A few weeks ago it looks like the UK had its first anti-ESG front page…

This is driven by the Centre for a Better Britain (CFABB) report I covered previously.

It’s only the Express, which I don’t think I have even glanced at a copy of for well over a decade, but it’s indicative of how the arguments from opponents are shaping up in the UK. Costs + politicisation of investment. We can conclude that the anti-ESG virus has successfully spread across the Atlantic.

West Yorks Pension Fund committee membership

Another straw in the wind, you can find the agenda for a forthcoming meeting of the West Yorkshire Pension Fund Advisory Panel here. Below is a table of the attendees.

It looks to me like the councillor count is:

• Reform UK - 5

• Conservative - 3

• Labour - 2

WYPF AUM was £20.2bn as at 31st March 2025.

Investing in the UK, or not?

I missed this at the time, but back in April UKSIF published polling showing that a plurality of Brits did not think the LGPS should prioritise investing in the UK if this came at the expense of returns.

More in Common asked over 2000 British adults which of these three statements came closest to their view:

1. LGPS funds should prioritise investment in the UK, even if it may not produce the best returns

2. LGPS funds should focus primarily on getting the best returns for pension savers, rather than on investing in the UK

3. Don’t know

The results showed that 40% of Brits thought LGPS funds should focus primarily on getting the best returns for pension savers, rather than on investing in the UK. This was followed by 37% who said they “don’t know”.

The release went on to claim “This survey shows that British savers want decisions about their pensions to focus on secure, long-term growth, not political priorities.”

I am rather wary of the claim being made and the positioning being adopted. I doubt most of us working in and around RI would be happy with a poll that sets up a choice of “do you want ESG criteria adopted even if it produces lower returns, or do you want to prioritise returns, rather than ESG criteria?” Many would immediately and rightly retort that it’s a false choice.

Interestingly, in the NEST member assembly, investing in the UK came top by a long way in the list of topics members thought should be prioritised. Remember that in the assembly the member participants were talked through each of the topics and deliberately presented with trade-offs in each area.

I personally think an investment approach by large pension schemes that has an explicit focus on supporting the UK economy would command a lot of support from the public and in politics.

Just as a reminder, here is what the CFABB report said:

The CFABB presents the domestic focus as only applicable when there is no financial trade-off, which helps it escape UKSIF’s framing. Unfortunately, if we leave the anti-ESG stuff aside, it also feels closer to where NEST members seem to be.

One does not need to accept the CFABB’s framing to see the risk. It might be a significant strategic mistake for RI to allow itself to be cast as being on the other side of this argument. This seems tailor-made for opponents to characterise as elite concerns out of touch with UK-based beneficiaries.

Loyalty and location

Relatedly, I recently read On Loyalty by Troy Jollimore which is a nice, short, philosophical take on some of the issues around the topic. It’s something I’ve thought about a lot over the years given how loyalty can generate some of our strongest emotional experiences, and sometimes seems to run counter to economic logic, but can also clearly be dangerous.

There’s a section towards the end where he looks at, broadly, communitarian versus cosmopolitan attitudes to loyalty.

[S]ince it is impossible for an individual to literally care about everyone in the world, people will tend to care only about those who are part of their social group; but this means that we need a way of defining who is in our social group and distinguishing them from those who are not - a task that the cosmopolitan resistance to social divisions would render impossible. Thus, the cosmopolitan, who begins by expressing the desire to be concerned for all human beings, will end up being concerned only about those with whom he has direct personal relations - a much smaller number than he might have been concerned with had he accepted the sorts of loyalties communitarians think we ought to recognize.

I am reluctant to say it, but this reminded me a bit of RI. If there is a lack of rootedness to specific beneficiaries, communities, or geographies, where does loyalty reside, if anywhere? I think in practice it risks residing with others within the ‘industry’. This is why I am unnerved by positioning that seems to actively reject any sort of prioritisation of the UK economy and the citizens who depend on it.

As I say, it would be risky to end up on the wrong side of this. Loyalty often boils down to “whose side are you on?” I think we just changed Prime Minister in the UK in no small part because the former incumbent couldn’t provide a clear answer. If you can’t answer that question clearly then people may conclude “well it seems like you’re not on mine”. That’s not a good place to be.

I would simply get on the right side of prices

Talking about getting on the right side of an issue… During the (previous) inflation surge it was interesting to see articles with headlines like “the top ten stocks with pricing power” alongside those bemoaning the rising cost of goods. In that vein, I was stopped in my tracks by a post on LinkedIn from someone at an asset management firm this week, a snip from which is below.

This is one of those things that is both unremarkable and revealing, depending on how you look at it. It is superficially reasonable: returns on shares ought to outpace inflation in normal times. But it also essentially seeks to turn market power that hurts consumers economically into an advantage by getting on the right side of it.

In reality “hold a bunch of stocks” may not be a choice available to a lot of ordinary ‘price takers’. But as a statement of the balance of power in the modern day economy, and how some see the best way to respond, it is hard to beat. If market power is chewing up consumers, buy a piece of it.

When global policies meet local reality

I’ve written previously about the threat posed to Mercedes by US politics as a result of large positions held by Chinese shareholders. The company is also being challenged by unions over its inconsistent approach to labour.

The UAW has produced a briefing on its Principles of Social Responsibility and Human Rights, which you can read here. Below is a chunk showing how much weight the company’s counsel in the US put on global principles.

The Principles are apparently global when Mercedes describes them to shareholders, but German and irrelevant if US workers seek to rely on them.

Previously I highlighted what I see as a shift in policy-making thinking about institutional investment away from an accountability oriented model towards an allocation oriented one. The accountability model is focused on how investment institutions exercise power and discharge responsibilities whereas under the allocation model attention is turned to how capital can be aggregated and directed towards desired destinations.

This is necessarily simplified not least because one doesn’t completely replace the other, elements of both exist contemporaneously, rather it is the emphasis which shifts. Nonetheless it feels like there has been an important reorientation and the feedback I’ve had on the particular slide used in the populism presentation setting out the two distinct models suggests that it is something that others recognise.

One of the challenges I see for those of us used to working with an accountability model is that the frames that people use for thinking about investment may have shifted in quite a deep way. This may make some of the language and ideas we are used to deploying, which once felt obvious and intuitive, feel out of place or even jarring within the new frame.

I think some of this is rooted in the conceptual metaphors we use to understand the world. These are commonplace, so much so that we’re barely aware that we’re using them much of the time, which can be a problem. Though they can illuminate, they can also be deeply misleading. And they can inform frames that we use for interpreting the world. This is what I think may have shifted.

To take a real-life example, if you go back to the Kay Review - which did a great deal to cement the concept of stewardship as part of the practice of investment - the term ‘chain’ was used repeatedly. Kay spoke about an ‘investment chain’ linking investors (including end beneficiaries) to companies. Relationships between different actors were conceived as ‘links’ in the chain. Chains can obviously restrain as well as connect. The language was all about linkages, and their relative effectiveness.

If we think about more recent consultations relating to pension fund investment the language is much more about capital, and how to transport it. There seems to be a background idea of ‘capital is a liquid’. At the moment it is spread out, puddle-like, across the pension systems. Hence it needs to be ‘pooled’ so that it can be ‘channelled’ to where it is needed. In turn, the infrastructure projects in which capital might be deployed need to be delivered through a ‘pipeline’.

The language in these two eras is very different because it gives metaphorical expression to a different underlying conception, or frame, of the reality that policy is trying to influence. And I think this means these can clash. To make a trivial point, liquid can’t pass through a chain, as we’d normally conceive it. The structural ideas sitting dimly in the background don’t match.

That may not matter so much, though my gut feeling is that it does cause a bit of cognitive friction. More important is the overall frame that is informed by metaphors - this is the cluster of tacit beliefs and assumptions through which the policy problem is understood. Some ideas that once seemed obvious in one frame don’t land or even feel out of place in another. This is what might be going on in policy orientation towards investment.

The use of these words does not prove the existence of a single, consistent frame. But repeated metaphorical patterns can provide clues to the assumptions through which a policy problem is being organised.

To be clear, this is not an argument about communications strategy and want to distinguish this from another use of ‘framing’ in policy. Although I am a fan of George Lakoff’s work in cognitive linguistics, I was thoroughly unconvinced by its extension into politics in Don’t Think of an Elephant! which talks extensively about framing. Aside from the fact that the distilled version of it seems little more than basic comms advice, I am not focusing on whether or how to shift frames to those that are more helpful for the achievement of particular policy goals (for now at least). What I am interested in is how proposals become easier or harder to accept as a result of frames. Also I do not see frames as synonymous with metaphors, although the latter do inform the former.

Since I started poking around in this area again recently, I stumbled across a much better formulation of the problem in Frame Reflection by Donald Schön and Martin Rein which came out in 1994. This is surprisingly close to the way I’ve been starting to think, so I’m glad someone already did the hard work. Below are a few quick introductory excerpts.

Things are selected for attention and named in such a way as to fit the frame constructed for the situation. Together, the two processes construct a problem out of the vague and indeterminate reality that John Dewey calls a “problematic situation.” They carry out the essential problem-setting functions. They select for attention a few salient features and relations from what would otherwise be an overwhelmingly complex reality. They give these elements a coherent organization, and they describe what is wrong with the present situation in such a way as to set the direction for its future transformation. Through the processes of naming and framing, the stories make the “normative leap” from data to recommendations, from fact to values, from “is” to “ought.” It is typical of diagnostic-prescriptive stories such as these that they execute the normative leap in such a way as to make it seem graceful, compelling, even obvious… This sense of the obviousness of what is wrong and what needs fixing is the hallmark of policy frames and of the generative metaphors that underlie them...

…..

