Thursday, 31 May 2012

Gaming Politics

Intrade is an online exchange that allows investors to buy shares in a market that bets on political outcomes.  A Bloomberg article describes that the odds change constantly as traders hunt for every fragment of information they can get from 24 hour news that can sway public opinion leading up to an electoral event.

Most of 10,000 Intraders are male poker players, betting on hundreds of real-world events framed as yes/no propositions.  The article profiles a particular breed of Intrader: someone ‘who has never voted, knows next to nothing about the candidates’ records and professes indifference towards the issues.’ 

Online gambling is heavily restricted in the US so the exchange is headquartered in Ireland, where traders post cheques to the company. Intrade began online betting on sports and the Dow Jones industrial average in 2001 and opened its political markets in 2004.  Because of its accuracy, ‘the site has become a go-to source for the news media since the 2008 Presidential race, when it predicted Barack Obama would win 364 electoral college votes.  Obama ended up with 365.’

I sense that the word democracy means little to the men who short the political process.

Saturday, 26 May 2012

Selling the Soul of Society

Prof. Michael Sandel spoke recently at St. Paul's Cathedral about his new book, the Moral Limits of Markets.  He certainly agrees that many of the markets in which we trade goods and services are an optimal tool for the personal and common good and that well-functioning markets with flourishing competition can promote prosperity, innovation and personal freedom.  The difficulty is determining the boundary between areas where markets are the optimal mechanism for organising human activity and where they shouldn't be allowed to operate.

In his book, Prof. Sandel lays down his thesis that over the course of the past two decades or so, markets have been encroaching upon spheres of life where they don't belong.  He gave many examples in his lecture of where certain market mechanisms were used to take advantage of the economically vulnerable; this produced not just injustice, but also the devaluation of human life and a corrosion of our morals and social norms.  He argues that if the people from all socio-economic classes in a society don’t meet with one another on occasion and ‘bump up against each other’ in everyday activity, they won’t have an opportunity to discuss the important moral and ethical questions that matter most.  If we don’t influence one another on moral questions and social problems, then markets will fill the void.

Another speaker on the night, the Rt. Revd. Peter Selby, pointed out that, in theological terms, the transformation from a market economy into a market society has occurred because we've made markets into idols.  There was a loud murmur of agreement among the several hundred in attendance.  Revd. Selby described idolatry as 'a means of extracting delight and honour from things which do not deserve' such adoration and allegiance.   And I think that the reverend was spot on.  Because human beings are telic creatures, something has to capture the highest allegiance of every heart.  Idolatry happens when good things become ultimate things, be they money, material objects, achievement, acclaim, comfort, approval or control.  This is when they become objects of worship, and lead, almost inevitably, to unintended consequences.  

Idolatry leads to the very powerful problem Prof. Sandel highlights in his work - they cause the hardening of our humanity.  When certain services are available to the highest bidder (such as body advertising or buying 3rd party life insurance – the so-called death bets which have apparently become a booming industry in the US), this can lead to dehumanisation.  Over time, the beauty and sanctity of our wills, minds and emotions can be eroded and our hearts can become hardened.  

And it isn’t as though this process has just sneaked up on us out of the blue.  In the 1970s the US sociologist Daniel Bell predicted that though capitalism was born of the protestant work ethic, with its emphasis on asceticism and discipline, one product of the system would be a capitalist mentality of restlessness, striving, and individual acquisitiveness.  He thought that the two elements of capitalism would exist in tension with one another and that gradually, the traditional values which had underpinned and given meaning to the capitalist economy would be overwhelmed by the more destructive forces.

Bell believed that a key driver of this change in capitalism would come from an increasing focus on the self, leading to impulsiveness and excess.  Combined with urbanisation, mass communication and easy credit, this would gradually transform citizens into consumers, encouraged by the system itself to gratify their desires.  Cultural and economic forces would ultimately conspire to undermine the restraint and morality that had given birth to capitalism and were needed to hold it together.  Social values would be corrupted because they were no longer concerned with how to work and achieve but how to spend and enjoy.  According to Bell, ‘when the protestant ethic was sundered from bourgeois society, only hedonism remained …the elements that provide men with common identification and effective reciprocity – family, church and community – lost their hold, and people’s capacity to maintain sustained relations with each other was destroyed.’

