Labour and Capital - A Left Platform

Hat tip post Tom P (I picked image : Capital and labour, by Henry Stacy Marks)

"It's election time. I'll have a look through party manifestos when they're out to pull together policy commitments that are relevant to this blog. In the meantime, here are a few rehashed thoughts about what I'd like to see as a Left platform.

1. Employee representation at board level.

The Conservatives' botched reform in this area has left the door open to further reform. As the failure of most companies to appoint employee directors shows, this is not going to be achieved through 'comply or explain', especially when some asset managers will likely lobby against. So legislate for it. Minimum of two on each board.

2. Redefine directors' duties.

This is straightforward, but important. As I saw someone comment recently, Section 172 as it stands actually made shareholder primacy explicit, even as it was pitched as 'enlightened shareholder value'. Check out the previous version (which put employees on a par with shareholders) to see how it changed. I am comfortable with the idea that the duty it simply to promote the success of the company, taking account of all stakeholder interests. If you don't think the current version is a problem, have a read of some justifications for exec pay and tax avoidance that prey Section 172 in aid.

3. Pre-distribution.

Pretty obvious that the big battle over the future of the firm is about different claims on resources. Pre-distribution got a bad press when Ed Miliband floated the term back in 2010-2015 parliament, but the idea is a sound one. Ensuring that labour gets a fairer share up front, rather than relying heavily on transfers, is likely to be much more politically durable. This suggests enhanced bargaining power (so let's make it easier for workers to form unions, and easier for unions to gain recognition and bargain).

But we also need to look at other mechanisms for ensuring a greater share of wealth goes to working people at the point it is created. Labour's Inclusive Ownership Funds provide one interesting model, and would create a who new class of investors which could have some interesting corpgov outcomes (for example in takeover situations). I see a lot of people speak positively about greater employee ownership in theory, so this idea ought to be popular. Those who criticise it should come up with alternatives. And if an IOF style scheme isn't applicable there should be mandatory profit-sharing.

4. Radical executive pay simplification.

Everyone in corpgov these days says they support pay simplification, but in practice most companies still have several incentive schemes. Nor am I convinced that deferred share awards get us anywhere because I don't think they will have much of a motivational effect (and I'm impressed by Sandy Pepper's work in this area). I'd scrap as much variable pay as possible. If we can't get rid of it all restrict the variable bit to small short-term cash bonuses with clawback and malus provisions. Much easier for all to understand, and hopefully easier to reclaim if something goes wrong.

5. Rebuild democratic control of capital.

Several trends in UK pension provision have served to less or remove democratic control of pension assets. The 'professionalisation' of governance is a good thing in general, but if it serves to cause the link with beneficiary interests to be broken we have a problem. In the ESG world I worry that this has led to priorities being adopted that are more aligned with the interests of those running money than those of whose money it is. So I would like to see reinvigorated member/beneficiary involvement in all types of pension provision.

6. Democratise shareholder voting

I can't see any good reason why asset managers can't find a fintech solution that allows asset owners, or retail investors, to vote in pooled funds. The current situation is ridiculous, especially in a world where more and more money is managed passively. If I'm only employing you to hold the index, not pick stocks, why should I be forced to adopt your views views on corporate governance? It makes no sense.

7. Radical disintermediation.

One for a decade ahead. Will we actually need asset managers in the future as they exist in their current form? Could passive management be a utility? Could we do it ourselves?

Posted by Tom Powdrill at 21:50

ISS backs Teamsters union over motion 22 at National Express AGM 5 May 2015

Check out  Tom at "Labour & Capital" about some rare and sensible support about encouraging a company to do the right thing for workers, customers (school children in this case) and shareholders.

"Big news tonight (29.4.15) - the FT has reported that the major proxy voting adviser ISS has recommended that shareholders vote FOR Resolution 22 at the National Express AGM next week. PIRC has also recommended a vote in favour.

Resolution 22 calls on the board to commission an independent review of practice in Durham School Services, its US business. This follows repeated complaints from employees about management interference with workplace rights.

To my knowledge, there have been six shareholder resolutions at UK companies in the past ten years that focused on labour rights in one way or another. I don't think ISS has previously recommended a vote for any of them, so this marks a significant shift.

Many large shareholders may share the ISS view that the review proposed in the resolution is not an onerous demand. They may also feel that the board has allowed this issue to drag on for long enough, and action needs to be taken to address it and then move on.