Evidence that one party regards as devastating to a second party’s argument, the second may dismiss as irrelevant or innocuous. Or the second may easily patch his or her argument so as to incorporate the new evidence within it… [T]here is no possibility of falsifying a frame; no data can be produced that would conclusively disconfirm it in the eyes of all qualified, objective observers. The reason for this is that if objective means frame-neutral, there are no objective observers. There is no way of perceiving and making sense of social reality except through a frame, for the very task of making sense of complex, information-rich situations requires an operation of selectivity and organization, which is what “framing” means? As we have illustrated above, those who construct the social reality of a situation through one frame can always ignore or reinterpret the “facts” that holders of a second frame present as decisive counter evidence to the first.

This feels very relevant to current policy discussions about investment. What I take from it is that there are different frames at work when thinking about investment in terms of either accountability or allocation. There are obviously facts on the ground that are not in dispute, say regarding the scale of allocations to particular asset classes, or the typical governance structure of UK pension funds. But the same facts do not carry the same weight within different frames.

Arguments grounded in the accountability frame may fail to register as compelling or relevant when they are addressed to a policy debate increasingly viewed through the allocation frame. Where investment is conceived as a series of relationships, related concepts such as rights and responsibilities make intuitive sense. Stewardship fits easily alongside. But where the model sees investment as the deployment of (liquid) capital the same rights and responsibilities can come to be seen as blockages to delivery. Stewardship does not disappear in this model, but its role does become more conditional, accepted where it facilitates deployment of capital and management of risk, but treated with suspicion where it appears to impede the allocation function. This is something we might already see happening.

And with that… I’m on holiday.

Here’s a snip from my slide deck:

And here are a couple of snips from the CFABB report.

I can imagine some of this landing well with beneficiaries.

In the recent webinar on populism, I made the argument that a technocratic model of investment might have created space for populist attacks, whether from Right or Left. A bit like this, then:

ESG investing raises critical questions about democratic accountability. Through allowing unelected technocrats, rating agencies, and asset managers to define and enforce what counts as “sustainable,” ESG frameworks can mobilise capital in ways that bypass public consent, politicise economic decision-making, and impose contested normative goals. This creates a scenario whereby the ultimate beneficiaries, such as public pension beneficiaries, may unknowingly fund ideological priorities, undermining meritocratic principles, transparency, and trust in both markets and democratic institutions.

That comes from a new report from the Centre For A Better Britain (CFABB) called The overlooked costs of ESG investing: The societal consequences of ESG-driven investment distortions.

For those of you with better things to do than track the influence of populist politics on investment, the CFABB is closely linked to Reform UK, perhaps even more so than the Prosperity Institute whose output I’ve covered previously.

Reform UK Deputy Leader Richard Tice has already tweeted about it:

I’ll post up a longer review later but it’s worth clocking that one of its key points is that “ESG imposes societal outcomes without democratic consent” and that technocrats are running the show. As covered in the webinar, the accusation of technocrats making choices without democratic consent fuels the populist argument but it does not follow that populists see the solution as democratisation.

And this comes across in the CFABB report:

investment strategies must be protected from politicisation, including by elected councillors who sit on pensions committees and may be tempted to advance personal political agendas through investment mandates.

We need to address the lack of democratic accountability by reducing the influence of those in the system with democratic accountability….

This, to me, reveals the paradox and opportunity in the populist challenge. Populists seek to represent ‘the people’ as if they were one cohesive bloc with consistent views. Populists think that their views should over-ride the technocrats, not that in areas like this the constituency they claim to represent should deliberate.

Going further into the CFABB report you can see the tension:

Explicit consent for non-financial objectives. Where pension strategies pursue objectives beyond financial risk and return, informed beneficiary consent should be required, not inferred from generic sustainability statements.

My own experience suggests that, if beneficiaries were genuinely given a say, their answers might look very different from those CFABB appears to expect. Would they be willing to accept such an outcome?

What about fiduciary duty?

Statutory clarification of fiduciary duty. Government should provide clearer guidance that the duty of loyalty requires prioritisation of risk-adjusted returns above all other considerations.

Here the objective isn’t really to clarify, it is to define, but again if you do seek to clarify fiduciary duty as it actually exists (as a growing number of people / reports have done now!) this might not land where the report seems to think it will.

And finally, what about this?

Default investment options, the funds most pension savers end up in, should be constructed around unconstrained, market-representative benchmarks, not ESG-tilted or exclusion-based indices

This advocates specific design choices for the funds in which we know most capital will accumulate. So this appears to require the development and adoption of politically ‘neutral’ investment principles that will determine what the public invests in, by technical specialists and without any beneficiary involvement or democratic oversight. I think I read a word for that recently…

Personally I do think the arguments put forward by the likes of the CFABB and the Prosperity Institute deserve to be taken both seriously and at face value. The charge that RI is a technocratic exercise and usually untethered to the views of beneficiaries is not wholly inaccurate. The question is whether to defend the model as it is (“keep the politics out”) or to take the charge seriously and try to engage with it.

Taking that challenge seriously could result in positions that represent beneficiaries’ actual views and interests better than either technocracy or populism. We’re in the foothills of this at the moment in the UK, but it feels like where some of the action may be in future.

PS. The report’s argument also closely resembles something I wrote in early 2025 before Reform even got any influence in the LGPS.

Here’s a prediction: if they choose to do it, it will be easy for far/populist Right parties in Europe to attack ESG/RI as practised by many asset owners in the similar terms as those used in the US.

You can write the UK version of the critique now:

Our pension funds have been taken over by people who have put their own ESG preferences ahead of the interests of British savers. They want to shut down industries that still employ thousands of British workers and they only care about ‘equity’ when it comes to career advancement for middle class professionals and getting well-paid jobs on company boards. They don’t lift a finger for the ordinary Britons that pay their substantial wages. British pension funds should support British workers. We should DOGE the ESG industry feeding off our funds and save some money.

It’s a particularly live discussion at the moment because there is a lot of interest in employee ownership models. In practice, proposals range from giving employees a slice of equity up to full ownership of a business, and from employer-specific ownership to wider ownership funds.

Such efforts are well intentioned and can deliver meaningful economic benefits for workers. But they are not enough of their own. Workers deserve a reliable living wage first, before they have access to variable reward in the form of equity. Nor does employee ownership of any kind obviate the need for representation and collective bargaining through unions.

As a governance wonk, my interest is very much in voice. Equity participation can provide a form of voice, but it can be very limited in both scale and nature. That’s why personally I advocate for unions and, in governance, for expanded forms of participation. This is very much where PDI’s work sits.

This is a very pertinent issue. Despite the obviousness of the existential threat from climate change, the industrial transition that this requires is throwing up all kinds of challenges and there is a clear political backlash. This is why it is vital that workers and communities that will be most affected by industrial change resulting from decarbonisation have to be part of the decision-making. In an era of widespread mistrust of institutions, participation in decision-making is a route to rebuilding legitimacy and trust: ‘Nothing about us without us’.

The same principle also applies to technological transitions - whether it is the shift to autonomous vehicles or the development and deployment of AI. At the moment the discussion of, for example, ‘the governance of AI’ often gets stuck at questions such as ‘does the board have a committee/lead director for AI?’ or ‘does the company have a policy on AI risk?’. The approach PDI is taking is to expand the discussion outward to questions about who is impacted by the development and deployment of AI, who should have a say in decision-making in both areas and what is their participation in wealth generated by the technology?

Again, as someone with a governance background, what strikes me about the big US tech companies in particular is that they are a type of business without a history of accountability. Because they are ‘new’ businesses there is very little tradition of collective representation for the workforce, and no history of worker participation in governance. At the same time many of them have also been created with a share structure that deliberately also shields them from investor activism. I personally don’t find it surprising that the leaders of autocratic organisations are attracted to (in the case of Elon Musk, for example) or at least see little problematic in an autocratic style of politics.

I was recently flicking through my copy of Political Power and Corporate Control, which I read years ago and was (I think) quite influential on my generation of people interested in governance. In particular the emphasis on the different constellations of ownership, politics and resulting alliances seemed to help explain why, for example, labour might end up allying with capital to some degree in some markets. In an era where investors risk having their rights - both control rights and rights to information - reduced perhaps this is worth revisiting. Is there is a shared agenda we can develop around expanded governance participation?

PDI has a bunch of information online for those of you interested in this conversation. I would particularly highlight the series of papers relating to AI that are available here: https://www.predistributioninitiative.org/projects/ai-lab

This includes a very practical proposal called Driver Equity Transition Stakes which is addressed to the impact of the shift to autonomous vehicles.

Meanwhile on the PDI substack I’ve written a few blogs about corporate governance reform. The most recent one looks at the emphasis that the post-war German conservatives put on the risks from economic concentration, and the co-option of monopolistic firms by authoritarian powers, and how this led them to advocate for dispersed ownership (including employee ownership) and workers participation in corporate governance.

So in this quick post I want to highlight two points. Firstly, I think there is an ongoing shift in policy thinking about investors away from “accountability” and towards “allocation”. I am simplifying the distinction to make the direction of travel clearer. As with all such shifts, it is uneven and subject to counter-movements. I tried to capture this movement in the slide below. I am very interested in views about whether this is fair, what it misses and so on.

Secondly, I also briefly touched on ownership and control.1 I’ve been thinking about this in more detail, so here are two slides (I only used one in the populism deck). My key point really is there is a difference between public ownership and public control and there is a spectrum on which different approaches sit (again simplified - there’s a significant difference between an operating franchise and ownership of company / asset for example).

The verbal distinction between public ownership and public control is slight, but the policy distinction is enormous. It is significant that the UK’s new Prime Minister, Andy Burnham, talks about public control. That more closely describes the model he developed through the Bee Network in Manchester.

It is also interesting to note that the previous Conservative government’s proposals for Great British Rail were structurally similar (public brand / interface, extensive political control but continued reliance on private-sector operators).

My own view is that the increasing public control of an originally privatised service paved the way for re-nationalisation of rail, regardless of one’s view of the merits of public ownership or its likely effect on services. One can imagine something similar with buses. The more that public authorities intervene and determine costs and revenues (eg fare caps, subsidies for shifting to EVs etc) as well as service levels the more it provokes the question “why are we paying the private sector to deliver this?”

