LAPFF Conference 2010: Roundtable on UK Corporate Governance Code.

“Shareholders were asleep at the wheel before the financial crisis” Phil Triggs (Warwickshire LGPS) agreed with Lord Paul Myners that this was true. Other members of this panel were Alan MacDougal (PIRC) and Cllr Neil Fletcher (NE Scotland LGPS). My notes are not great on this session so I will report what I found interesting and not attribute to individuals.

It was agreed that very few pundits predicted the crash beforehand and many say they did now only with the benefit of 20:20 hindsight.

Check FRC site for further information on the Code. “The UK Corporate Governance Code (formerly the Combined Code) sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders.

All companies ...of equity shares in the UK are required ...to report on how they have applied the Combined Code in their annual report and accounts.... The Code contains broad principles and more specific provisions...companies are required to report on how they have applied the main principles of the Code, and either to confirm that they have complied with the Code's provisions or - where they have not - to provide an explanation...the FRC issued a new edition of the Code which will apply ..on or after 29 June 2010”.

A problem with this Code is that it is addressing yesterday problems not what we will face in next 5 years? How can we really hold the directors of banks accountable and make sure that their oversight in the future is far more effective?

There is some controversy about how much the “bonus culture” was to blame for the financial crisis? There is evidence - such as the bonus problems within UBS for example. But how do you determine outcomes of behaviour?

There is an increased focus on below board level remuneration as being more important. Many employees in financial institutions are paid far, far more than the Board. Issue of the importance of Board oversight. Do they understand what is going on in their companies? The importance of Board diversity. Lot of evidence that dissent and challenge is good. Get any group of people together and you find if there is an extreme view challenging the consensus this results in a better outcome. Not enough boards challenge in this way.

Can having more women on boards change this? There is no hard evidence. But there are clear different styles of operation when you have more women on Boards. It does result in a change in the “group think” amongst men.

We constantly ask fund managers about their best practice but what about shareholders best practice?

Consensus that the Codes do work and have changed behaviour and practice. Nowadays there is no real discussion about whether or not you need to have independent executive directors for example. There are now very few now dominant CEO’s who don’t brook any opposition. But in the US this consensus does not exist.

Issue of “Governance imperialism” – the UK may be a world leader on good financial governance but is it just a modern form of imperialism for us to tell other countries (particularly ex-colonies) how to run their affairs according to our western norms and values? This is likely to be increasing issue in the future.

LAPFF Conference 2010: Sir John Parker, The role of the Chairman in the New Environment

Caption is from The Independent who described Sir John Parker as a British superhero Clark Kent! He is the Chairman (not Chair?) of FT100 National Grid and former Chairman of Anglo American. Ian Greenwood introduced him with the comment “if the light go out during his speech we know who is to blame”.

Sir Parker believes “always leave things better in any new company”.

Health and safety is his number 1 agenda item (together with Environment). Employees come to work each day and should go home safely to their family and those who use our products should do so safety.

Non-Executive directors must prepare for meetings. Nothing makes him more angry than those who do not. Non-Executives should challenge courageously but support when necessary. They must find out more about the company. Not be arrogant. Those who are arrogant at their 2nd or 3rd only meeting push the seeds of their destruction. They need to be effective and independent minded. Stop the company taking unnecessary risks.

What relationship should a Chair have with a Chief Executive Officer (CEO)? He once took one of his new CEOs out in his 40 foot yacht. This CEO had no experience of sailing. It was rough weather and he told him that he was now going down below to get a cup of tea and that he would let him get on with it. He will only interfere if he asks for help or if he as Chair judges it absolutely necessary.

The only time he will actively intervene is to “turn around” a company in trouble. But there is nothing worse than a Chair who will not let go. Who has a high leadership profile at the expense of the company. Who is too dominate, too dictatorial, too argumentative. A poor listener who ignores the collective wisdom of the board. The Chairman who burns up all the oxygen in the boardroom. Personal conceits are most dangerous. Leave your ego at home. Keep in touch with advisors. Have a good feedback with shareholders. Not only formal but informal. Make it clear that the golden rule for any CEO is “do not surprise me”. It is not nice to watch when the Chair/CEO relationship breaks down. The oversight of executive development is key. The succession planning of the CEO is one of the most important things you do.

(JG: funny enough most of above applies also to the Labour Movement IMO)

Companies have a corporate identity. But you must ensure that the long term interests of the beneficial owners of companies are properly represented on modern day boards. Actively monitor action plans. Remember the Japanese word kaizen “Doing things better tomorrow than we did today”.

(JG) I thought this was very interesting but in the following Q&A I didn’t think he answered some questions as fully as some. There was a good question about his comments on the importance of having competent board but why was there such an imbalance in the number of female directors (never mind Chairs or CEO’s). He acknowledged that there were such problems and pointed out that the organisations he has chaired are making progress in this area.

I asked whether in light of recent cuts in the pay of senior executive in the public sector whether the private sector should follow. Bearing in mind that the pay ratio differential from lowest pay to the highest pay in the private sector was so vast? He at first appeared to blame such differentials on remuneration experts “I hope there is none in the audience” but he agreed that more has to be done. Pay had been affected by what had happened in Banking. As a member of the Bank of England committee for 5 years one of the worse jobs he has done was dealing with the consequences of the banking crisis. (I’m not sure what he meant by this? Perhaps though it is my note taking)

In another question regarding risk he explained how his company at the time didn’t plan at all for the Swine fever outbreak. A risk that they simply did not consider beforehand as needing a plan. They couldn’t lay pipelines or enter farms due to restrictions. This turned out to be a huge risk that they did not capture.