Similar warnings were made by the Victorian intellectual John Ruskin who wrote during the British Industrial Revolution, criticising the short-termist orientation and behaviour of liberal capitalists.  In his work Unto this Last, Ruskin asserted that self-serving business motivation could become dangerously self-fulfilling and would actually lead to inefficient and self-defeating outcomes.  Considering the financial crisis of the past few years, it is remarkable how prescient he was.  Ruskin believed that it was essential that the ethical dimension of markets be considered by not only financiers, business leaders, policy makers and economists but by ordinary citizens as well.  He advocated strongly for socially responsible business and prudent stewardship of resources, asserting that these would not only lead to better economic outcomes – in the form of a more robust capitalist economy – but would also enhance the lives of all those involved in the process.     

Professor Sandel thinks that we follow down a dangerous path when we use cash incentives to solve social problems; he believes this leads to the transformation of using the market as a tool for making certain exchanges more fair, effective and efficient in to a market society where just about every human endeavour is for sale.  Privatising formerly public goods like prisons, health and education are can undermine their purposes and values.   When we allow markets to corrode meaning and value in human life, we are treading on very dangerous ground.  He said, 'markets are increasingly crowding out civic virtue' -one of the most valuable common goods a society possesses. 

By avoiding public discussion over what we value in promoting the common good, we may be sparing ourselves the difficult task of deliberating over our values, but  the cost of this avoidance is high.  Sandel says that if we don’t debate these difficult subjects, the market will decide for us.  What we need is a more robust public discourse on our values, though how this can come about is unclear.  Prof. Sandel closed on a comment made by Kenneth Arrow who believed that altruism was a scarce social resource to be used sparingly; hence Arrow's belief in the widespread proliferation of markets.  Prof. Sandel objected to this metaphor, and I think that Rev Selby, Daniel Bell and John Ruskin would all have agreed.  Moral behaviour is something that becomes stronger as it is utilised, like a muscle, rather than something to be called upon rarely.  If we allow moral and ethical considerations to be separated and removed from the market economy, we have only ourselves to blame for the detrimental effects to our society that result.

Friday, 18 May 2012

Pay and Performance Uncorrelated in the UK

Dr. Herman Stern, chief executive of the Swiss financial research firm, Obermatt, recently analysed the correlation between executive pay and performance in the UK for BBC Radio 4’s More or Less programme.[1]  The study found that the worst value FTSE 100 companies were Reckitt Benckiser, ICAP and BG Group based on a comparison of profit growth and total shareholder return with total realised pay earned by bosses between 2008 and 2010.  Reckitt Benckiser boss Bart Bercht earned 1,199% more than was justified by the performance of his company.

UK companies which ranked highest in ‘pay for performance value’ include Admiral, Autonomy and Hargreaves Lansdown.

Highest excess remuneration
Best pay-for-performance value

Excess Remuneration in %

Excess Remuneration in %
Reckitt Benckiser
Hargreaves Lansdown
BG Group
Vedanta Resources
Tullow Oil
Severn Trent
BHP Billiton
Wood Group

Dr. Stern’s findings for the UK were similar to that which he found previously in the USA: We found that there was absolutely no pay-for-performance link in the UK for those three years.  Remuneration committees never want to pay below average.  They are more worried about retention than performance.  So this has led to spiralling pay inflation.

In his interview with Tim Harford of Radio 4, Dr. Stern cited the fact that in European stakeholder system companies - where the owners are often families - shareholders do not allow pay and performance to become so vastly disconnected.

Monday, 7 May 2012

The Hands of the Masters

Leonardo is in London again.  Earlier this year, it was his paintings at the National Gallery.  Back in 2010, there was an exhibit of Renaissance drawings at the British Museum but there was just one single Leonardo drawing, magnificent as it was.  This time there’s an entire exhibit at the Queen’s Gallery of the master’s anatomical drawings; I can’t wait.  Apparently da Vinci went to great lengths to study the human body, dissecting, analysing, really becoming intimate with flesh and bone.  This drawing of a woman’s hands by Leonardo are one of my favourite pieces in all the history of art.

My daughter, an artist, told me that hands are very difficult to get right; they’re highly individual and expressive, totally different to draw than say, hair or legs.  We use hands not just for instrumental purposes, but to express ourselves, especially love.  This is one of my favourite pictures by Picasso – so different from his cubist works; so delicate, so perfect.