There seem to be implications for infrastructure investment here (and note that a couple of bus operating companies have been bought by infrastructure funds). Assets may remain privately owned while national / regional / local public authorities increasingly determine prices, subsidies, procurement (eg of vehicles) and service expectations. At some point, private ownership may begin to look less like a mechanism for introducing competitive efficiency to service provision and more like a contestable financial claim on a public system.

If there is a common thread in these two trends it is the assertion of public interest. This inevitably provokes further questions - which public(s), and what do we understand that they want? That may be where the action is in future.

PS. Please get in touch if you would like a copy of the webinar slides.

My principal interest has been how this may be affected by shareholder votes, if at all. I am also interested in the wider question of ownership and control and as I was writing this piece some news broke, which I’ll return to at the end.

But back to voting. Regardless of whether it is Apollo or Castlelake, if the takeover proceeds via a scheme of arrangement this would typically involve both a general meeting and a court meeting. Castlelake has previously stated that it intended to implement its proposal through a scheme of arrangement, while retaining the ability to switch to a contractual offer. Apollo has not explicitly referred to a scheme of arrangement, but its references to shareholders and directors voting in favour strongly suggest that a scheme is also currently what they have in mind.

Such a scheme would normally involve shareholder votes at two meetings. The court meeting approves the scheme itself. The accompanying general meeting has votes on the special resolutions needed to implement it.

If the board does recommend an offer, most shareholders will likely support the takeover and vote in favour, but there are a few wrinkles to be aware of.

A reminder: EU ownership and control rules require airlines holding EU operating licences to be more than 50% owned and effectively controlled by qualifying European nationals. This has famously caused problems for UK-listed airlines after Brexit and, as I’ve covered previously (most recently here), has led to significantly reduced turnout at several airlines as a result. At easyJet’s AGM earlier this year turnout was under 50%. That partly reflects the suspension of voting rights attached to non-EU shares to address the ownership and control rules.

As I regularly bang on, low voting turnout creates risk. If voting turnout is low, but you do vote your voting power is powered up. This is because the relevant thresholds are based on votes cast, not the issued share capital. easyJet is starting from a low base, but could fall further. Because of the impact of merger arbitrage trades, typically utilising cash-settled derivatives, there is often greatly reduced turnout during takeovers. So we could see a low turnout at quite an important meeting.

If there is a general meeting it will typically involve special resolutions that require 75% - of votes cast, not of the issued share capital - to pass. If the general meeting turnout simply matched the AGM turnout, this means that if shareholders holding 12.5% of the ISC opposed the resolutions they would not pass. Can we think of an easyJet investor whose shareholding a) is treated as European-owned and b) is big enough to get over the 12.5% threshold? Perhaps one that also has a history of voting against management….?

It could get easier to derail the takeover if the turnout drops further below the AGM level. The amount of opposition required to block progress also falls. As we know reduced turnout can be the outcome when hedge funds trade on deals using equity derivatives rather than the underlying equity. At the moment only limited derivative positions in easyJet appear to have been disclosed - AQR and Citadel between them have 2.7%+ in such positions for example - but this might grow once the winner and the final shape of the offer become clear.

There’s another angle too: the court meeting. This has an additional hurdle. The scheme requires the support of 75% by value of the shares voted and a majority in number of the scheme shareholders voting, known as the ‘headcount test’. In theory, it could clear the first test but fail the second if enough registered scheme shareholders voted against.

There is a bit of history here. In the Dee Valley takeover by Severn Trent an opponent attempted to exploit the headcount test by gifting individual shares to hundreds of people to form a majority voted against. In that instance the chair ignored those votes and the court ultimately upheld the decision, treating it as an abuse of the process.

For what it’s worth, as things stand I’m not expecting any of these risks to actually blow any deal up, but it’s useful to be aware of them. That said, a lot does depend on what side of bed Stelios gets out of.

I’m also interested in how two US firms are going to get around the ownership and control rules. Publicly listed airlines have got around this by disenfranchising non-EU shareholders. Castlelake has proposed that a company owned and controlled by two EU-national investors would hold the controlling shareholding in the acquisition structure. Apollo has not yet publicly explained its solution.

A wholly privately owned airline backed by a US private-equity firm may face different challenges. PE firms typically put their own people on the board, select new management teams and determine strategy. That seems like quite a lot of potential ‘control’ even if they have a clever way around the ‘ownership’ question.

Just after I had written the text above I saw this news story about the EU reviewing the ownership and control rules, which lands on exactly this problem.

The central challenge is that investors might create a structure that superficially looks like it is compliant while retaining effective control in practice. Anyone with a working knowledge of private equity could / should ask who really appoints the board, chooses management, determines strategy and exercises decisive influence over the business. In other words: who - de facto - exercises control?

The announcement that there would be a review of the rules, to counter any belief they were not being rigorously enforced, caused this to happen:

That’s regulatory risk in a bombshell.

This is something I picked up whilst looking at a few German asset managers. I’d never heard of Flossbach von Storch before, nor had I come across the Flossbach von Storch Research Institute.

The latter describes itself as follows: “The Flossbach von Storch Research Institute was founded by Flossbach von Storch SE as a think tank committed to free analysis. The Institute positions itself in the gap between sales-related, commercial research and purely academic research.”

It published a paper a couple of years back titled Right to strike, power and competition. The abstract is below:

And here’s the argument in a nutshell:

I know lots of people in finance are not exactly pro-union, but I don’t recall ever before seeing an organisation put out a paper arguing for the removal of the right to strike.1 Obviously this argument is restricted to state monopolies but it’s still quite an extreme position,

For completeness, Flossbach von Storch (the asset manager) does have a position in Deutsche Post which still has the dominant share of domestic postal deliveries, if no longer a legal monopoly.

Passions and Interests

Interested to see this piece being trailed on The Economist.

I’m a big fan of Hirschman and The Passions and The Interests is a great book. The title refers to an argument made by proponents of capitalism that allowing princes to have and indulge (financial) ‘interests’ would give them an alternative outlet to, or even distraction from, their (political) passions, which otherwise might lead to war. (NB. It’s not Hirschman’s argument.)

I had a very similar thought last year about how Elon Musk seems to challenge this very long-standing piece of wisdom:

Arguably Elon Musk provides the best falsification of it. Having amassed enormous wealth he is now using this to exercise political power, including interfering in the politics of other countries, amplifying the Far Right, seeking to shape the media landscape and so on. Contrary to the original claim, his interests have enabled him to indulge his passions.

Perhaps we need to make an exception because Musk is so rich. Perhaps there are only a handful of people who can act in this way. But the argument, crudely put, that letting people make a lot of money will distract them from things that are more damaging to society looks pretty dead.

Since then Musk has obviously ended his direct involvement in the US administration, but he remains deeply involved in politics and many things that his companies are involved in have obvious political ramifications (just look at the discussion of the use of Starlink). And now he’s got his eyes on space. It all looks pretty passionate doesn’t it?

Perhaps we should also see the big tech firms as a fairly unique type of corporate form in our era. These firms have grown up, and built power, without a sense of accountability. There is no history of countervailing power (labour, consumer, investor, whatever) and they have deliberately weak minority shareholder rights. There is seemingly nothing inherent in their history or culture that might have created a sense that there are other interests in the firm that have legitimate views that need to be balanced. It’s perhaps not surprising that they act the way they do.

Voting rights fragmentation

A few months back I spent a lot of time looking at voting rights disclosures and whether this provided an insight into the scale of pass through voting. I’m still unclear if it is indeed PTV that explains some of the disclosures, but I thought it was worth a quick snapshot.

SEGRO is currently the subject of a takeover bid by US firm Prologis. As a result there are a bunch of Rule 8.3 filings being spat out by market participants. Looking at BlackRock’s filings, it discloses that it does not have voting authority for over 1% of the issued shares in both the target and the acquirer.

Here’s a SEGRO disclosure:

It holds 12.39% of the shares (167.9m), but its disclosure shows it does not have voting authority for 16.6m shares, which I make about 1.22% of the ISC. So that’s about 10% of its position where it doesn’t control the votes.

And here’s a Prologis filing:

11.09% of the shares, or 103.5m in number. But no voting discretion for 9.6m shares which I make just over 1% of the ISC. So that’s 9% of its position where it doesn’t control the votes.

I don’t know Prologis but it’s a large cap stock in the S&P 500 and SEGRO is in the FTSE100 and BlackRock is the top shareholder in both companies. So it feels pretty significant that it does not vote a sizeable chunk of its position in both companies.

PS. This is also another case where different filings don’t show the same position. Here is a recent TR1 released in relation to BlackRock’s position in SEGRO, showing it as dipping just under 10% of the ISC. Go figure.

Exec pay pay increases

Some analysis of FTSE100 pay from the High Pay Centre:

Our latest annual CEO pay report has found that the pay of the CEOs of Britain’s biggest companies increased by 8.6% in the 2025/26 financial year.

• Median pay for a FTSE 100 CEO increased from £4.66m in 2024/25 to £5.06m in 2025/26. This is the highest level of FTSE 100 CEO pay on record, and the fourth successive year that CEO pay has grown. The last four years have all been record breaking.

• Mean FTSE 100 pay dropped from £6.09 million to 5.89 million. However, this decrease can mostly be attributed to an exceptionally high pay award for Melrose Industries of £58.93m. If Melrose is excluded from last year and this year’s samples, mean pay would have increased by 6.5% from £5.53m to £5.89m

The research shows that the median FTSE 100 CEO is now paid 130 times the median UK full time worker, up from 124:1 in 2024/25.

The median is possibly the most revealing figure here, CEO pay has now reached a record for four successive years. There has been much discussion in the business pages in recent years of the need to allow UK PLCs to compete for talent, particularly with US firms. This might be what it looks like in practice.

Listed or listing?

According to the FT, the government has been talking to private equity firms to ask them why they don’t list their portfolio companies in the UK.

This is all well and good, but the question is whether we are concerned about the number of companies listing in the UK or being listed here. While IPOs increase the total number that are listed, takeovers obviously reduce it.