A question from another trade union rep praised him as being a breath of fresh air on safety issues but asked how does he ensure that his positive views goes beyond the boardroom? Sir John answered that one way was that his company board individually considers every single “near miss” safety report from all their company operations all over the world.  Which is pretty good.  In in my experience many employers don't even bother to discuss actual accidents at work which result in injury never mind "near misses".  Rock on Superman!

LAPFF Conference 2010: Stewardship Code: Putting it into practice

Tom Powdrill (PIRC) led a panel discussion about putting the Code into practice. David Murphy (NILGOSC), Tony Little (Gartmore) and Iain Richards (AVIVA). The Code came out of the Walker Report and is a response to the financial crisis. Not a fluffy “feel good” report but an attempt to try and prevent a future financial crisis. Can shareholders control companies? If shareholders cannot then look at Ireland were due to voluntary failure there is now a regulatory approach to governance.

David spoke first about his scheme. There are 204 employers, over 80,000 members and £3.6 billion assets. They support the idea that they are asset owners; they are the ultimate owners and should take responsibility for what has gone on in the past. They believe in co-operation and the importance of disclosure. They vote in all markets and report back on investment policy. Be open and transparent.

Tony explained that Gartmore are mainstream investors in 2,500 equities around the world. He was struck by the difference between this report and the UK governance report Cadbury which said this is what good practice looks like and others should aspire to it. The Stewardship Code “horse trades”. This is what you should be doing. Will see what good practice eventually looks like. The EU intervention has been negative rather than positive. They have forced the pace. They want to regulate. His role often is to be candid friend.

Ian said there may be over blown expectations of the Code. It was to resolve the “absentee landlord” problem in the run up to crisis. But there is an issue of resources. They have 7 in his team but this is still limited. Conflicts still exist; there are still misaligned incentives, short term structural problems. There are differences of objectives in engagement. In the UK 13% of shares are owned by pension funds and 13% by insurance funds. But it is only 26% of market. 40% of UK now owned by overseas investors. Concern around the role of the ISS.  An unaccountable organisation who admits looking after its primary audience - US investors. An awkward question is what do fund managers do? They have already signed up to the Stewardship principles. Is it transparent to have such long policy statements? Principle 7 (reporting on what they do) is the most important. There is a poisonous view that all you have to do is delegate everything to fund managers – and job done. This leads to apathy.

Next Q&A. I asked a question about how the new Code will not last be last word on governance and will evolve and change. Panel members have hinted at things that could be done better. What one significant improvement would each of the panel members want to see in any future review?

Tony: it needs to be redrafted and made clearer. The FRC next time should engage more about what is good practice. Iain: that it should be extended across to Europe. Especially with Funds tied to banks. David: he is against further regulation. He is happy with “comply or explain” approach. But it does need to be fleshed out. It’s a bit vague. Not only would he like it extended to Europe but wouldn’t it be nice to have in the US although that is “pie in sky”.

Tom asked does the Code make a RBS (Royal Bank of Scotland) less likely. Tony: No but... Ian – more cynical. Nothing much changed. No evidence that in 5 years time the world will have changed. David: We don’t know what will happen next.

The largely negative response to this question supports my own view that the Code (although an welcome improvement) is just sticking plaster and not the root and branch reform that is needed to stop another Fred the Shred.

LAPFF Conference 2010 - Stewardship: New Strategies for Corporate Governance.

The Local Authority Pension Fund Forum (LAPFF) is an association of 52 UK based public sector pension funds who manage over £90 billion of assets.

LAPFF exists firstly to protect local authority pension investments. It also uses members shareholdings to promote corporate social responsibility and corporate governance in the companies that we part own. LAPFF hold an annual conference in Bournemouth every year.

There were over 150 Councillors, pension fund officers and the investment fund industry representatives registered. I was there with other LGPS trade union reps. I last came 4 years when I took part in a panel debate on governance.

Despite the heavy snowfall most delegates and speakers were able to get here in time. I’ll try and post on some of the highlights and things that I thought interesting. Please note the usual disclaimer about the literal accuracy of all my hurried note taking.

Chair of LAPFF Ian Greenwood (Leader of Bradford Council) started the conference with an Actuary joke (specialist financial advisers to pension funds). An Actuary dies and goes to heaven. At the pearly gates St Peter asks the Actuary what he had done in his 127 years on earth to justify going to heaven? The Actuary replies he is only 84 years old not 127? St Peter replies “No, you must be 127 I have seen the hours you have charged” (Well, I thought it was funny).

I’ll post on the speakers and debates later.

Snow on the Bournemouth beach

I'm in Bournemouth for the LAPFF Pension conference.  It started snowing late last night and this morning before breakfast instead of my usual Bournemouth run along the beach in shorts and tee-shirt, I wrapped myself up with loads of layers and walked along the Pier and beach in hiking boots. It must be horrible for people travelling or working outdoors but I don't think I have ever walked along a beach in thick(ess) snow.  I'll post on LAPFF Conference later. 

Capital Stewardship: UNISON London Pension Network

Next Tuesday lunchtime is the latest UNISON Capital Stewardship: London Pension network meeting. 

This is a meeting for  Greater London UNISON Pension trustees or member nominated representatives on the London Local Government Pension Schemes.

All such trustees and reps welcome!

We meet up 3 or 4 times a year to discuss issues and support each
other on what is often a very demanding, responsible and "head hurting" role.

Our Guest speaker this time will be from Fair Pensions who will be presenting on their new campaign “Tackling exploitative Pay and working conditions in the  Supply chain of the UK Largest Companies”.  Which I think will be more than interesting and relevant to trade union pension activists. 

I am just a little bit behind posting on Pension issues.  I have got reports on the latest LAPFF meeting, my last London Borough Tower Hamlets Pension scheme panel (and committee) as well as last week's really excellent annual TUC Pension Trustee event.  I must catch up.