Tuesday, 22 April 2014

Is effective governance a sufficient remedy?

Before we become too exercised about the peculiar governance arrangements of the Co-op Bank, should we not remind ourselves that three other UK banks (Northern Rock, RBS and Lloyds) have sustained losses of a considerably higher order?

Yet these had the conventional governance structures that Lord Myners and others are trying to impose on the Co-op.

Could it be that by nature of its complexity, contemporary banking is simply ungovernable?

And by extension, beyond effective regulation.

Friday, 21 March 2014

Pensions reform: we’re all rentiers now

It is possible, with some imagination, to infer a thread of continuity which links George Osborne’s revolutionary announcement on Wednesday to the Labour Party’s manifesto for the 1959 General Election.

That manifesto proposed giving council tenants the right to buy their homes. Michael Heseltine enacted that promise.

The privatisations of the 1980’s and demutualisations of the 90’s invoked the spirit of a share-owning democracy and I-want-it-now consumerism.

In this century, Callum McCarthy’s Retail Distribution Review is attempting to make the advice process work for the consumer, rather than providers. Lord Turner’s “work longer, save more or accept lower income in retirement” requires everyone to take responsibility for their future in retirement.

The proposed pension reforms are in tune with other changes aimed at reversing the flow of causation in the industry, including the FCA’s drive to make markets work better for the consumer. They could help rebuild the psychological contract between people and their pension, ensuring that the word “pension” will be no longer a profanity.

Perhaps, in the light of the Chancellor’s declaration which reinforces ownership and responsibility, we can all be rentiers now. Or at least aspire to that status.

The implications for the retail investments industry will be very big.

This is a bigger bang than RDR, because it will affect nearly everyone: all ISA holders, and all auto-enrolled employees.

Friday, 7 March 2014

To each according to his contribution?

As the ratio between the earnings of the highest and lowest paid continues to grow, voices of dissent are increasingly strident. 

The average ratio of CEO-to-employee pay has risen from 47 to 128 over the past 10 years. There are some striking outliers.

Reckitt Benckiser’s CEO is paid 1,375 times as much as Reckitt’s average worker; the CEO of Tesco is paid 900 times his company’s average wage.

John Pierpont Morgan, founder of JP Morgan, once said that no-one at the top of a company should earn more than 20 times those at the bottom. Among FTSE-100 companies last year, only two chief executives met Morgan's test.

What would be fair? In principle, perceptions of fairness and legitimate differentiation of earnings might relate to three factors: personal risk, labour market forces or contribution.

The idea of a calculus relating reward to risk may work in the capital markets but it’s just silly in the employment markets when the only material risk a chief executive faces is the loss of the very earnings he cannot justify.

The labour market arguments have some force in general terms but are probably overplayed in the boardroom.

The idea of contribution is currently too hazy to be useful.

Yet it is the notion of contribution that lies at the root of feelings of fairness, of equity and of the legitimacy of differences in reward.

"To each according to his contribution" is a principle considered to be a defining feature of socialism by its advocates. It refers to an arrangement whereby individuals receive compensation based on the amount they contribute to the total output of society (also known as the "social product") in the form of effort, labour and productivity.

Web-based technology would permit very large numbers of people to be engaged in setting up the parameters of an evaluation framework, and in subsequently rating jobs.  The democracy of large numbers would give social weight to the outcomes. 

In fact this very idea of a “national job evaluation scheme” was mooted in the 1970’s and 80’s, but the technology of the time did not allow the participation of sufficient numbers to give the results sufficient political clout. Perhaps its time has now come?

Get Mike Thomas's thoughts on how to crack the remuneration conundrum

Wednesday, 4 December 2013

UK education lagging behind the world's best?

I invite you to try this sample of the Pisa maths test at http://www.oecd.org/pisa/test/

The tests and results are interesting, for several reasons.

The questions are surely ridiculously easy for a 15-year-old, even at the highest test level.

Sub-common entrance standard? At this level of intellectual challenge, errors due to carelessness may be as common as errors due to incompetence.

As a likely consequence, some 29 countries score at or above 90%, which might put the differences above that score firmly into the zone of statistical error.