Private equity firms are amongst those whose activity takes companies off the UK market. So if you only look at entry (listing rules etc) and not exit (the takeover regime) you’re not really tackling the number of companies that are listed here.

Of course, if your interest is in transaction volume (so entry plus exits) you might look at it slightly differently. I think that is where City really has its focus, hence no talk about about the takeover regime. Is that the government’s views too and does the political leadership get the difference between the two positions?

Populism webinar - Wednesday 29th July

Just a reminder that I have a lunchtime webinar coming up on Wednesday 29th July on Populism and Responsible Investment in the UK.

Here’s the registration link:

https://us06web.zoom.us/webinar/register/WN_1wzG6m9eQnqY-xyhlGEwMA

On the psychology, a decade or so back I took an extended detour into the literature around reward, motivation and performance. This is a hugely interesting area and I don’t really have any fixed views (anymore), but you can boil many of the arguments down into two main views of human psychology. The behaviourist camp essentially argues that if you want more of X you reward people each time X is achieved/delivered. You can see easily how incentive schemes fit into this.

On the other side of the debate, those focused on intrinsic and extrinsic motivation argue that human behaviour is more complicated and that rewards can even ‘crowd out’ existing intrinsic motivation. There are some interesting examples around this. (Incidentally, there is also a concept in behaviourism called ‘reactance’ where rewards can be perceived negatively if seen as controlling. Bear in mind that discussion of incentives in the original agency theory literature talked about their ‘bonding’ effect.)

As I say, I don’t really have strong views on this and believe some mixture of the two perspectives. Incentives clearly can work, but they need to be tied to specific, measurable outcomes. I believe (drawing more on the behaviourist view) that rewards probably also need to delivered close to the outcome achieved to have any kind of incentivising / reinforcing effect. That actually points away from the shift to long-term incentives / grants and the use of clawback etc. The latter point is important - what might be desirable to achieve just outcomes might undermine the incentive itself.

For these reasons my overarching view is that fiddling around with remuneration design is a huge waste of everyone’s time. In an ideal world we’d just pay people a salary and perhaps a bonus for truly exceptional performance. The reality is that remuneration is already far too complex, both in design and reporting, but path dependency means it’s too much effort currently to go back to a simpler model.

What I did not come across when I was reading around the topic was the notion of alignment of interests. This seems to be taken by many governance people as a self-evident outcome of the provision of equity incentives but I just didn’t see it cropping up. If rewards do achieve alignment I believe it is alignment with a task, or the outcome from it, not with any notional principal.

But even if we assume incentives work exactly as intended, the question remains: aligned with whom? Which leads to my second problem with the idea of alignment - the identity of the notional principal.

As we know, in many public companies the largest shareholders are highly diversified index funds that have no attachment to any particular company, sector or geography. The interest of even the index funds’ underlying beneficiaries in any one company is negligible. But the executives are aligned with the equivalent of an investor with a one stock portfolio. In fact executives might be the only actors in shareholder-oriented governance who aren't diversified.

In common with the discussion around fiduciary duty (whether for directors or investors), there is also an underlying assumption about the interests of the notional principal - that these are best served by seeking to increase the value of the firm. This is, of course, a way of simplifying objectives, but a lot gets thrown out in the process.

The simplification required reminds me, once again, of Seeing Like A State. In seeking to reduce complexity, governance reaches for abstraction, creating a fictional non-diversified shareholder with a single objective, to raise firm value. But the process of creating simplicity and clarity discards much of reality. Real investors differ in allocation, time horizons, objectives and values. Executives are notionally aligned with an idealised investor that does not exist. (Perhaps, then, it’s not a bad thing if the incentives don’t work anyway…)

Here’s an appropriate excerpt from Scott to conclude.

Let us pause, however, to consider the kind of human subject for whom all these benefits were being provided. This subject was singularly abstract. Figures as diverse as Le Corbusier, Walther Rathenau, the collectivizers of the Soviet Union, and even Julius Nyerere (for all his rhetorical attention to African traditions) were planning for generic subjects who needed so many square feet of housing space, acres of farmland, liters of clean water, and units of transportation and so much food, fresh air, and recreational space. Standardized citizens were uniform in their needs and even interchangeable. What is striking, of course, is that such subjects— like the “unmarked citizens” of liberal theory-have, for the purposes of the planning exercise, no gender, no tastes, no history, no values, no opinions or original ideas, no traditions, and no distinctive personalities to contribute to the enterprise. They have none of the particular, situated, and contextual attributes that one would expect of any population and that we, as a matter of course, always attribute to elites.

The lack of context and particularity is not an oversight; it is the necessary first premise of any large-scale planning exercise. To the degree that the subjects can be treated as standardized units, the power of resolution in the planning exercise is enhanced. Questions posed within these strict confines can have definitive, quantitative answers.

The same logic applies to the transformation of the natural world. Questions about the volume of commercial wood or the yield of wheat in bushels permit more precise calculations than questions about, say, the quality of the soil, the versatility and taste of the grain, or the wellbeing of the community? The discipline of economics achieves its formidable resolving power by transforming what might otherwise be considered qualitative matters into quantitative issues with a single metric and, as it were, a bottom line: profit or loss. Providing one understands the heroic assumptions required to achieve this precision and the questions that it cannot answer, the single metric is an invaluable tool. Problems arise only when it becomes hegemonic.

I’m sure a lot of people who read my Substack will already be aware of the story in the past few days about the LGPS fund where a change in political control of the administering authority, with a more populist party now in charge, has seen a significant change in the approach to Responsible Investment.

I’m of course referring to Hackney council, which was won by the Green Party in the recent local elections. The pension fund is now looking at implementing an exclusions policy based on human rights violations. I think this will obviously seek to cover the Occupied Palestinian Territories.

And I’m of course also referring to Nottinghamshire council, which was won by Reform UK in last year’s local elections. This week the Reform-led Nottinghamshire Pension Fund voted to withdraw from the Local Authority Pension Fund Forum over climate change policy, according to reports.

Hate To Say I Told You So

This kind of development, with LGPS funds seeing populists to Right and Left pull them in different directions, is something I covered in last September’s webinar on Populism and Responsible Investment.

I believe we are only going to see more of this.

With that in mind, I thought this is the right time to run a further webinar on Populism and Responsible Investment.

This will cover:

• Reform UK’s continued growth on the Right and the rise of the Greens as a populist force on the Left

• Populist rhetoric relating to markets

• Changing political influence over pension funds

• Emerging initiatives that seek to give the public / beneficiaries a greater voice

You can register online HERE

Please feel free to forward to anyone who might be interested, it will be a free event.

I hope you can make it!

PS. Look out for song title references…

This is a bit of a work in progress and greatly simplifies things. But you hopefully recognise at least some of it.

The big question is what we might put in an aspirational third column. Accepting that the 1990s model is on the way out and that the current model has a very limited progressive element to it (yes, we all want growth), what are we shooting for?

I’ve seen two interesting pieces from the Economic Policy Institute in the US over the past few weeks that address the weaknesses in US labour law regime.

First, there’s a great briefing on the use by employers of “union avoidance” specialists, usually law firms though not always. These advisers help companies implement strategies to undermine employee support for unions, challenge successful union elections and so on. The spend by individual companies can be significant, and bear in mind that we might only be seeing part of it. Look who is top of the list.

To be clear, a core function of this advice is to dissuade employees from exercising their rights. Therefore I think such advisers should properly be considered as supporting “human rights avoidance”.

Put in those terms I’m amazed that this industry does not attract more scrutiny and challenge. If you’re an investor with a policy commitment around human rights I think there is an interesting engagement project here that could encompass both company and policy engagement.

Of course, the deliberate obstruction of employees’ rights does not only occur during the unionisation process, it can also affect bargaining. This is really important, because it’s in the process of bargaining that workers should gain the benefits of unionising. One of the striking features of the US market particularly is the length of time it takes to get to a first collective agreement.

Employers will often provide reasonable-sounding explanations for why this takes so long, not least the complexity of negotiations. So the EPI took a look at how long companies took to complete mergers - presumably also quite complex!

Just focusing on Starbucks here, by the end of 2026 it will have been five years since the first store unionised. I do not underestimate the potential complexity of contract negotiations in such a large employer but is it really more complex than a merger?And does it really require half a decade?

To put it in context using a current example, as things stand FIFA will have held two World Cups involving 54 unique teams and 168 games since the first Starbucks store unionised but before a single store has a contract in place. In the same period the entire series of both Squid Game and Andor have been released and the UK has had four prime ministers… so far.

To me it is not credible that it requires anything like that amount of time to reach an agreement but the legal enforcement is sufficiently weak - and further weakened under the current administration - that companies can drag their heels.

Again, there is an engagement opportunity here. A group of investors has already articulated a set of principles on collective bargaining that are a useful resource:

Interestingly, there is a cross-party initiative to address this. The bipartisan Faster Labor Contracts Act was just this passed in the House of Representatives with not insignificant Republican support (there’s an interesting piece on ‘pro-worker Republicans from Oren Cass in the FT here). The bill seeks to dramatically reduce the time taken to initiate and conclude bargaining: ten days to start negotiations, 90 days to conclude them.

It realistically likely won’t get further whilst Republicans control the Senate and the Presidency, and the numbers in their ranks who are supportive of this initiative are limited, but it’s notable that it got this far in this political climate.

Mercedes threatened by US politics

In another case of an unexpected cross-party consensus in the US having ramifications for companies, next here’s an example of a major multinational getting caught up in geopolitics. There is a bipartisan bill in progress that seeks to limit “foreign adversary” involvement in car manufacturing in the country.

According to CNBC:

The bill, the Motor Vehicle Modernization Act of 2026, would prohibit automakers that have “any direct or indirect equity interest by a foreign-adversary government,” such as China, from importing, selling or manufacturing vehicles for sale in the U.S.

That’s a particular problem for Mercedes because its top two shareholders, holding about 20% between them, are Chinese.