A friend once told me that you can’t be an artist if you’re unwilling to get your hands dirty (in the sense of rolling up your shirt sleeves, not in the Lady Macbeth sense).  True words of wisdom.  Can you really get to the heart of any subject or any relationship without digging deeply, making commitments, taking risks?  Not in my experience.  

My daughter introduced me to this artist recently, Jim Dine, whom she studied as part of her AS level.  I was move by the haunting quality of that left hand; the delicate intimacy of the subject and the fading away of the painting to the left – as though this is about a life not yet complete.

We’ve seen this picture so many times, we barely even notice its complexity: the solidity and strength of the figures, the depth the expressions and the the grace and delicacy of the proximate touch.  

And though sculpture is perhaps the most palpable depiction of the human form, for me the drawing of the artist captures my imagination more.  I think there’s something quite remarkable and transcendent for me, that the love of the soul, expressed through the flesh of the hands can be captured on a surface of two dimensions that can be seen and experienced universally.  

Friday, 4 May 2012

Disclaimers Needed

I received a flyer through my letterbox the other day from Chris James, advertising the services of his company Chris James Yoga.  Its strapline is 'Learn Practice Grow' and he can boast being featured in some broadsheet papers like the FT and Telegraph as well as some glossy magazines.  He offers yoga and a program called Mind & Body Cleanse and his website indicates that his training in Kriya yoga took place in Rishikesh and at the krishnamacharya Yoga Mandiram in Chennai, India.  Kriya yoga, according to the organisation Kriya Yoga International, will allow the practitioner to achieve ‘continuous awareness of the power of the indwelling soul to transform all activity into worship.  Awareness that the soul must inhale every breath leads to mind control and liberation.'[1]  With this in mind, I put the following questions to Chris, followed by his responses:

Q. Firstly, would you say that yoga is both a spiritual as well as physical practice? A. Yes, in it’s pure form. One practices physical Yoga in order to facilitate the seated meditative posture for extended periods. Physical Yoga facilitates a long straight spine and wide open hips.

Q. If so, can the physical be separated from the spiritual and if so, how? A. The physical can be separated from the spiritual, but then the Yoga just becomes a physical exercise. This can be practiced at a therapeutic and health level, no problem.

Q. Lastly, are there any physical, mental or spiritual side effects or dangers associated with yoga and if so can you tell me about these? A. There can be some contraindications to the physical practice of Yoga, but these are not usually a problem with an experienced teacher who can provide modifications, No dangers, at least not with my teaching!

Stefanie Syman, who has practiced yoga for over 15 years and is author of The Subtle Body, an historical account of yoga in America, makes it clear that despite the wide variety of practices, yoga cannot be fully extricated from its spiritual roots.  She explains that it has been transformed over the past few decades from an exotic, ‘heathen’ practice into a central component of physical and mental health.   Dr. Al Mohler of Southern Baptist Theological Seminary, concludes after reading Stefanie's book:

Americans have turned yoga into an exercise ritual, a means of focusing attention, and an avenue to longer life and greater health.  Many Americans attempt to deny or minimise the spiritual aspects of yoga – to the great consternation of many in India…The bare fact is that yoga is a spiritual discipline by which the adherent is trained to use the body as a vehicle for achieving consciousness of the divine.[2]

Another yoga entrepreneur in my village put her card through my letterbox last November and I took this as a research opportunity.  I asked Jayne Blackman about the origin and purpose of yoga.  In her reply she said:  

I think essentially all forms of yoga have the same aim, which is to help to bring peace and flexibility to the body, mind and spirit.  Each school has their own particular slant or emphasis, I have attached here a link to the Sivananda site, which gives you a really concise summary on one page of the purpose and elements of yoga that work together:   The reason I personally love doing yoga and what I want to share through teaching is the deep sense of calm and relaxation it can bring to both the body and mind, which then has a positive effect on how we live our lives on a daily basis, or it can do, depending on what we do with it!   In my classes I combine the physical postures with continual focus on breathing and relaxation as a way to really get the full benefits of the practice.

When I looked at the website she referenced, I found that it says, ‘the Four Paths of Yoga all lead to the same place – union with the Divine,’ and I told her that I thought that this clearly indicates that yoga is a spiritual practice and that I was concerned about the spiritual impacts of yoga, including long term and eternal. She responded, ‘I completely respect your exploration and believe everyone has to find what is right for them. There is no ultimate truth, only what is true for ourselves.’