Anyway, it set things up nicely for next Wednesday's AGM."

"Barclay pay AGM vote round-up"

Hat -tip Tom at "Labour & Capital"

"Being the sad man that I am, I've been collecting asset manager voting decisions on Barclays' remuneration report at this year's AGM.

Here are the scores on the doors so far -

FOR - Goldman Sachs, Standard Life
ABSTAIN -
OPPOSE - Aberdeen, AXA, F&C, Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows

Will update when I get more data. Interesting thing to note is that some hefty UK institutions voted against. So where did all those votes in favour come from?"

(grayee comment: Goldman Sachs Yeah but Wtf is Standard Life doing voting to reward shareholders being ripped off?

No fun being a Trot Friday...

Some bit's out of some posts that I have enjoyed reading this evening.

No fun being a trot
"THE righteous have their work done for them by others, the old Jewish proverb insists. Now that newspapers from the Daily Mail through to the Financial Times routinely run headlines describing ‘capitalism in crisis’, what purpose can possibly be served by rising at the crack of dawn to sell Socialist Worker to the early shift? It must take all the fun out of being a Trot".
My best mate ever Dave Osler

My long lost cousin across the pond
"I've recently seen a lot of stuff going around about "anti-bullying pledges" so I decided to share my own. I have pledged to teach my daughters ignore any bullies who resort to name calling and to knock the snot out of those who resort to violence. To be honest, I began teaching this to each of my daughters when they first began school. They seem to learned these lessons well".
Graymatters "anti-bullying pledge"

Labour & Capital advises
News Corporation AGM "if you have any shares or influence make sure you vote against the re-election of Andrew Knight; Arthur Siskind; James Murdoch; Lachlan Murdoch; David De Voe; Natalie Bancroft"
see New Corporation

Rupa Haq
"I was actually in the hall for Ed M’s Q and A last week attending the conference for just that day alone but despite my hand being up I didn’t get picked to put forward my question. Fair enough, they did want non party members rather than old lags and Ed kept asking for difficult questions. I would have asked “As you may have heard REM broke up last week, I wonder if you had a favourite REM song and the reason for that choice”. I’m not sure how he would would have reacted (“difficult” is a subjective concept) but we will never know".
Rupa

Rant alert! Fund Managers vs Unions

Great rant from the bearded one at Labour & Capital blog - Enjoy!

"A few years ago, when I was still working at Congress House, I had a lunch (not an expensive one I should add) with a fund manager. I actually quite enjoyed talking with someone with a very different perspective on some of the things that I bang on about. But one topic of conversation really grated, and it has stuck with me to this day - BA.

What irritated me was the fund manager's assertion that BA was overmanned and its staff overpaid. It's an assertion that gets repeated by asset managers in a lot of the coverage of the current strike. Now I don't pretent to know the ins and outs of the airline industry, or how BA compares to other airlines. But I am sure that BA staff deliver a real, tangible service. The contrast with fund management could not be more obvious. Good, I'm glad you agree. But let's to be clear on a few specifics.

If you remove BA staff, the airline will not operate, the planes won't fly and no-one will serve you a delicious (sick) in-flight meal. In fund management, you could just use a computer programme and get broadly the same result, this is after all the index-tracking business in a nutshell. Secondly, the service that BA customers receive is provided by the BA staff. The pilots fly you, the ground crew make sure the plane can fly, the cabin crew look after you during the flight. In fund management the service - the returns - is ultimately provided by someone else, the people working in the companies whose shares you hold via the manager.

It never ceases to amaze me how people seem to have this implicit view that fund managers generate returns. Actually what they do is select coupons (they don't invest money 'in' companies), and week in week out many of them are paid very highly for doing this worse than a computer programme could.

This shouldn't surprise us either. Effectively employing fund managers is like paying someone to go on Deal Or No Deal and choose the boxes for you. The future is as unknowable as the contents of Noel's boxes, and the historic results of active asset managers demonstrate this rather well. Pension funds and other asset owners might - as Paul Woolley suggests - be better off doing it all themselves, as they used to for much lower costs.

I'm sure a lot of people won't sympathise with the BA strikers, I do. But at least next time you read some fund manager telling you that BA needs to cut its costs remember that part of your pension is being needlessly shovelled their wallet. People need airlines to undertake air travel, professional fund management on the other hand is arguably an entirely unnecessary industry.