Again, there’s a long way to go with this one, and in my experience companies caught up in these kinds of foreign ownership rules will go to exceptional lengths to get around them. Think about how airlines dealt with EU ownership and control rules. But it does look like a headache for Mercedes.

Pension fund democracy

A well-deserved plug for NEST’s ground-breaking member assembly, the recommendations of which were published earlier this week. There is a press release on the report of the assembly here which includes a link to the report itself.

Here’s a snippet from the announcement:

I won’t summarise the recommendations as I have a bunch of biases and I am more interested in hearing what others make of it. I will say some of the recommendations that came out strongly were surprising, which to me is obvious value of the initiative. We are all guilty of assuming we have a good handle on what beneficiaries really think. We could just… ask them.

I have made this comment to several people already, but the make up of the assembly itself was so different to the circuit of ESG/RI events many of us are familiar with. It was much closer to my experience of meetings of union reps and members. People brought unfiltered opinions. A big part of this is down to the design of the assembly and I’d encourage anyone interested in this to check out the work of Dr Emmeline Cooper.

There was an important part of the process for those of us talking to particular topics at the assembly - we were given a clear steer to explicitly identify trade-offs. I personally think this is crucial in order to ground the exercise in reality. That said, in the groups I spoke to there was already an innate sense of this. Views on zero hours contracts, for example, were not uniform even amongst relatively low-paid workers.

It has been one of the highlights of my time working in this field to be part of the assembly. My experience of it was really positive and enlightening. I remain very hopeful that bringing ‘ordinary’ people of mixed backgrounds and views to deliberate and be part of initiatives that actually result in change are a vital part of the response to grievances that fuel populist politics.

NEST will be the biggest pension fund in the UK in the not too distant future and already has millions of members. As such it has done something really important here in establishing the idea that those whose capital is being invested, and will be affected by decisions about how this is done, deserve to have a voice. Hats off to the NEST team for taking the initiative.

Populism in pensions

After the local elections last month I flagged a number of funds that would likely see a shift in political control, and in the populism and RI event last year I said West Midlands Pension Fund was one to watch.

Well, it is now pretty cleat that, as expected, it will no longer have a Labour majority on the committee. You can see the appointments to the committee so far here. But here’s the breakdown as it stands (there will be a few more appointments yet).

There are several more appointments to come but just to note that it’s only really Coventry that would be likely to appoint a Labour councillor. Meanwhile Reform swept the board in Walsall, so I assume they get that one. The Conservatives are the largest party on Dudley council, followed by Reform. The Conservatives lead the council as a minority administration so I’m guessing they will take the WMPF committee position. Birmingham is… complicated, but could end up with a Green or Lib Dem representing it on WMPF.

So my guess for the final make-up is something like:

• Labour - 7

• Reform - 5

• Conservatives - 2

• Independents - 2

• Lib Dem or Green - 1

Finally, just a quick word on the Makerfield by-election and what it might mean. The interesting element for me is the combined Lib Dem and Green vote. In 2024 between they got about 11% of the vote, or around 4,500 in total. Yesterday’s figures - on a higher turnout - were 1.1% and 471 votes. No doubt Andy Burnham’s personal popularity is a significant factor, but it’s not just that. As it stands, tactical voting is going to really hurt Reform come a general election. This is also another by-election, after Gorton and Denton, where the party has failed to break through.

This does not mean, at all, that the populist Right is in retreat. Farage has overcome many setbacks before. In addition, we should be prepared for Reform to win more councils. They have a bedrock of support nationally that has not found expression in local elections in all regions yet, because of the staggered nature of local elections.

But after a period of seemingly ceaseless forward momentum they are experiencing some real difficulties. As the man said, it is, perhaps, the end of the beginning.

It’s really important to remember this, both to avoid the rewriting of history (either by accident or for some purpose) and to maintain analytical clarity.

For example, it explains why, for all the talk of mainstreaming and financial materiality, there remains a diversity of approaches to RI both within and between different markets. The approach many of us in the UK and US are familiar with, rooted in financial materiality and engagement and stewardship, rather than norms and screens and divestment, is not the only one. Many asset owners in particular elsewhere in Europe continue to use a norms-based approach which includes exclusions.

There has been some convergence but for me it’s more interesting to see where there are distinctive versions of RI. As someone with a focus on labour issues, I can see that French and Nordic asset owners take a much more supportive stance towards labour than most pension funds in my own country. Similarly even within the UK there is a clear difference in the approach taken by faith-based investors and foundations and that taken by most pension funds.

I’ve started to think of these distinct national and sectoral models as ‘thick’ versions of RI, whereas the proposition that RI can be understood primarily as risk management is the ‘thin’ version. All varieties of RI employ risk management, it is a practice that can be identified across models, but its role varies significantly and therefore it does not capture the various models in any meaningful detail. Risk management may be the only thing they all have in common.

To be clear I’m not saying here that the US and UK versions of RI are ‘thin’ and that the Nordics or faith-based investor models are ‘thick’. As products of a time and place, these varieties are all ‘thick’. It is the abstraction of ‘RI as risk management’ that represents the thin version.

And, again, it’s important to position this historically. The ‘thick’ versions of RI are what have grown through practice, shaped by local context - and values - over time. Far from capturing what has always been there, the ‘thin’ risk management version looks backwards and extracts the minimum shared elements from a much richer and more varied set of traditions. It may not even describe any version of RI in its entirety.

A ‘thin’ version of RI is easier to propagate, both within and across borders. The UK has exported the Corporate Governance / Stewardship Code model elsewhere in the world with some success. The thin version seems to travel more easily. But it also loses much of the meaning (and, for me, value) of the endeavour in the process. That perhaps explains why ultimately local factors seem to play an unusually large role in shaping even supposedly universalist governance norms.

The thin version of RI perhaps has value in that it allows us to identify common ground across quite different approaches. But if it is claimed as the whole story it obscures far too much of what the various thick approaches try to achieve.

“Who elected the bond market?”

This is a phrase that I’ve heard a few times now, and I’ve heard variations of it increasingly often. I personally find it fascinating how people read it and respond to it and what it exposes in the process.

Very often it is read as an ignorant comment and as a result it will frequently provoke someone to do a “well, actually, I think you’ll find…” type response that lays out why governments must constrain their policy ambitions. Or, in my view, they stand on the rake and smack themselves in the face.

By reasserting the influence of finance over politics they reinforce the point being made by the person who was asking the rhetorical question. The original speaker is not really asking a question, they are making a point about prioritisation of interests. By taking it literally respondents frequently expose exactly that problem.

I suspect some of my readers will disagree, and consider that it is important to be clear about the constraints affecting politics, and the need to acknowledge that lenders will take a view on policy and factor that into decisions. Lots of people who consider themselves sophisticated are making arguments in public about the need to pay heed to the expectations of gilt market investors. In fact, this has become a regular feature in commentary for both finance and politics media coverage.

Some recent example headlines:

• ‘Who do gilt investors want to lead Britain’ (FT)

• ‘Labour leadership rivals must sell themselves to bond markets’ (The Times)

• ‘The gilt market will hover over any Labour leadership contest’ (The Guardian)

• ‘Labour challengers must not fail to heed the bond market’ (The Times)

• ‘Why Labour cannot ignore the gilt market’ (FT)

• ‘Labour is steering Britain into a bond market meltdown’ (The Telegraph)

Honestly, there are dozens of these stories / headlines out there now. Many of them do the old financial market commentary trick of implying but not claiming causality when there are changes in gilt yields to peg this to political developments.

Now I’m not denying the constraints, but I do see this as a good example of the ‘ladders of argument’ problem I’ve written about before.

While the models that operate in ‘elite’ politics are well understood by those within its network, those outside the system may not have taken even the first step on the ladder. This means that what makes sense to those operating with/within the model can look radically wrong / incomprehensible to those outside/without the model.

“We must do X because Y” might sound deeply strange if you have not climbed the rungs necessary to believe Y. The public might still be at “B because C”.

There was an interview with Diane Abbott recently where she made a couple of notable comments including that British politics and Parliament can’t be run at the behest of the bond market, otherwise MPs might as well go home. The result is in the subtitle at the bottom here:

Diane Abbott often provokes a strong reaction from some people who assume she is stupid (and some want her to be shot). So I can only imagine the snorts of derision from some people watching this interview, as there apparently were in the studio.

But, honestly, if you asked the average punter to decide which statement sounds more ridiculous out of these two:

• British politics and Parliament can’t be run at the behest of the bond market

• Labour leadership rivals must sell themselves to bond markets

I’d be pretty confident the large majority would say the second.

People arguing along the lines of the second statement have already embedded some important assumptions about what is feasible and desirable that I don’t think are shared by the British public. In contrast Diane Abbott is simply asserting something that on its own terms would be unremarkable to most, but that I suspect would be treated as naive by many within the overlapping worlds of finance and politics.

I’m not saying here that either position is necessarily ‘correct’ or more ‘true’ but rather pointing out that these two takes operate on different levels with each sounding ridiculous to some people. And my gut instinct is that what many people who work in my field would consider the sophisticated take would be seen as ridiculous by more people. There is a real dialogue of the deaf going on here.

As I’ve argued previously, this gap opens space for populists who talk about politics much more in day-to-day terms than most politicians, policy wonks and commentators. This is no doubt aided by social media giving them the ability to make such points directly to the public. And this specific question of financial market influence over politics is particularly problematic. Both Right and Left populists assert that there is a moneyed elite that has far more power over politics than ordinary people can hope for.

Given that context, I need convincing of the strategic wisdom of regularly talking up the constraints imposed by financial markets. Does this make the populist claim sound more or less valid? How does a politician talking up constraints position them relative to populist challengers?

Take note that Zack Polanski in the Left populist camp is leaning into this argument. At the Compass conference at the weekend he talked about the need to “take on” the bond market. I think that’s a more clumsy formulation than “who elected the bond market?” but it’s telling that he seems to be picking a fight. Obviously this is a lot easier to do when you are not expected to form or be part of a government any time soon, but choosing this position when the sophisticated view is “well, actually, I think you’ll find…” should make us all do a double take. He is effectively saying “your interests, as members of the public, should have primacy in political decision-making, not the preferences of financial markets.”

