting” personified. Check out his website “fooledbyrandomness”. He has a very high opinion of himself and a somewhat lesser opinion of those who don’t totally agree with this former opinion.

The panel comprised of Nassim, chair Danny Finkelstein from the FT and David Cameron - Conservative Party leader (check out Tuesdays post).

Nassim was very good value – provoking, entertaining and very personable - who spoke without any notes. His most famous work is “The Black Swan” which he explains is about “high-impact but low probability events”. Wikipedia explains further:-

The term Black Swan comes from the 17th century European assumption that 'All swans are white'. In that context, a black swan was a symbol for something that was impossible or could not exist... The main idea in Taleb's book is not to attempt to predict Black Swan events, but to build robustness to the negative ones, while being able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond that predicted by their defective models.

Nassim described himself as being in the “preventive business not emergency care” so he was uncharacteristically uncertain about what do next in the UK. He did convincingly argue that the big banks and financial institutions that are “too big to fail” must be broken up or they will just eventually repeat the same mistakes since they know that the authorities will not allow them to go bust. Check out similar argument here.

He also suggested that there is too much specialisation in financial services and too much debt. We need more generalist institutions which should have greater levels of deposits and lend less. (Not rocket science then?)

His solution to the current mortgage debt crisis is that Banks should stop sending “hate mail” to those in arrears and instead offer to reduce repayments in exchange for equity in these properties (good idea which is starting to happen in the UK). If there is cancer in the housing sector you don’t just offer pain killers.

Nassim actually likes economic crashes – he thinks they are good thing but they should not be big enough to be able to threaten the entire economic system as has recently happened.

He is very skeptical of “regulation” - he pointed out that he was a derivatives trader for several years and when he was a trader, give him a regulation, he would just find a way around it.

Regulations only benefit regulators and lawyers (workers capital argument?).

The bonus system in Banks definitely needs reforming. If Bankers are fooled by the randomness and give loans to black swans then they should not get any bonuses. (But who and how will they enforce this?)

I thought that Nassim ideas were really interesting. I was not able (despite trying) to ask my usual question to Nassim and Cameron about the role in the economic crisis that poor governance of workers capital played. Which is a pity - but there you go.

On the night before I read about Nassim’s proud boast that he always replies to short emails from people so I emailed him the question “Did Gordon Brown save the World”. He didn’t respond to this but to be fair he did actually email back and ask “Are you john Gray the author, my friend, or another one? “ I responded that “we are all Spartacus” but I was in fact “another one” to which he did not reply.

I suppose I hope he meant the highly regarded philosopher John Gray as a mate rather than the “Mars and Venus” John Gray. But somehow I have my doubts.