Dummies Guide to the Collapse of Decent Pensions

Check out this post by Tom in Labour & Capital which I think explains clearly and succinctly the real reasons for the decline in decent Defined Benefit or DB (aka final salary)  pension provision in this country in favour of the usually grossly inferior Defined Contribution or DC schemes.

This is Tom's rather bleak but I think largely accurate conclusion

"The private sector has not addressed the issue of longevity. It has simply passed the buck back onto the individual, whilst at the same time reducing its commitment. Moving from DB to DC does not.... err... affect how long people live. But it does affect who carries the risk, and how much they pay for it. In effect then, as Calvin suggests, the removal of DB is not much more than a deferred pay cut, affecting millions who don't realise it. It's as simple as that. And the Right's campaign to destroy DB in the public sector is nothing more than an argument for massive levelling down".

Fidelity Fund Managers Fund Tories Armoury (with union member’s money)

Tom P the mild mannered scourge of Tory funding maestros Fidelity has found out that the company has donated another £125,000 to their puppets in the Conservative Party.

This is just plain wrong on a number of levels. Not least did Fidelity disclose being a (or the?) major corporate funding of the Conservative Party when they won the investment mandate for Tory controlled North York’s LGPS fund last year? Fidelity are employed as fund managers by a number of Council pension funds. The profits from Unison members pensions are being used to pour money into the Party pockets of Cameron and Osborne?

Tom also exposes the public PLC Investment Trust Cameron (sorry Caledonia) that is a long standing Tory funder which is now part owned by the state (via our nationalised banks) who last year funded individual Tory CLP’s with our money. Local Tory parties in Ealing Central and Acton got £3,000 while Milton Keynes, Sutton and Cheam got £5,000.

Great picture from Truth, Reason and Liberty

What has the City ever done for us?

Ace Labour and Capital blogger Tom P has reverted here to his calm and measured ways after last month’s explosion over public pensions. He exposes now the cant and hypocrisy shown towards "City interests" and the failure to bring about much needed change.

“Imagine if the economic crisis had been caused by trade unions, by constantly pushing for higher wages and using industrial action in support of short-term objectives, regardless of the long-term consequences.

Imagine if at every stage in the run-up to the crisis when government or regulators or the public had tried to curb their behaviour, or urged restraint, they had simply responded with threats to withdraw their labour (in the traditional sense, not by relocating overseas...).

Imagine if that behaviour had left the country saddled with debt that would take years to pay back, with related cuts in public services.

Do we really believe legal curbs on their behaviour wouldn't be introduced? Do we have any doubt that legislation would be enacted to hamper their ability to do such damage again in future? Do we seriously think society would be satisfied with voluntary codes of conduct which they could choose to comply with, or explain why not?”

I'm actually just using this as an excuse to post again my favourite YouTube clip. There is also a serious message - somewhere.

Tomorrow Investor – Royal Society Arts

On Saturday I was really pleased to have been invited as an “expert” witness by the RSA to address a “citizen Jury” on pension activism.

I’ll post on this separately but I had an enjoyable day and very appropriately for such a venue, my faith in the basic decency and common sense rationalism of the “great British public” has been fully restored.

I was there because the RSA are launching a new project called “Tomorrow’s Investors”. Last week they held a keynote lecture to mark the event.

“Much of the money invested in company equities is held on behalf of ordinary citizens, often saving for retirement and other major life events. Yet it appears that many of those citizens have little consciousness of their role as owners.

Should investors be more involved with their investments, with a greater awareness and understanding of the broader implications?

Would a greater degree of involvement yield better results – both financially and ethically?Speakers to include: David Pitt-Watson, founder and chair of Hermes Equity Ownership Service; Jasmine Birtles, journalist, broadcaster and finance expert; Paul Myners, Chairman of the Personal Accounts Delivery Authority; and Penny Shepherd, Chair of the UK Social Investment Forum.

Top "Labour & Capital” blogger, Tom P was also there, and has as usual captured the debate wonderfully in this post (see selection below) so I won’t need to add anything apart from a few observations.

I think it's fair to say the real action was the split between the views of Pitt Watson and Myners. David sketched a more optimistic picture, arguing that the democratisation of ownership through funded pensions and other savings had already started to have an influence on the nature of ownership. He gave the example of the success of UNPRI.