To nail my own colours to the mast, I do think financial market constraints are real and I don’t think “taking on” the bond market (whatever that means in practice) is a sensible thing to try. But I also think politicians can recognise constraints without feeding a narrative that suggests they can/will only follow a narrow path in policy. That only makes populists more attractive. As I’ve written before, mainstream politicians need to assert agency or others will.

The desire for legibility of reality can lead to bending reality to the measurement. One of Scott’s famous examples early in the book relates to forestry management.

The administrators’ forest cannot be the naturalists’ forest. Even if the ecological interactions at play in the forest were known, they would constitute a reality so complex and variegated as to defy easy shorthand description. The intellectual filter necessary to reduce the complexity to manageable dimensions was provided by the state’s interest in commercial timber and revenue.

If the natural world, however shaped by human use, is too unwieldy in its “raw” form for administrative manipulation, so too are the actual social patterns of human interaction with nature bureaucratically indigestible in their raw form. No administrative system is capable of representing any existing social community except through a heroic and greatly schematized process of abstraction and simplification. It is not simply a question of capacity, although, like a forest, a human community is surely far too complicated and variable to easily yield its secrets to bureaucratic formulae. It is also a question of purpose. State agents have no interest— nor should they — in describing an entire social reality, any more than the scientific forester has an interest in describing the ecology of a forest in detail. Their abstractions and simplifications are disciplined by a small number of objectives, and until the nineteenth century the most prominent of these were typically taxation, political control, and conscription. They needed only the techniques and understanding that were adequate to these tasks.

The book is not solely concerned with what the state itself does. There is an interesting diversion into architecture and town planning where Le Corbusier gets taken down. Some of the quotes from Le Corbusier have a very familiar ring given the regularly vocalised need to “keep politics out” of pretty much everything politics might come into.

Here’s a great example:

This plan has been drawn up well away from the frenzy in the mayor's office or the town hall, from the cries of the electorate or the laments of society's victims. It has been drawn up by serene and lucid minds. It has taken account of nothing but human truths. It has ignored all current regulations, all existing usages, and channels. It has not considered whether or not it could be carried out with the constitution now in force. It is a biological creation destined for human beings and capable of realization by modern techniques.

Scott is clear that measurement is not always a bad thing – the state also needs to know who and where people are in order to administer vaccines or organise elections. But the way the state ‘sees’ overrides historical, traditional and local forms of knowledge and, by extension, practice. This erases those other ways of seeing and understanding including language and names, measurement, practices, living spaces and so on. The things being measured are abstracted, both in terms of being seen for their function and in becoming units in a category. So a tree is not just tree in its own right, but becomes one item in the category of a particular type of tree.

A couple more excerpts:

Officials of the modern state are, of necessity, at least one step-and often several steps-removed from the society they are charged with governing. They assess the life of their society by a series of typifications that are always some distance from the full reality these abstractions are meant to capture. Thus the foresters' charts and tables, despite their synoptic power to distill many individual facts into a larger pattern, do not quite capture (nor are they meant to) the real forest in its full diversity. Thus the cadastral survey and the title deed are a rough, often misleading representation of actual, existing rights to land use and disposal. The functionary of any large organization "sees" the human activity that is of interest to him largely through the simplified approximations of documents and statistics

State simplifications such as maps, censuses, cadastral lists, and standard units of measurement represent techniques for grasping a large and complex reality; in order for officials to be able to comprehend aspects of the ensemble, that complex reality must be reduced to schematic categor-ies. The only way to accomplish this is to reduce an infinite array of detail to a set of categories that will facilitate summary descriptions, comparisons, and aggregation. The invention, elaboration, and deployment of these abstractions represent, as Charles Tilly has shown, an enormous leap in state capacity— a move from tribute and indirect rule to taxation and direct rule.

Measurement and categorisation whether by design or accident embeds the interests of the power doing the measuring and replaces what existed before. By Scott’s telling this is not just potentially problematic in its own right, it also leads to mischaracterisation and misunderstanding that undermines those seeking to implement their plans from above.

And those being measured might not play ball. Scott’s description of the failures on Soviet collectivisation of agriculture refers to the falsification of data by the peasantry who tried to go on living as before whilst feeding the system numbers that it desired. It’s an early example of gaming KPIs.

The book also made me think of Harry Braveman’s Labor and Monopoly Capitalism in a couple of ways. First, Braverman asserts that ownership of industry determines how industrial processes - labour processes specifically - are carried out. It should not be surprising, from this perspective, if the result is deskilling and loss of worker autonomy. Second, more specifically, he looks at Taylorism and time and motion studies. These are forms of measurement that absolutely embed the instrumental perspective of those in control.

Taking this together, the famous aphorism that “what gets measured gets managed” (often deployed as a criticism of the partial and counterproductive nature of targets) can be prefaced with “who manages, measures”. Yes, the targets might very well be abstractions that do not capture what is necessarily meaningful, and managing to those targets might be (or seem to be) organisationally counterproductive. But importantly they also embed the interests of those in control or those who act on their behalf.

Again, this is not necessarily an inherently bad thing. All organisations need a sense of what is going on, and they can’t look at everything. Abstraction is also a reduction of complexity. But is important to remember who is doing the seeing, and how this narrows the picture.

I’m struck that it’s largely inconceivable, literally, in the current world of work that organisational targets might be designed from the bottom up - that is led by, or at least informed by, those undertaking the work being measured. Targets developed in that way would reflect the workforce’s interests and might even be better for the organisation. However, the idea is likely so far outside most people’s experience of work today that it would simply never arise.

Instead, measurement at work is driven by management's understanding of what matters, which is not necessarily identical to what matters to the organisation as a whole. This finds its expression in all kinds of places. For example, to the extent that a value is put on ‘human capital’ this is to seek to quantify how useful it is to others, not to the humans being measured.

Similarly are measures of employee engagement concerned with employee welfare, or with contribution to the business? When considering this, it is worth noting that methods of workforce engagement adopted by PLCs in response to the UK Corporate Governance Code are typically chosen by the leadership, not the workforce.

We are slowly getting better at how we think about these things. For example, there is much emphasis on trying to ensure that company spend on the workforce (either directly by training) is considered an investment, not simply as a cost.

But ultimately, as with the quest to demonstrate the financial materiality of factors relating to work, such approaches still take the same viewpoint - that of the firm (in terms of accounting) and/or its investors (in terms of financial materiality). (This explains my own attempt to suggest a measurement for worker interest in the firm.)

Essentially these are well-intended attempts at legibility, but in the same way as Scott describes they embed the interests of those doing the seeing. A fuller picture would allow us to see the firm from the workforce, not only the workforce from the firm.

A very quick recap on the political fallout. The governing Labour Party lost very badly, everywhere, losing seats - and councils - to Reform on the populist Right in the North and Midlands and to the Greens on the populist Left in London and other urban areas.

According to the BBC, Reform have picked up 1,451 councillors, the Greens gained 411 and the Lib Dems gained 155. On the other side of the ledger, Labour lost just under 1,500 councillors and the Conservatives lost 563. Regional elections are less directly relevant but again worth noting Labour’s implosion in Wales.

So the top line is that voters have shifted to Right and Left away from the more centrist parties. Reform is clearly the winner. It is worth being crystal clear here: Reform is the major party of the Right now.

On the Left, as things stand Labour remains the largest party, but the loss of Wales, where it has been supplanted by Plaid Cymru, and the Green advance in London and other cities (like Manchester) show that it is no longer the default non-Right party.

But back to pensions… There were big shifts in a number of administering authorities that are worth clocking. This posted is intended as a quick initial take based on my own digging around. I don’t claim it to be exhaustive, just some highlights, and given the vagaries of local politics I’m sure it won’t be 100% accurate. So please do let me know if you spot any howlers. I’m very happy to correct/update as needed.

Tameside / Great Manchester Pension Fund

Tameside is the administering authority for the Greater Manchester Pension Fund, the biggest LGPS fund in England and Wales.

It was previously Labour controlled but has fallen to no overall control. Labour lost 16 of the 17 seats it was defending and Reform gained 18. The make up of the council is now Labour 25, Reform 19, independents and other 8, Conservatives 5. There are 57 seats in total so 29 required for a majority.

Less than half the seats were up for election this time, so next time round it’s possible political control of the council shifts to another party.

West Yorkshire Pension Fund

The administering authority for West Yorkshire Pension Fund is Bradford City Council. Going into the election Labour held a slender majority. The full council is 90 seats. Another heavy Labour loss here, dropping to third by number of councillors, with Reform emerging as the largest party but well short of a majority. Reform + Conservative councillor numbers make a majority, just.

West Midlands Pension Fund

This was one I’ve had my eye on for a while as could see that the West Midlands was going to be a Labour massacre. WMPF administering authority is Wolverhampton, the make up of the WMPF pension committee also includes other councils, plus an independent and trade union observers.

Going into this, if we exclude the TU observers (as I believe they are non-voting) Labour councillors accounted for 11 of the 17 committee members.

A couple of those councillors stood down, but Labour candidates stood in the same ward. So just looking at the seats - Labour lost five, four to Reform and one to the Greens. These losses were spread across the various councils, not just Wolverhampton.

Wolverhampton remains under Labour control, probably largely because the whole council wasn’t up for election, but again Reform made large gains.

Prior to these elections the representation from Wolverhampton on WMPF consisted of seven Labour councillors, two Conservative and one Reform. That balance might have to shift a bit?

Labour councillors from four other councils (Birmingham, Coventry, Dudley and Sandwell) took up four spots on the committee as was. It lost two of those seats - in Birmingham and Dudley - to the Greens and Reform respectively.

There was also an independent councillor representing Walsall (previously Reform). He was in a three-member ward which has elected two Reform and one Conservative councillor. And there was a Conservative councillor representing Solihull in a ward which also went Reform.

