Category Archives: Leadership

Democracy in corporate boardrooms

In this blog I have written mostly about politics and how innovation could reinvigorate our democracies. I have neglected to apply this principle to the corporate and financial sector. This is actually odd because I spent most of my career in the financial sector not as a “politics student”, or advisor to organisations involved in democratic innovation (what I now do).

An interesting article by Stuart Kirk of the Financial Times (May 25, 2024, “It’s time to let shareholders choose the CEO”), raises the question of democracy within corporations. He challenges the current approach “where elected board members are responsible” for CEO selection. Investors, who own the company, “are never given a list of candidates and asked to vote”. Many of these shareholders own their stakes via mutual funds or pension funds and do not even have the right to vote–that right is executed by the fund manager on their behalf.

Kirk argues that opening up the process will broaden the list of prospects. He also contends this will put downward pressure on CEO compensation which has ballooned in the past decade. Against this contention the recent award of circa $50 billion in compensation to Elon Musk at Tesla is worth pondering. Thousands of retail shareholders were the most supportive of Musk’s package and it was the institutions who were most opposed. Thus, individual shareholders may act in ways that are surprising, and/or arguably counter to their own interests, but at least such decisions will have far greater democratic legitimacy. In the same vein, there is no guarantee that engaging citizens in the political process will achieve better decisions—but they would also have greater democratic legitimacy.

What makes me most uncomfortable about the process of CEO selection in public companies is what I would describe as the “conspiracy of the interested”. Boards appoint new board members—often in their own likeness.  The board-appointed CEO obviously has an interest in placing on the board those most likely to be supportive–and CEOs normally have considerable influence on selection. Boards remuneration committees decide how much the CEO should earn.  It is easy to see how this creates a system where compensation levels remain high, especially as board directors are often CEOs of other companies. Few board members have a genuine interest in depressing executive wages, contributing to the stratospheric rise in CEO relative pay. This all acts to the detriment of shareholder interests.

Kirk makes an excellent point with regard to the investment banking industry where “the internal candidate whose business or region is currently making the most money” gets the nod to become CEO”. As someone who used to follow the investment banking industry, I was amazed at how difficult it seemed to be for investment bank boards to distinguish between luck and competence in choosing a CEO, and how rarely they search outside the company.

The most amazing case of this I saw at close quarters at Lehman Brothers, a firm I knew well (Disclosure: as an analyst and subsequently as Lehman’s Head of Equities in Europe in the 1990s). Richard Fuld emerged from the fixed income side of the business, which had enjoyed record years during the bull market–unsurprisingly he was selected to run Lehman Brothers, systematically displacing any rivals. In my opinion, despite the success in fixed income, he was not a good choice as an investment bank CEO. Fuld, led the firm into a spectacular bankruptcy in 2008, nearly bringing down the global financial system with it. He is reported to have been paid $500 million during his career at Lehman Brothers, according to James Sterngold of CBS News (April 29, 2010, “How much did Lehman CEO make?”), while the taxpayer bill to rescue Wall Street was $700 billion. There is no guarantee Lehman investors would have behaved differently, but the extraordinary preference for internal candidates, which Kirk criticises, is an issue with the current system.

Furthermore, one can argue that Musk created an enormously valuable company and deserves rich rewards. But Lehman Brothers was founded in 1850–is it really fair that at firms with reputations (and franchise value) have been established over decades or centuries, that today’s CEOs gobble up so much of the value created. Perhaps incompetents get fired when their luck runs out but often with generous “golden parachutes”. Heads I win, tails I win–this a huge problem.

It is hard to imagine how one might set about fixing this problem, or even to feel confident that more democratic decision-making would improve outcomes. But as in the political sphere, it seems hard to argue that the current situation is working so well that it could not benefit from experimentation. One answer could be for the fund managers to enable shareholders to vote their shares, so that the institution’s vote reflects the views of beneficial owners. From a technical standpoint this seems eminently doable, but probably few shareholders would bother to vote. But it would be a start and on important issues one suspects the turnout could be much higher. In any event, more democracy seems worth a try—in the boardroom and in politics.

Issue Entrepreneurship and the ‘Sleeping Giant’ of Income Redistribution

I was listening to BBC Radio 4 News in March (22/3/23) and was particularly interested in an interview of Sushil Wadhwani, who runs his own asset management firm, and for three years was a member of the Monetary Policy Committee of the Bank of England.  His CV is that of a mainstream fund manager.  In the interview he mentioned his surprise that corporate profit margins had remained so high despite the cost of living crisis.  Serendipitously the Financial Times published a chart on its front page that day on corporate profit margins in the United States which I have copied below. What is very clear is that in these hard times not everyone is suffering.

