Wednesday, June 13, 2012

Management greed is Anti-Capitalist

A lot of anger is directed towards those in the corporate world who earn large salaries. Sometimes, in my view, that anger is not truly justified: for example, when an entrepreneur takes out income based on their ownership of a company, I -for one- tend to see it as just reward for those who take a risk with their capital.

However, listening to Martin Sorell on the Radio trying to justify his large remuneration, despite the objections of the shareholders in WPP was not an example of just reward. 

The fact is that Martin Sorell does not own the company he founded and built any more- his ownership is less than 1% of the shares- which still represents £800 million- after several sales, not least following his divorce from his first wife in 2005. he may have founded it, and built it but now he no longer owns it.

However, Sir Martin, is insisting on a substantial increase in his remuneration, to reflect, as he sees it the success of WPP over the past year. Yet, he does not seem to know the difference between being an employee and being an owner. The actual owners of the company- the shareholders- are being asked to forego their just reward in favour of a man they now employ.

This is a major part of the current economic crisis: those who invest risk capital may lose all they invest, while the managers of that risk capital, receive massive pay-offs, virtually regardless of performance. More to the point, even when shareholders vote against a management remuneration package, the remuneration committee may overrule the vote, since it is deemed to be merely "advisory". Now the shareholders of WPP will show their displeasure by voting against the re-election of the chairman of the WPP remuneration committee in large numbers.

If Marin Sorell wants to take a higher reward, he should buy out the shareholders, whose money he took when he sold the company.

To my mind it seems clear that these votes of the shareholders should not be merely advisory, they should be binding. The fact is that in large public companies, the management are employees who do not, in general, put up the risk capital to fund the business. Yet, they take rewards out at levels that imply not only ownership, but preferential ownership- they take out more than the shareholders.

This level of greed is undermining the very basis of capitalism: that those who take the risk should get the reward. It is our pension funds and our savings that are being compromised by the cozy cabal of management and irresponsible asset managers. It is absolutely time that asset managers who invest on our behalf were forced to take their fiduciary responsibilities more seriously, and time that managements had a much greater discipline imposed on them: by tightening the law if necessary. 

Monday, June 11, 2012

Why we did not need a Dimbleby

The rumbles about the BBC coverage of the Diamond Jubilee have continued, with the latest rumours suggesting that the poor coverage may even have a serious impact on who will be appointed as the next Director General of the BBC when Mark Thompson steps down shortly. 

The essence of the complaints has been that the coverage was neither informative nor entertaining- which from the little I saw, seems justified. The "send for a Dimbleby" message that has summed up the complaints seems to me just to underline the scale of the problems, not just of the BBC but of the wider media.

In the BBC, it could have been "send for a Snow" or send for a Beurk", or indeed send for any one of half a dozen other families that have at least two members working for the Beeb. 

The BBC, like virtually all the media, is a nest of nepotism. Indeed, without a public school education and family connections, it is exceptionally difficult to break into journalism of any kind.

The narrow pool of journalist and editorial staff at the BBC and elsewhere has increasingly dumbed down, because they are isolated from the viewers and listeners- they patronize rather than inform, educate or entertain. 

The allegations that news opinion-formers take their cue from an agenda set from a generally Labour-supporting perspective sometimes seems increasingly justified, but what shocks me the most is the abysmally low standards of fact checking that was not only revealed in the Jubilee coverage, but has become the norm, even in "quality" news coverage or in so-called newspapers of record.

The British media has become sloppy with the facts and casual in its biases. Almost always, when I see coverage of a story within my areas of experience, I see material errors of fact. 

In that sense, the reason why the Jubilee coverage has been so pasted, is that a very large number of people already know that the Queen is Her Majesty (HM), and not Her Royal Highness (HRH). 

In fact the media makes mistakes like this all the time- and often far more material mistakes.

So, although the BBC coverage of the Jubilee was irritating and banal, it was not dramatically worse than its coverage of other stories, and at least it lacked the deliberate twisting of the facts that is now the norm across virtually all of the newspapers. The Daily Express, for example, does not even pretend to accuracy and is not even a member of the Press Complaints Commission. The Daily Mail seems to publish stories on a daily basis that it knows to be false, while the press ethics of the Daily Telegraph includes the theft of private information but withholding such information where it has a commercial interest-  which is what would have happened had Robert Peston not blown the whistle on their coverage of the Murdoch scandal.

Inaccurate, biased, corrupt and riddled with nepotism: just another snap-shot of the modern British media, Dimbleby or no Dimbleby 

Friday, June 08, 2012

Are Greece and Paul Krugman decadent?

Amidst all the Jubilee hullabaloo in the UK, the second- and ultimately more significant- story remains the ongoing crisis in the Eurozone and the continued instability in the markets. The signs of a slowdown in the Chinese and the American real economies have put further pressure on the Eurozone economies that are still struggling to return to growth. 

The ongoing restructuring of the Spanish banking system has alerted the markets to the fact that their remains a significant capital requirement, even after the forced mergers of the Cajas. However, despite the more hysterical of the comments from UK commentators and politicians, the fact is that the Spanish economy does not have the same long term government problems as Greece does. The deficit issues are a function of the the banking system breakdown, not the series of policy mistakes that hampers Athens even beyond the banking crisis. As a result, although serious, there is far greater trust offered to Madrid- and that solidarity from Berlin offers far greater security for future recovery to Spain than to Greece.

Yet in the Baltic, there is growing frustration that the Mediterranean economies as a whole are not prepared to accept the restructuring that has already taken place in Estonia and Latvia, and over a longer period, in Germany too. Articles such as "Is Greece too Western to pull off a Baltic Rebound?" carry with them the clear implication that "Western"="Decadent".

If Greece will not act to save itself, then why should the poorer Baltic Countries act to save them from themselves?

Which brings us to the latest twitter-sphere spat against Paul Krugman. 

Krugman and his -shall we selective- use of charts to criticize the austerity policies of Estonia raised a fury in Tallinn, which was well expressed by President Ilves . So, a serving head of state took the unusual step of publicly rebuking the economist.

In fact such a dishonest approach to data presentation by Krugman is also decadent.

It underlines why Nassim Taleb regards academic economists as little better than witch doctors. Following Krugman's sloppy thinking would certainly undermine the moral hazard that should underpin any capitalist society.

The fact is that in economic policy, the soft options are just as ineffective in the long term as they are in most other spheres of life. That is what Krugman and the Left does not understand.