Who would/should represent those councils in a reconstituted WMPF committee? Reform took control of Sandwell from Labour, so would presumably have a strong claim. The other three all fell to no overall control. Labour remains the largest party on Coventry, but Reform is the largest in Dudley and Birmingham (though in the latter case the political balance of the council is a real kaleidoscope of colours).

Here’s a summary of what I think happened. Remember this is just tracking those seats that previously had councillors on the WMPF committee.

Who knows how this all shakes out but I’m not sure that a Labour majority on the committee would be politically acceptable now.

Essex Pension Fund

The administering authority here is Essex County Council. This was a straight win for Reform, taking control from the Conservatives with 53 out of 78 seats. Seems pretty clear who is going to control the pension committee.

South Yorkshire Pension Authority

Another complicated one. Labour lost control of two of the councils that are part of the multi-council governance structure. It remains the largest party in Sheffield but a long way short of holding a majority of the 84 seats.

Meanwhile Reform took control of Barnsley.

Tyne and Wear Pension Fund - Reform?

I’m not really sure about this one, as I think there is now some sort of tie-up with Teesside Pension Fund. That said, its administering authority was (is?) South Tyneside which Reform has taken control of in a straight switch from Labour.

London

It was a bloody night for Labour in London too as it lost control of a bunch of councils in various directions. The Conservatives took Westminster back and are the largest party in Wandsworth.

Reform took control of Havering, but generally seems to have underperformed. For example, Barking and Dagenham was at one point talked about as a target but Labour easily retained a large majority.

But the new kids on the block are the Greens who took control of Waltham Forest, Hackney and Lewisham and are the largest party on Lambeth and Haringey. They also gained lots of seats elsewhere in London, like my own borough of Southwark which fell to no overall control with Labour the biggest party but a large Green opposition. The results in Hackney and Lewisham were almost the mirror image of those Reform gains in the North and Midlands with huge Labour majorities switching over to the new party.

Also a quick hat-tip to the Lib Dems, who are largely forgotten in much election coverage, for building a series of one-party states in far-flung South West London - Richmond, Kingston and Sutton.

What does it all mean?

A quick and important point about these results in general. It is not necessarily the case that some of these huge Labour losses to Reform are largely driven by straight defections. It is quite possible that part of the story is the splintering of the Left vote, allowing Reform to come through the middle. The individual seat level results are really fascinating as you can see some wins on a quarter or less of the vote.

Nonetheless, in many areas Reform won very easily and it should be taken for granted that there is a now a solid Reform-voting bloc that has delivered these results. Reform is not overwhelmingly popular, to put it mildly, but it is the most popular of the parties currently by some distance. Democratic governance has to reflect that, including the governance of pension funds.

Equally the Greens cannot be written off as a fringe party any longer. They have clearly successfully tapped into a significant pool of Left voters. As I have written recently, it’s very notable how much of their recent political positioning has been on economic issues rather than environmental ones. I imagine these results will be read as a strong vindication of that strategy.

The impact on pension funds will be at least two-fold: in individual funds level and within LGPS pools. Reform has already signalled interest in the LGPS at national level - both investment costs and ESG - though this hasn’t found a huge amount of practical expression at fund level yet from what I can see. Will that change now they have even more control? And how will the pools that now have even more Reform-controlled funds reflect this further tilt to the populist Right?

For the Greens this is new territory, but one would expect that they are going to be quite forceful on fossil fuel divestment and possibly Palestine too. London CIV is going to have a wider range of interests to cater to after this.

I won’t rehearse the whole argument here, but to restate the basic point: it is (obviously!) fundamentally ahistorical to claim that RI was ‘always’ about trying to better understand risk as a way to underpin investment returns. Its origins and a significant part of its continuing base lie in the attempt to reconcile values with the reality of economic exposure to organisations that may behave in a way that challenges those values.

Clearly RI has grown into a much larger thing - kind of a mixture between a movement and an industry. That growth, the emphasis on ‘mainstreaming’ RI and the fact that there is a generation of people now in RI who maybe don’t know the ‘origin story’ means that it’s easy to fall for the idea that it has always been about better reporting/data/integration/risk management.

This is important, because RI is currently faced by a countermovement that is political. This movement is seeking to assert a very narrow view of fiduciary responsibility but it is doing so as a political strategy. Tellingly, the anti-RI backlash is not being driven by trustees who fear they are being pushed too far.

I know I am out of step with many of my peers here, but my strong view is that trying to respond to this by seeking to position RI as entirely value-neutral and only concerned with assessing risk to support investment returns is not going to work.

For one, this is a recipe for getting bogged down in arguments about financial materiality before you can do…. anything. I think most of know that there have been flaky claims within RI in the past about the financial case for tackling particular issues. So it is a weak spot. But if people within RI actively reinforce the argument that demonstrable financial materiality in the threshold for action this is only going to result in severe paralysis by analysis.

Meanwhile, on the other side of the ledger, does anyone really expect that the concerns citizens might express about investing in fossil fuels, companies linked to human rights abuses, Gaza or any number of other issues are going to be satisfied with “that’s not financially material” as an answer?

The risk of the ‘risk management’ framing of RI is that it neither nullifies opponents nor satisfies supporters.

I do not underestimate the challenges that many RI people face, particularly colleagues in the US. And perhaps talking this language has some value as a temporary tactical defence, somewhat akin in the ‘small target’ approach in politics. But my fear is that in the current environment it will lead to irrelevance and inaction.

It should not be impossible to defend RI as an exercise of judgement over both financial risks and the alignment of investments with beneficiaries’ values, rather than retreating into a narrow claim of value-neutral risk management.

Next PLC’s annual report makes interesting reading, particularly after last year’s AGM where around a quarter of shareholder votes supported a resolution co-ordinated by ShareAction seeking more information on pay practices.

It’s worth acknowledging that this year’s report has quite a bit more information in it. It came after investor pressure, but the company has definitely put some meat on the bones. In general I like Next’s stripped back reporting, as it makes a change from a lot of the glossy marketing-style puff that you find in a lot of annual reports. But the added reporting in this case is very welcome. This is because, in addition to providing more workforce data, Next is really quite frank about decisions regarding wages.

There are a couple of very interesting bits, here is the first:

A couple of things I draw from this. First, the language is all about trade-offs, not win-wins. Higher wages = lower profitability = equals less to invest. Also the “central mission” is “to deliver sustainable growth in EPS” and higher wages are counterposed against this, so positioned as potentially getting in the way. Again, I appreciate the honesty here. I’m also struck by the description of management of EPS as the “mission” rather than as an outcome (residual…) of what the business does.

Secondly, this is presented as a balance that the board believes it has got right. This is a settlement determined by the board based on a set of assumptions about what matters to the business and what is achievable. Or, more directly, a decision about how to trade off wages, investment and returns. The description does not read as a mechanistically determined equilibrium outcome.

This is followed by a few more fascinating sentences:

Next says starting wages are “materially” higher than would be “required by market forces”. Which I think translates fairly as “without constraints, we would be able to get people to work for us for less than the current minimum wage”. The phrase “required by market forces” is, in contrast to the previous section suggesting deliberation, paradoxically revealing in the way it avoids identifying any conscious decision-making. The language of trade-offs foregrounds decision-making, but invoking “market forces” backgrounds it once again. The latter reads like there’s a binding mechanism that employer and workforce are locked into.

And then the next sentence points in another direction again. Here “market forces” are not sufficient to deliver wages based on needs (we can assume this is not because the workforce doesn’t want them). Government needs to step in to set the floor so that competing employers don’t push wages below a needs-based level. Once more, you cannot fault this for honesty: employers have enough market power to pay wages at a level that is not enough for workers (as determined by the Low Pay Commission).

Imagine if an external critic of the company said the following: “If Next wasn’t regulated it would pay its workers less than they currently need to live on, because it is prioritising keeping profits and shareholder earnings up. The Government has to make companies pay workers more, because otherwise they would compete on labour costs and might pay wages below what workers need.”

That kind of critique would be dismissed by some as outdated ideological rhetoric that doesn’t reflect modern British business. Yet the same logic is set out, in more neutral language, right there in a PLC annual report.

BP AGM

Last week saw the highly-anticipated BP AGM. To recap, going into this meeting the company had blocked a climate-related shareholder resolution co-ordinated by Follow This (though one led by ACCR did make it on the ballot). BP also sought to revoke previously-passed shareholder resolutions from 2015 and 2019, and it sought a change to its articles that would enable it to hold virtual-only AGMs. And the background to all this is, of course, quite a significant shift in strategy as well as a change in leadership, under pressure activist Elliott.

I find it very hard to avoid the conclusion that the company was at the least testing the boundaries of stewardship. Understandably, many investors in turn saw this as a really important AGM, putting the previous achievements of stewardship under threat. A number of investors went public in their opposition to the company’s plans, and their intention to oppose the re-election of the chair.

The company clearly came off second best. It lost the votes relating to revocation of previous resolutions and the change to its articles. It did not only fail to achieve the 75% required to pass them, it secured under 50% of the vote. Meanwhile, the ACCR resolution achieved almost 26% in favour, in spite of the board’s recommendation to oppose. BP did keep the vote against its chair Albert Manifold to 18%, so just under the ‘significant vote’ threshold. But given that this is his first AGM that’s hardly a great start.

In reality, for many investors this AGM was principally about holding the line. The company wanted to roll back previous votes and potentially change its AGM format. It did not achieve either. But it did successfully block a shareholder resolution without taking too much heat on its board. Overall, the status quo was maintained, and that was good enough this time around.

PS. Turnout under 60% again. Hmm….

Amazon vote no webinar

Finally, an interesting director accountability push is underway at Amazon ahead of its May 20th AGM -

SOC Investment Group along with several other investors urge you to vote AGAINST the re-election of Jonathan Rubinstein, Jamie Gorelick, and Andrew Ng, members of the Amazon.com Inc. Nominations and Corporate Governance Committee (Nom and Gov Committee), and Patricia Stonesifer a former member of the committee, for their decision this year to unilaterally exclude new shareholder proposals filed at the Company. We believe the Board failed to meaningfully engage shareholder proponents, respond constructively to votes, or refresh the committee overseeing its governance practices. These written materials are shared pursuant to an exemption provided for in Rule 14a-2(b)(1) promulgated under the Securities Exchange Act of 1934.