It seems to me, and to many of those I speak with, absolutely astonishing that this disparity is allowed to continue. With inflation pushing so many households into poverty, it feels bizarre that there has been no major party clamouring for an adjustment which eases the burden on those who are struggling and increases the demands on those who appeared to be doing well through increased taxation. 

I often wonder why few of the opposition parties appear willing to tackle this head on. There is obviously a strong moral case for shifting the burden away from those who have been forced into food banks and making difficult “eating versus heating” decisions over the past six months, and onto those “with the broadest shoulders”. Furthermore, there is also a strong economic case. In a country like the UK, which is suffering severely from anaemic economic growth, it is obvious that tilting the tax system in a way which put more disposable income in the hands of the bottom third of earners, at the expense of the top third of earners would increase economic growth. This stems from the fact that the marginal propensity to consume for those at the bottom must be nearly 100% (they will spend all marginal income on essentials and perhaps repaying debt) whereas extra income for the wealthiest in our society is not spent on consumption but rather in pouring more capital into financial assets.

The only reason a cynic like me can think of is that opposition parties, like the government, receive their campaign funding from the wealthy who are typically antagonistic towards the redistribution of income.  Also, talk of redistributing income has the feel of a “third rail” issue for politicians—touch it and you go up in smoke.  I am no longer certain this is the case.

I have been studying “orphan issues” like this for my master’s degree at UCL. These are just sitting there waiting for “issue entrepreneurs” to pick them up and run with them, as they seek the support of the electorate.  This concept of “issue entrepreneurship” seems to have been developed by theorists Sara Hobolt and Catherine de Vries in a 2015 article (“Issue Entrepreneurship and Multiparty Competition”).  In it they introduced the concept but also identify the circumstances under which political parties may or may not grab hold of such issues.  There are two primary points they make, the first is that “political parties are more likely to become issue entrepreneurs when they are losers on the dominant dimension of contestation”, and that these “parties will choose which issue to promote on the basis of their internal cohesion and proximity to the mean voter on that same issue”.  It remains to be seen if these propositions are correct and if the current opposition parties are willing to take the risk.

In prior research, written in 2007 by Cees Van der Eijk and Mark Franklin, (“Potential for Contestation on European Matters at National Elections in Europe”) the authors identified the issue of EU integration as a potential “sleeping giant”, ready to dramatically shift political behaviour in Europe.  This issue had lain dormant for some time but was seized upon by Eurosceptic and far-right parties, with notable success.

I wonder if the UK Labour party has an entrepreneurial bone in their political body………….   

(PS—this post was written weeks ago, but I forgot to hit “send”.)

Rodney Schwartz

London, UK—23 April 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments

On the Need for Consistency and the Avoidance of “U-Turns” in British Politics

In recent weeks I have devoted several blog posts to my disappointments in studying for a master’s degree at UCL in London. I now fear that I am presenting a misleadingly negative picture of an experience which has been relatively positive, whether if it is despite or because of the university. There are some real joys in my learning experience—allow me to share just one.

We had been learning about what causes European citizens to vote for far-right parties—obviously, a matter of topical interest.  One aspect of the analysis engaged in by theorists is to discern whether cultural views or perceived economic predicament were a better explanatory factor in judging the likelihood of individuals to vote this way. I had read a piece by Thomas Kurer and Briitta van Staalduinen (“Disappointed Expectations: Downward Mobility and Electoral Change.” American Political Science Review, 2022).  The authors described a concept called “status discordance”, which took into account a person’s reasonable life expectations based upon their original family situation and compared it to the reality of their economic achievement. For many decades in the West it had been taken for granted that each new generation will be better off than that of their parents.  This presumption has been severely undermined by economic realities.  Kurer and van Staalduinen contend that the greater the extent of this status discordance, the more aggrieved people will feel due to the economic gap in the realities of their lives and the more likely they are to vote for right wing parties (or, one might think, any extreme or non-mainstream party).  The statistical analysis they undertook seemed a bit complex to me, but in the end I became utterly convinced by their argument.

This certainty lasted about 20 minutes, when I followed it up by reading a piece by Yotam Margalit, who made precisely the opposite claim (“Economic Insecurity and Causes of Populism, Reconsidered.” Journal of European Perspectives, 2019). He critiqued (not Kurer and van Staalduinen individually), but their point of view that economic factors were dominant in the decision to support right wing parties.  For Margalit, this concentration on economic factors missed the importance of cultural ones, which he believed were ultimately the true causal factors, which are sometimes hidden due to the research methods used.

