ABP to introduce 'Carbon Budget'

Does it really make sense to introduce 'Carbon Budgets' as a constraint on the mandates for Asset Managers? First of all, the calculation of carbon usage for all investment options is expensive and it is also more than likely to be imprecise or liable to be gamed. And why not a Carbon budget for fixed income investments (even more complicated and expensive, how much Carbon usage to you allocate to a bond?), and before we forget, I hope there will be Carbon budget for 'Private' Equity and Hedge Funds? And last not least, don't forget the HFT firms. And what about Bank lending?
Nevermind that there is a simple solution at hand (Tax Carbon if you are hell-bent on limiting its use). Why not act according to the principle, what is good for the Consultants MUST be good for the Consumer (here in the shape of hapless end investors in Mutual and Pension Funds, Private Banks and Insurance Companies).
And while we are on the subject of Climate Hysteria, has any political or business 'leder' ever received a democratic mandate for imposing ever-more 'green' taxes, costs and regulations on the citizen/consumer/investor anywhere in the world?
(7 December 2015)

Exec Pay Surveys - nice work but key point missed

Studies and Surveys about Executive pay packages are proliferating. Fresh off the press is 'Sunlight is the Best Disinfectant' authored by PriceWaterhouse. Concluding that pay packets are now closer aligned to company performance may satisfy some of those concerned about pay levels for the top staffers but this omits one crucial aspect: how high should pay levels be in any case?
Aligning pay can mean any absolute amount of pay is justified according to the criteria used by PwC and many others. The unquestioned mantra is always: 'We are happy to pay for performance'. But then why not pay 20% of the 'performance' to top management, or just the CEO? Why not 30% as some particularly greedy money managers seem to demand?
Recently there has been more and more realisation that bonus payments are not really producing more economic growth overall since they became standard practice in the mid-1980s. And morally they are highly objectionable as they benefit only a narrow 'Elite' while the overwhelming majority of company staff gets nothing or just some pitiful crumbs by comparison.
 (10 November 2015)

Commodity Traders - the next shoe to drop?

While the focus was on the level of debt that can or cannot be sustained by Glencore one should also ask what amount of taxes are paid by the Commodity trading houses - most of them based in tax-friendly Switzerland. A lot of criticism was recently directed at the tax avoidance schemes employed by Amazon and Starbucks, to name just a few prominent names. But who really knows where the trading houses book their profits?

Investors let down on Executive Pay Excess


Institutions not vigorous defending investor's interests

The Top 20-30 Investment Institutions worldwide have a de-facto control over nearly all listed companies. If they complain about poor governance practices they only have to blame themselves. While cooperating on business decisions would compromise their decisions and make them insiders they could and should agree on core principles. These could cover executive compensation and closer scrutiny of mergers for a start. Complaining about poorly thought-out Mega Mergers lacks credibility and can only be seen as hand-wringing if not followed up by concrete proposals. Why not start with the muted takeover of BG by Royal Dutch Shell? Prohibit any merger 'agreement' unless shareholders have had a proper say, ban all 'Break fees'! To prevent large holders from squeezing out small shareholders there should be a two-step vote, one where each holder is capped out at a 1% share of the overall vote.
(30 August 2015) 

Exec Comp: nice try but no solutions!

The suggestions that CEO's and other members of the gilded C-suite should be paid with corporate bonds instead of share options or on the basis of some convoluted performance metric are non-starters. The hold that senior executives and their acolytes in academia and the media - not even mentioning mindless holders of their company's shares among the non-fiduciaries in the world of institutional money management or Private Banking - is just too strong. The only way they can be brought to heel is with a simple and fair solution as advocated by Pro Governance, i.e. no special deals (perks, pensions, 'incentive' schemes etc) for the anointed and self-governed few but a simple pay and bonus scheme that treats ALL EMPLOYEES on the same basis. In addition shareholders should have a BINDING vote on compensation for the CEO before it is agreed.
The real problem with CEO Pay (Bloomberg View)
(7 August 2015)

Jeremy Grantham gets it right - up to a point

He agrees that Executive Compensation, especially for CEO's and other top officials, has gone way beyond what can be called reasonable. But the remedies he suggests do not go far enough. These new rules will be gamed as well and I fear the only real solution is a radical end to selective compensation schemes that are based on the wrong management theory that says that already well-paid executives need to be showered with incentives in order to do the best possible job.
In addition, as is the case with most lamentos about Executive Pay, there is no proposal about how change to the excesses we experience can be brought about.
It is my opinion that the main culprits are the top 30-50 investment institutions that do not take their fiduciary responsibilities seriously enough. They are basically living in a bubble and are completely cut off from the wishes of their end-investors (and I am not talking about allocators in Private Banks or Pension Fund Trustees but the main in the  street who is the ultimate paymaster of the Fund Managers and Corporate Executives.
 (29 July 2015)

The 10 Topics that really matter

Jeremy Grantham at the Conference on Inclusive Capitalism

(Too) Close ties between Executive and Board

No surprise there! While this case may be at the extreme end of the spectrum the current selection process for board members is inherently problematic. The Insiders - board and executives - basically select their own supervisors while the real members of the company in most cases rubberstamp the elections. And even then they are (poorly) represented by their fiduciaries, i.e. the investment institutions that manage their savings. Activist shareholders offer no solution either as their motives are highly conflicted and basically greed rather then the best interest of all stakeholders provides the main incentive. A wholesale revision of company laws it the only way out of this dead end. And please spare us the argument that 'free markets' must not be hampered and remember that corporate entities have been created by legislation.
Dish Suit Shows Close Ties Between Executive and Board Members (NY Times)
 (12 July 2015)

We know the Problem, but what is the Solution?

"If we experience another five years of egregiously excessive executive pay, ludricrously warped incentives and behaviour in the financial system, combined with pathetic levels of business investment, then it will be more difficult to argue that the market economy delivers for everyone."

Well said Roger Bootle (Daily Telegraph, May 18, 2015). But what should be DONE? We have done more than enough comment on the problem of executive compensation!

Shell to buy BG for $70 billion

Headlines such as these demonstrate what is wrong with corporate governance. It may just be that keen journalists present the takeover/merger as a fait accompli - we all know that the shareholders of both companies will still be asked to approve the deal. But apart from the dubious practice of break-up fees the gist of the sentence is that this is a done deal agreed by a quasi-feudal caste of senior managers and their poodle boards over the heads of shareholders and employees. The correct way would be to consult the stakeholders from the beginning, working out the pros and cons of various options (should the del be done, why? what are the benefits) and then putting the options to a shareholder vote. Expensive consultants should be kept at bay and costs scrutinised carefully.