We believe that responsibility for Amazon’s decision to omit certain shareholder proposals falls principally on the Nom and Gov Committee as per its charter. Further, our understanding is that over the past year this committee was comprised of the three longest tenured independent directors on Amazon’s Board, with Ms. Stonesifer serving since 1997, Mr. Rubinstein since 2010, and Ms. Gorelick since 2012. Ms. Gorelick is also Amazon’s Lead Independent Director. The Amazon.com Annual Meeting of Shareholders will be held on May 20, 2026.

The Interfaith Center on Corporate Responsibility is hosting a webinar on May 12^th at 10:00 A.M. ET to brief investors on key proxy items including the director vote.

For more information:

• please read our letter visit

• www.AMZNVoteNo.org/2026

• contact Louis Malizia, SOC Investment Group lmalizia@socinvestmentgroup.com

In the webinar I ran last year on this subject, as well as identifying Reform as the major populist party on the Right, I tentatively put the Greens in the ‘left populist’ camp. Events since then have made me much more confident of that label (more on this below). Therefore, I think it’s reasonable to view this set of elections as an indication of the strength of populism of both Right and Left.

As things stand, Reform looks certain to come out top - both overall and in the battle of the two populisms. Even if the shine has come off a little recently (again, more below) they are leading all polls easily and still in the high 20s. Overall the Greens have improved their polling greatly, but it looks as if they still trail Labour slightly.

Overall there isn’t much gap between the Conservatives, Labour, the Lib Dems and the Greens. That means the outcomes of these elections are really hard to determine. In council by-elections you can often see the vote splitting between three (or even four) parties doing ‘OK’ and one just edging it, rather than one party dominant.

That can good news for Reform as even if only a quarter to a third of voters are likely to vote for them, if the remaining voters are split on who to vote for they can scoop a lot of seats up on a fairly weak vote share. You can see this in the various MRP polls where they are often predicted to get either a very small majority or fall just short even polling under 30%. Lots of the individual seat results in these polls are tight and rely on split opposition. I think these polls might flatter Reform in a general election, where tactical voting might really hurt them, but I doubt that will happen much in locals. (As an aside, if you twisted my arm right now I would say a Reform-Conservative coalition or something like it is the most likely outcome of the next election.)

Reform is going to win hundreds of council seats next month. I have seen one forecast of them winning 2000+. This will mean they get control of more councils and thus have more potential influence on LGPS funds, as well as local government more generally, obviously.

For the Greens, I think they will do very well in geographic clusters (London will be interesting) and again should make gains in the hundreds. But I think their rise will also result in an inefficiently spread left-of-centre vote. So it will be very bad for Labour, but not necessarily amazingly good for the Greens. It seems likely to be more a case of far more influence across councils, rather than control of them. Let’s see. Also keep an eye out for the Lib Dems who have been picking up many more seats than the Greens in council by-elections.

The net result of this for pension committees could be populist pressure from both angles - on costs and maybe anti-ESG and DEI from the Right, on fossil fuel divestment and Palestine from the Left.

A couple of thoughts on how the two populist parties are shaping up. First, Reform. As I mentioned it feels like they have plateaued and maybe even rolled back a bit. I think this is partly about the mess they get into on international issues. Closeness to Trump and sympathy for his foreign policy activities is obviously damaging. I think they are probably lucky that (as much as they would have welcomed his cash) Elon Musk has preferred Reform splitter Rupert Lowe’s Restore Britain outfit.

One thing to note on policy - Reform has dropped its plans for part-nationalisation of utility companies. I don’t claim any great prescience here but this is what I was expecting. The ‘economically left, culturally right’ voter bloc has been the subject of much debate particularly since Brexit. Which party would get there first? What we have seen with Labour is that you can’t simply position yourself if that quadrant without upsetting other things (like your own existing supporters).

Labour has perhaps been both clumsy and unlucky, but it has signal boosted and issue (immigration) where both its opponent has a much stronger line and where many of its existing supporters are queasy. It has been demonstrably unsuccessful politically.

Now think about being pro-nationalisation for Reform. In theory it looks like you’re being clever, moving onto your opponent’s turf. But… it’s much more likely a left-of-centre party will take action (rail is being renationalised after all) and a lot of your existing supporters are ex-Conservatives who are more likely to have economically-Right views. Also bear in mind that you pick up a chunk of ‘the system isn’t working, it needs a reboot’ voters. Unless you really want to do economically Left policy in power, you want to keep those people focused on immigration and other cultural factors as the reason the system isn’t working. You don’t want to reinforce the idea that maybe it’s economic factors, because then they might look elsewhere.

I do think we’ll see policy from Reform that affects governance and stewardship issues, but it’s more likely to be US in style. Hugh Wheelan has written a really interesting bit about what the Prosperity Institute has recently come out with.

That leads on to the Greens. They been talking much more about topics other than the environment lately haven’t they? Both wealth taxes and pay ratios are almost perfect examples of left-populism. I do not doubt that the Greens’ commitment to environmentalism is undiminished, but it’s pretty clear where they see the big opportunity. In the same way that Reform have picked up a lot of experienced ex Conservatives, there has been a notable shift of ex-Corbynistas (both boots on the ground and policy people) to the Greens.

I can imagine some interesting stuff coming out of this in the future. Given Labour has been devoid of big ideas (because ideas are bad for growth…) and uninterested in governance questions there is a lot of open territory here currently. Not hard to see corporate governance reform become something the Greens might want to major on.

These developments will also have a gravitational pull on the other parties. Labour inevitably gets pulled to the left, likely under a new leader. That might be necessary to stabilise them and avoid severe Pasokification, but I think the party may have suffered an historic splintering of its support.

The Conservatives look to me to be in even deeper trouble. They don’t seem confident in articulating a liberal conservatism (that doesn’t seem to have a home in the UK currently) and so tend to ape Reform. But why vote for the copy? Longer term a combination looks possible. As a comparator consider the fate of the Progressive Conservative Party in Canada which imploded as its support leaked to a populist party called… Reform. The two parties ended up merging.

A final word on by-elections. Obviously they are limited in number and voters often use them to ‘send a message’, but note that in the two parliamentary by-elections we have had in this parliament one seat went to Reform and one went to the Greens. And in the Welsh assembly by-election it was Plaid Cymru that took a seat from Labour. Nothing for any of the ‘big’ parties.

PS - I’m thinking about running a follow-up webinar of populism and responsible investment once the election results are in if people are interested.

If we think of PVl (the present value of labour) as the value of the workforce’s future income (with labour here as a claimant), then redundancies can, counterintuitively, be seen as analogous to a share buyback.

Buybacks are conventionally understood as a distribution to shareholders but they are also the closure of a right to participate in future economic benefits generated by the company. In a share buyback the shareholder is compensated by the company for the lost claim on future income - where the share price, PVc, reflects the present value of future income. The buyback entails a reduction in the number of claimants (shares). Shareholders are typically compensated for this at or close to market value, which reflects the present value of expected future income.

When workers are made redundant they also lose a claim on future income. The number of claimants is similarly reduced. But workers are not compensated at anything close to the present value of lost future income. (In the UK the calculation of compensation looks backwards, at time served.)

Whereas share buybacks entail the voluntary exchange of future lost income for full or close to present value, worker redundancies are often involuntary and do not fully compensate the claimant for the present value of lost income.

This makes the PVc and PVl comparison more striking when it comes to positive share price responses to job cuts. Think about a forced ‘labour buyback’ that reduces PVl while increasing PVc. Using the example in the previous post, because of the limited nature of redundancy compensation, the cost to the company of reducing PVl by £200m might involve a cash cost of only £20m in redundancy payments. In that sense, a large reduction in PVl can be achieved at relatively low cost to the firm. More directly, labour’s claims on income can be extinguished at a discount to their present value. This would not normally be possible - not even thinkable - in relation to a share buyback. If buybacks retire capital at something like fair value, redundancies can be seen as retiring labour at a haircut.1

To emphasise, this is firm-specific. Workers do not permanently lose the full value of any future income, as many will find alternative employment. In the same way that an investor selling into a buyback may subsequently buy shares in another company. But the immediate pricing of exit for the two parties is clearly different.

One response might be that capital might earn higher returns because it bears risk. Labour’s income is stable during employment (until it isn’t!). Capital’s is not. That is true. But labour also bears risk (of forced future income termination) that is not continuously priced or compensated in the same way when crystallised. It might also be said that labour holds a senior claim during employment as wages are paid before profit is distributed. That is also true, although an emphasis by boards on ‘dividend discipline’ - the expectation that companies maintain steady distributions to shareholders - in practice treats the investor claim as a priority that does not exist in law. And the apparent seniority makes the termination risk more acute. The workers who appeared protected suddenly bear the full loss of income with limited compensation for the tail risk when it crystallises.

Capital risk is constantly priced and rewarded, and investors can hedge it through diversification. Labour risk is real but largely unpriced and may be under-compensated. And workers can’t diversify their risk by working for several different employers.

As an aside, this might provide a useful argument for providing workers with ownership (equity) as compensation, or even a hedge, for the risk they face of their income stream being extinguished.

To return to the original idea, looking at positive changes to PVc (share price) as a signal of success is like a scoreboard that only shows one team's points. Currently when we see the points increase for Team A some people might say things like “yay, we all win!”, “this is the value of efficiency” and “clearly the CEO is worth their remuneration”. But if we can’t see Team B’s points it’s a very partial picture of what is actually happening.

This is not simply a measurement issue. Because PVc is the only score that is visible and continuously updated, boards are judged against it and manage to it. PVl has no equivalent. It should not be surprising if decisions systematically favour capital over labour. The scoreboard does not just describe the game, it helps shape how it is played.