I still don't understand the sampling methodology, and as any statistician will say, the main threat to proper inference is the risk of sample bias. Is it really possible to use a common sample frame across so many disparate communities and cultures? 

Shanghai may score highly among the kids that go to school. But what about the ones that don't?

In other words the Shanghai results may be better compared with those from UK private school students.

I have no idea how our educations standards really compare internationally, and I remain uninformed.

Wednesday, 9 October 2013

Academic social psychology is mostly bunk

You may have caught a wireless programme on the BBC Home Service last week in which the Hawthorne effect was debunked. 

Milgram’s notorious  “torture” experiment findings were similarly trashed in The Times yesterday. 

I always suspected that academic social psychology was mostly bunk. 

Two of the most famous studies now appear to demonstrate little more than poor experimental design, a predisposition to conjure corroboration from experimental noise and positive credibility among readers.  

Any guesses as to the next sacred cow to be revealed as horse flesh?

Wednesday, 24 July 2013

The Liverpool Care Pathway catastrophe

For students and practitioners of organisational change (as I have been for over 30 years) the NHS’s withdrawal of the palliative care protocol is only too common a story.

As The Times said, “when the system, devised at the Marie Curie Palliative Care Institute in Liverpool, worked properly, it worked well, offering high quality and compassionate care. But as yesterday’s report from an independent review found, in too many cases the LCP was so badly implemented that it became a byword for negligence.”

But what was implemented precisely? 

It was a process, a set of instructions about inputs.  What was not implemented elsewhere were the supporting resources, the feedback systems and the leadership that existed in the Marie Curie Institute. 

It is notoriously difficult to transfer good practice, much to the frustration of politicians and Whitehall- (or Leeds-) based civil servants. 

But it’s their own fault.

So long as organisations are viewed as machines that can be re-programmed at will through the adoption of a new process in isolation, or a new structure or a new management information tool, failure is almost inevitable.  Only by addressing the whole system, in all its exasperating complexity, will change stick.

Sadly the Department of Health, under all recent administrations, has been swallowing organisational change snake oil.  It needs better advice.

Thursday, 20 June 2013

You wait for ages and three come along at once

Somewhat like buses (so I’m told), official pronouncements calculated to raise the blood pressure come in packs.
So, following hard on from yesterday’s release of the Parliamentary Commission on Banking Standards, my attention has been drawn to Pension Minister Steve Webb’s comments on CDC
Yes, you might well ask. It turns out to be nothing to do with communities, development or corporations, but is about pensions: Collective Defined Contribution arrangements, to be precise.
Webb’s beef is that now that almost all the good old final salary (and other defined benefit) pension plans are being closed down (except for many public servants, of course), people’s only real option to save for retirement is to build up their own individual fund. 
They and (thanks to auto-enrolment) their employer will pay specified amounts into the fund which, they hope, will grow to fund pension benefits later on. 
The problem is that lots of small individual funds cost a lot to run, and individual members are at the mercy of the investment markets at the time they want to cash in, so whilst some people will do well, others will cash-in at a bad time. 
And many will be put into “lifestyling” funds which gradually move their pension into boring funds with (probably) lower returns in the last few years before retirement – swapping the potential of decent returns for some safety.
So what’s his idea? It’s using a collective approach which pools investment returns and annuity mortality. That got me thinking. 
What if someone could design an investment fund which took the worry away from individual investors and smooth out their returns? 
It could collect contributions and invest widely in equities, property, gilts, etc and decide on a yearly basis how the profits should be allocated among members – let’s call it an “annual bonus”. 
In a good year, it could tuck some excess return under the mattress so that in a bad year, it could continue to provide a smoothed return. Once profits had been allocated, they couldn’t be taken away. 
And if, when a person retired, there was still cash under the mattress, they could be given a special “terminal bonus” to reflect the overall return made on their contributions.
Suppose we took it a stage further? What if it were a mutual company offering such a fund? All the profits would be available for the members, even the mortality profits when annuitants die before their allotted three-score and ten.
Now there’s an idea – a mutual company  running a fund with smoothed returns and with profits for its members. Hang on…