Myners was far more critical, arguing that there had been very little real progress. Most institutional shareholders didn't take ownership seriously, SRI barely figured on the radar of company boards (as an influence on them), trustees were still spoon-fed by advisers and still focus on short-term performance despite its irrelevance.

I think the broad consensus from our little group was that although the Pitt Watson view was the one we would like to believe, the Myners perspective seemed to fit more with our own experiences.

I thought that Paul Myners was being deliberately provocative - shock horror. There are still huge problems to overcome, but as David pointed out there has been an enormous change in living memory. I actually think that Myners is actually on on board with New Capitalism although unsurprisingly off message.

Even if he is a "trade unionist" and “someone who wouldn’t join the Labour Party because it is not sufficiently left wing for my taste”. Which is a somewhat unusual statement for the Chair of a Hedge Fund to say? As was his suggestion that stamp duty ought to be increased to 5% in order to encourage long term ownership (not traders).

He advised the unions to concentrate on the disparity in Executive pay “the self appointed managerial elite are raping the resources of companies”. So called “independent” external advisers on executive pay are called “Ratchet, Ratchet and Ratchet”.

We need someone like Myners to remind us how far we have to go. Hopefully, at some stage he may have some slightly more constructive remarks. But I agree (and I am sure that David would as well, but is too polite to say so) that the majority of pension trustees need to be more independent minded and stand up to professional advisers. There again to do this they need support and training. Who can do this other than the unions?

Jasmine Birtles was very entertaining and brought us back to planet earth, she remarked that on her money web site she has worthy features on ethical investment, but no-one reads them. The most poplar stories tend to be “how to get rich without really doing anything”. While Penny Shepherd combated Paul’s negativity and took him to task.

I was fascinated when David pointed out that the BT Final Benefit pension scheme (run of course by Hermes and owned by the scheme) only cost 0.2% in annual charges (I repeat 0.2% pa). While modern DC (defined contribution, money purchase, stakeholder, personal pension - what ever) Pension charge at least 1.5% which could swallow over the years up to 40% of the fund in charges.

Come back DB schemes – all is forgiven.

“Why should my pension scheme fund the Tories?"

Good question. Ever since it came out in Labour & Capital” blog, that the fund managers Fidelity have recently given the Conservative Party £415,000; I have been contacted by furious UNISON members whose pension fund employ Fidelity.

Local Government Pension scheme members currently have little or no influence over who is employed to manage their pension contributions (their “deferred pay”). Now they find that their pension money is being used to enrich the Tories without them even being made aware.

Many UNISON members also work for Conservative controlled Councils and are obviously concerned that these Councils are paying huge amounts of money to a company which is a significant Conservative Party funder without any disclosure or consultation. LGPS Pension fund managers usually charge annual fees of hundred of thousands of pounds to manage Council funds.

I know that a number of Labour Party councillors are also livid that they have employed such a company without being aware of this potential conflict of interest.

The author of Labour & Capital, Tom P and his wife, has a ISA with Fidelity and has been trying for sometime to get proper response from Fidelity about why they pay the Tories, will they continue to do so and why don’t they disclose their political bias? He has been pretty much been fobbed off. See the latest rather pointless response.

Following the complaints I have received from UNISON members, I have (finally) drafted a letter to Fidelity which I will consult beforehand with the London and the National UNISON Capital Stewardship forums (I currently chair both).

I hope that the National Association of Pension Funds (NAPF) will also get their finger out and give some definitive advice on donations to political Parties. At the moment their advice is only that they would not normally support such donations. What on earth does that mean in practice? No doubt at this rate we will have to wait for some typically British financial scandal to occur before “the powers to be” get their act together and ban this frankly odious practice.

InFidelity comes over all coy while “bonkers” Caledonia joins Tory investors club

Labour & Capital blogger, Tom P, has had a reply from Fidelity Investments to his letter to them about their donations to the Tories (£95k this year alone). Tom and his wife pay into a Fidelity ISA towards paying off their mortgage and are very unhappy that they are indirectly contributing to Conservative party funds.

Click on the link to read about the frankly empty response that Fidelity gave to his letter. Keep up the pressure Tom!

It was also interesting to note that Tom also reports that Caledonia Investors has given the Tories £60k. Caledonia still has very strong links with their founders, the old money Scottish Tory lairds, the Cayzers. Read the “Scotland on Sunday” account about the “stark raving bonkers” family feud that the almost liquidated the trust in 2003. It makes UNISON conferences seem like “a walk in the park”.