I am really quite dumbfounded that yoga instructors, many of whom have trained with traditional Hindu yogic organisations, can look us in the eyes and tell us that the spiritual aspects of yoga can be separated and removed from the physical.  It’s disingenuous at best and dangerous at worst.  What we should see much more of are disclaimers or warnings attached to all advertisements for yoga, meditation and mindfulness classes like the one which appeared in the August 2011 issue of Richmond Magazine.  It had this message at the bottom of an article about yoga and an ad for a class:

The inclusion of this article does not in any way imply endorsement of the Eastern philosophy underpinning yoga, or acceptance of yoga as a spiritually neutral or value-free exercise, on the part of Richmond Magazine.

Thursday, 3 May 2012

Despite the Headlines, Barriers remain

Jonathan Guthrie of the Financial Times called it ‘The Citi Effect’ - that days after Citigroup received a shareholder vote against its CEO’s remuneration, Barclays experienced the same veto. When companies like these have their executive remuneration reports voted against by shareholders, it is headline news and rightfully so.  It’s also an encouraging sign that shareholders are beginning to take seriously the notion that pay for performance is a good indicator of wider corporate governance practices.   Owners of companies are increasingly demanding demonstrable links between strategy, performance and pay.  And, in the cases of Barclays and Citigroup, as well as American Defense Systems, FirstMerit Corp, Intl Game Technology and KB Home in the US, they are exercising the power of no.

Two days after the Barclays vote, Citigate Dewe Rogerson, a media and investor relations consultancy, revealed the results of its investor relations survey[1] and the findings are of concern to those interested in responsible investment.   The findings indicate that an increasing number of European quoted companies say lack of engagement from shareholders is creating a barrier to good corporate governance.  55% of more than 100 companies indicated poor engagement was a concern this year, up from 41% last year.  Fewer respondents this year believed in the effectiveness of the rules and frameworks promoting corporate governance.  Lack of investors’ knowledge about the investee company was point out by one respondent as part of the problem saying, ‘In general…the interest or knowledge around our company’s corporate governance issues was shockingly low.’ Lack of communication between fund managers and governance specialists was also blamed for poor engagement on governance.

There is a further stumbling block in the journey to better governance and stewardship – institutional investors are still reluctant to disclose publicly how they vote on pay in the UK.  Despite the comply or explain requirement under the Stewardship Code, Pirc research has found slow growth in the publishing of voting data.  Out of 175 assets managers which have signed up to the code, only 27 have disclosed a full voting record.  Tom Powdrill of Pirc says that the most common reason for non-disclosure is that the information is considered confidential or to be shared only with clients.  The UK’s shadow business secretary, Chuka Umunna, supports a mandatory disclosure approach (applicable in the US for mutual funds and may be required in future for all asset managers with more than $100m under management).  A mandatory approach has received some sceptical reaction, with some warning that it would lead to a dumping of useless information.  Pirc estimates that it might take as many as 10 years before half of the Stewardship Code’s signatories make full voting disclosure, as some asset managers believe their explanations of non-compliance are sufficient. 

Because of these and other barriers to shareholder activism (such as foreign shareowners and insurance companies' unwillingness to regularly monitor external fund manager[2]), the government is considering making shareholder votes binding on future pay policy and require boards to gain a majority of between 50 to 75% of shareholder votes for a pay policy to be approved.  It is not clear whether the binding vote approach would actually be utilised.  Despite the high profile of some say on pay no votes, there is still a very long way to go toward tackling the issue of high pay.  

Since the 150th anniversary of his the publication of his book Unto this last, a number of commentators have reminded us of the wisdom of the Victorian social reformer, John Ruskin.  Much of this work has some prescient criticism of market economics. As Andrew Hill of the Financial Times highlighted a few years ago, ‘the paraphernalia being proposed to reign in bonuses and excessive pay – commissions, codes – would surely have perplexed Ruskin.  That society needs to consider such mechanisms at all, he would probably have said, is evidence ‘merchants’ have lost their moral compass and their sense of responsibility to exert ‘the widest helpful influence…by means of [their] possessions, over the lives of others.’  

[2] Ruth Sullivan, 'Insurers 'fail on stewardship,' Financial Times, 16 April 2012.