Shareholding all the cards

The SEC's vote this week to change the rules on shareholder influence in US boardrooms has predictably ruffled corporate feathers.

While SEC Chairman Mary Schapiro sees the move, which allows shareholders with a 3% plus holding in a listed company to nominate board members, as "a matter of fairness and accountability", business lobbyists are far from convinced. "A giant step backwards for average investors", reckons David Hirschmann of the US Chamber of Commerce. “So fundamentally and fatally flawed that it will have great difficulty surviving judicial scrutiny,” argues Kathleen L Casey, one of the two Republican Commissioners who opposed the change.

Paul Atkins, in the Wall Street Journal, warns the new rule would "increase the clout of special-interest groups at the expense of the vast majority of shareholders", and business leaders have vowed to fight on against the changes. On the wider principle of regulatory oversight of board behavior, there is still intense debate as to whether bosses' pay is any of the government's business.

But given what's happened in the last couple of years, it's hardly surprising shareholders are looking to flex their muscles. In a survey of senior investment and pensions figures published earlier this week by Penrose, two thirds of respondents anticipated growing shareholder presure on fund managers to boost levels of engagement with corporates.

Whatever your view on government "interference" in corporate governance standards, few would deny the behaviour of business directors falls within the remit of business owners. And since even the biggest institutional investors couldn't possibly hope to keep tabs on governance at every company they invest in, there would seem to be only two alternatives. Cross your fingers and rely on the good faith of directors (seriously?). Or take an active approach to engagement within a reasonable and proportionate regulatory framework.

AF

The Age of Austerity?

Yesterday, for the first time since 1986, the opening day of an Oval test match did not sell out. This could be down to the pusillanimous performance of the touring Pakistan team in the preceding matches, or maybe the looming crisis facing English cricket. But seen alongside a range of other recent developments, it might be perceived as an indication that we are entering what the boss of Asda this week rather gloomily termed an "Age of austerity".

The debate about how best to approach this daunting prospect continues to rage. Lord Skidelsky and Michael Kennedy, writing in the Financial Times recently, invoked Keynes' argument that “the boom, not the slump, is the right time for austerity at the Treasury”, and concluded that "austerity in the capital budget is the worst possible remedy for a slump".

But, as P-Solve CIO, Glyn Jones, pointed out in this week's Financial News, the snag with this argument is that austerity measures weren't applied during the boom years. Furthermore, are we really looking at meaningful austerity measures anyway? The outgoing Labour administration's final forecast was that the value of all UK gilts in issuance over the next five years would rise by another £567 billion, whereas the new coalition government forecasts this figure will now be "a mere £454 billion. And we are told this is austerity." In fact, he continues, it's unlikely that any government will have the nerve to impose anything resembling real austerity, because of the harmful impact on the electorate. More likely, inflation will come to be seen as the best way to write off colossal debt levels. As Mr Jones concludes, "outright default is unlikely for most countries, but inflation is not. It is simply the easiest way to share the pain of removing excessive debt."

AF

Financing the Frontiers

The recent news that China has become the second biggest economy by GDP may be unsurprising, but to dismiss this jump as nothing more than a nominal milestone would be remiss. Whilst changes to GDP league tables may have little or no impact on China's foreign policy towards the West, its growing economic clout will likely lead to increased efforts to court emerging economies.

China's investment in Africa is growing at an unprecedented rate (at present there are an estimated 800 Chinese companies working in at least 12 African nations) and criticisms around China's approach abound. China is widely accused of giving with one hand and taking with the other; building stadia, mines, roads and refineries and in return bleeding the continent dry of its natural resources. To dismiss China's intentions as little more than a grab for Africa's mineral wealth however, overlooks the complexity of the relationship and more importantly underestimates the contribution China makes to shaping young nations.

The World Bank and the IMF may offer financing but China also provides labourers to do the work. True China has a nasty habit of awarding contracts for infrastructure projects to Chinese firms (all four new world cup stadia were built by Chinese companies) who ship in Chinese workforces wholesale, but this is no different from the way American and British companies operated in the past. Furthermore, many of the projects China funds run at a loss, effectively making such initiatives a form of aid.

Critically, China provides insight into building new states that the West simply cannot. To many frontier market economies China represents an ally and guide that can help them mature through their industrial age, providing a road map to an economic independence that has long eluded them.

NS

Quality brands banking on success

Within the next 12 months, the retail banking sector is set to become increasingly competitive. With Tesco, Virgin Money and the Post Office expected to launch into the current account arena, current providers are getting jittery. And so they should.

Not only are these companies known for being easy on a thrifty consumer's purse, they also seem to have a vague understanding of customer service. As a customer of my (unnamed) bank, I can honestly say that I sometimes wish my bank manager would greet me with the middle finger before dispatching me with a swift kick in the rear. Anything would be better than the surly unhelpfulness and general confusion caused by its myriad of call centres. At least by taking the former approach, I would know exactly where I stood and could take appropriate action. Instead, I am treated to a theatrical display of West End proportions whereby the bank and its dastardly minions of doom go through the pretence of caring.

What they need is more competition. It's a sign of a healthy market place and hopefully the newcomers will focus their attention more on actually viewing customers as a help as opposed to a hindrance.

SI