The government has acted, sort of, to limit the scope for high salaries and bonuses in the boardrooms of British businesses. That sentence is wrong, of course. It hasn't acted; it only said it would. The action isn't worth acting upon, some of its critics contend. A lot of the boardrooms with the highest pay aren't in Britain anyway, so large and varied are the 100 companies we now see in the FTSE-100 index of leading companies. They call Russia, Chile, South Africa, Australia, Kazakhstan and other places home. Still there is a public clamouring for constraints on pay, and yet the notion of wage controls seems to alien, and the ways around constraints so varied that any obvious "solutions" wouldn't work. So what's a government to do?
Vince Cable, secretary of state for business, innovation and skills, decided to propose legislation that would make the current advisory vote on pay policy a mandatory one. Shareholders, not government, should decide on pay. Remuneration reports would come in two sections, one containing the policy, the other the account of how policy has been implemented the previous year. Cable backed away from demanding disclosure of any ratio of director pay to that of ordinary workers. "A company employing thousands of relatively low-paid, low-skilled shop-workers will inevitably have a much wider pay ratio than a firm that outsources most of its unskilled labour," he said. True. He also avoided an idea much admired by opposition leaders and trade unions that would see workers represented on remuneration committees. A step too far. But he wants to stop people currently serving as executives at other companies from sitting on remuneration committees, and so break the cycle of mutual back-scratching and mutual admiration. But that's not a solution, as only five per cent of RemCo members currently have such posts. Getting more outsider will be the bigger problem. Sitting non-executive directors sometimes call the RemCo assignment a "poisoned chalice".
"Responsible business leaders are waking up to that fact and understand the need to respond to the substantial and growing pressure to deal with the culture of excessive rewards. I stand ready to work with them, and with investors, to thrash out what gold-standard company reporting should look like and then act on it," he said. This is one we'll be working on for quite a while to come.
Source document: The Cable speech to the Social Market Foundation elaborates.
The UK has become something of a haven for large natural resources companies seeking new capital and access to a liquid equity market. The trend has become so pronounced that using the famous FTSE-100 index as a benchmark of anything to do with Britain is somewhat suspect. Moreover, some of the entities listing have been coming in the back door. They allow themselves to be "acquired" by a company that's already listed – perhaps an inactive shell – through an exchange of shares that leaves the original owners still very much in control even if the companies don't really meet the normal listing standards for free float and open control. The Financial Services Authority has been mulling what to do about it for a while and has now produced a long consultation paper, seeking to set the policy before the FSA itself demerges. Its UK Listing Authority wants to close the back door by tighten the definition of reverse takeovers. "In order to prevent use of the reverse takeover regime as a 'back-door' route to obtaining a listing, we are proposing to narrow this exemption so that only acquisitions by a listed issuer of another listed issuer in the same listing category will not be treated as a reverse takeover." That won't of its own stop foreign listings – that's not the aim of the rule anyway. But it will prevent a foreign company that doesn't quality for premium listing to achieve premium status without premium performance on governance and disclosure.
That line in a poem by Mark Strand wasn't intended to bring investment bankers directly to mind, but it does. "In a field," he begins, "I am the absence of field." Of, but not part of. Since the financial crisis, with its early and persisting impact on the economy, the City of London – the ancient code for the financial district – has been worried about how new waves of regulation might play out in practice. Would banks, long attracted to London for its liberal approach to commerce and its many (resulting) cultural attractions, vacate the city and move somewhere with lower taxes and less intrusive regulators? Would Bank Tube station become a ghost town, and the state's finances turn into a black hole?
Yes, is the answer of the economists working at McKinsey Global Institute. The consulting firm's think-tank thinks several forces are converging to that will reshape global capital markets in the coming decade. As they develop, there could be a trend away from equity investment that will change how businesses finance themselves and view their governance. "The most important of these is the rapid shift of wealth to emerging markets where private investors typically put less than 15 percent of their money into equities," MGI says. In more developed markets, investors put 30 to 40 per cent into equity instruments. Moreover, structural changes in the developed world are conspiring to reduce demand for equity. MGI thinks the ageing population as well as shifts in pension regimes will push the demand side towards income-generating investments. Moreover, the growth of alternative investments is a sign that investors seeking high returns will look further afield than equities to boost risk and reward. Yes, and new financial regulations will probably hurt demand for shares.