While you are at it check out Fidelity Out of Sudan.

Letter about Tory political infidelities

My apologies for not posting this link sooner - an excellent post from Labour & Capital about the investment fund managers Fidelity, who unlike all other major British managers are significant financial contributors to the Conservative Party. Over £320,000 in the last three years.

Tom P (the author) and his wife, have an ISA investment account with them. He has written this letter asking why they are donating money to the Tories, are they planning future contributions and do they disclose these donations when they bid for business in Conservative controlled Council pension fund authorities?

I would argue that they should disclose this fact before bidding for business for any local authority not just ones with a Tory majority? A Council pension scheme panel will probably still have Tory members present even if they do not control the authority. I am sure that they will not want to be put in a potentially compromising position. Also, vulnerable without any such declaration of interest by Fidelity would be any Council officers present or their professional advisors if they themselves are Conservative Party members or supporters? Actually I’m sure this information will be gratefully received in the Labour heartlands.

Anyone who has an investment or personal pension plan with Fidelity should consider sending the same letter. Also check to see if your insurance or pension scheme employ Fidelity as their fund managers. If so, you should consider writing to your plan administrators or trustees asking them about the wisdom of employing such partisan managers.

Tom and wife point out that if Fidelity continues to give money to the Tories they will move their savings. However, usual health warnings about taking appropriate advice before you actually change any such investments apply.

A letter to Fidelity

The letter below has gone in the post this morning. My wife and I have been with Fidelity for about 6 years now. We have an ISA we set up to help pay off our mortgage, so we were intending to stick with them for the long run. We are therefore both really p***ed off that we may have to go through the hassle of changing fund manager because the one we chose prioritises making partisan political donations over the concerns of its customers. I hope they reply saying they are going to halt the donations. But if they won't stop doing it we feel we have no option but to move our savings elsewhere.

Fidelity International,
Oakhill House,
130 Tonbridge Road,
Hildenborough,
Tonbridge,
Kent TN11 9DZ

My account Number: XXX My Adviser: XXXI

I was concerned to learn from the Electoral Commission website that Fidelity International has donated £95,000 to the Conservative Party so far during 2007. I am not a Conservative Party supporter, but I do not believe that a fund management business like Fidelity should make donations to any political party.

As you are no doubt aware most institutional investors will vote against resolutions at companies’ AGMs where authority is sought to make party political donations. Indeed party political donations are rare amongst listed companies these days.

It is therefore somewhat surprising to see an institutional investor make such donations itself.

As a long-standing Fidelity customer I am very concerned by these donations. I would therefore be grateful if you could answer the follow questions.

1. What is the rationale for making donations to the Conservative Party?

2. Does Fidelity intend to make similar party political donations in future?

3. Does Fidelity disclose these donations when this is a potential conflict of interest (ie when presenting to Conservative-controlled local authority pension funds)?

I also wish to make clear that if Fidelity does intend to continue making partisan political donations I am likely to move my family’s savings to another fund manager.

Yours sincerely

Labour and Capital blog

Tom, who use to be the Senior pension policy officer at the TUC has set up a new blog site on
"Labour and Capital". Good stuff - give it a twirl!

See What's it all about? from Blog below

The aim of this blog is to generate interest and discussion with the labour movement about capital markets and other elements of the financial system. For too long most of the Left has taken a very simplistic and negative view of how the system works and few have tried to develop either theoretical understanding or practical proposals for reform.

In the UK and some other countries we have well-developed funded pension systems which mean that millions of working people are directly plugged into the capital markets. Already their retirement savings are typically invested in equities (company shares) and bonds, and increasingly a part wil also be invested in some of the more controversial asset classes such as hedge funds and private equity.

I think we have a duty to foster a greater understanding of financial markets within the labour movement. If we can teach ourselves to understand how the system operates we can identify both areas that require reform, and opportunities for influence. If we simply criticise in general terms from the outside we effectively cede control of billions of pounds of capital to others who may use it in a way that hurts working people around the globe.

Already there is a significant amount of activity around this agenda in North America. The workers' capital (or capital stewardship) movement in the US and Canadian trade unions is increasingly sophisticated. In the UK such ideas and activity have yet to really take hold. Therefore a primary objective of this blog is to contribute to the discussion and implementation of these ideas within the Labour Party and UK trade unions.