His piece was too long to describe at length, but he cited several studies which showed relatively weak relationships to economic factors once cultural factors were isolated.  Margalit argued that, “People may also view economics-based arguments against immigration as more socially acceptable than ones couched in cultural terms and thus may overreport the former as the justification for their stance.”  He gave an example from a 2010 study by Alexander Janus which tried to separate these factors by dividing a sample randomly into two groups.  He asked one group to read three pretty neutral statements and then asked if they agreed with the total number of statements (but without having to agree/disagree with each).  He then added a fourth statement (“Cutting off immigration to the United States”) and asked the second randomly chosen group if they agreed with all four.  The percentage agreeing dropped from 61% to 42%.  By hiding a statement which might be socially undesirable to object to amidst three others, Janus was able to identify the percentage likely to be opposed to immigration in a way that would pose no “social risks” to the respondent.  This is just one example of many used to by Margalit to make his point.  Although I began the article feeling very sceptical, by the end I was convinced, and my opinion had changed by 180 degrees!

Which position is factually correct is irrelevant to the point I wish to make. Instead, what I have learned is the utter joy of changing ones view on a dime when presented with countervailing evidence one finds compelling. At its best, academia provides pathways and methods to seek “the truth” and the freedom to shift about in pursuit of it.

I used to believe that philosophical consistency was of great value. What I have learned during the course of my study and in the example I have shared above is that there is something special about an environment that ought to and does permit this ideological wandering. At a much earlier point in my life I argued passionately concerning the intrinsic value of intellectual consistency. I was chided by a woman who quoted Emerson to me.  She said, “A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.”  She was right and I laughed out loud—and never forgot that line!  I have thoroughly enjoyed the intellectual knockabout and the constant shifting of views that my educational experience affords.  Long may it continue.

However, I was listening to the radio over the weekend, hearing about the sad saga of Tory ex-Health Secretary Matt Hancock, whose private WhatsApp messages have now been publicly disclosed. So much of this story is pathetic, humorous, disturbing, engrossing, or worrying, depending upon your point of view.  For readers who are not from the UK and have not been watching this story, I am pretty sure it’s not worth going into the gory details. Suffice it to say that a minister acted badly and got caught out—nothing new, really—a bit of sex, arrogance and wide-ranging incompetence.  The radio commentator had made one important point that UK government ministers seem to find it incredibly difficult to reverse a policy once it has been decided upon, even in the face of new information which suggests the policy may have been wrong. This is especially troubling during a pandemic when lives can be saved or lost based on policy responses to accurate evidence. 

But something in the UK make U-Turns particularly challenging manoeuvres.  Maybe it’s the influence of the press, or the enormous egos of some of our appalling leaders who have been “Peter Principled” right into the Cabinet.  I suggest Matt Hancock would have been far better off getting a masters degree than jetting off to participate in “I’m a Celebrity….Get me out of Here!”  But that would make for poor TV.

Rodney Schwartz

London, UK—5 March 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments

“Hierarchism” at University and in Politics–and How we Really Learn

When I started my master’s degree in Democracy and Comparative Politics at UCL I wasn’t quite sure what to expect.  Would I be leaning about Plato and Aristotle, or Hobbes and Marx?  In fact, it’s Weber and Rawls where our studies seem to begin.  However, I find that many of my political lessons do not come from books written by any of the great theorists, but rather in observing how universities operate and how that mirrors government treatment of citizens.  Let me explain.

As I sit here today on 28 February, I am awaiting the results of an exam handed in on 11 January. I have had a steady stream of apologetic emails assuring me that the grades are to be available imminently–hmmmmm.  I recollect this also occurred with the mid-terms for the same class.  In fact, we did not receive the results until after the end of term!  Thus, one had no chance to learn from the exam, or to gain an understanding of concepts one failed to absorb in preparation for the mid-term exam.

It is also infuriating that the final exam was handed out in the middle of the Christmas break on 3 January (classes resumed on the 9th), and we were expected to hand in our exam papers by 14:00 on the 11th. Hopes that exams be handed out at the end of term were thwarted as it would have meant that professors would be marking over their Christmas break, which was understandably unacceptable. However, the idea that students should be expected to do an exam during their Christmas break seemed perfectly reasonable.

Another example, in another class, were the repeated promises that an important lecture would be made available through the online portal by a specific time. Of course this did not appear much later. I fully understand that shit happens, and that university professors are massively overworked (and underpaid), but what I find galling is the hard-assed insistence on students meeting firm deadlines at the same time as the university persistently fails to meet nearly every deadline it establishes for itself.  We are told that if we hand in exams even just one minute late there will be penalties. 

It is not only professors that continually miss deadlines, but the university itself.  Lectures, course outlines and necessary material are often not available until after the first classes of term begin, which is patently ridiculous.  I suspect this attitude of strict deadlines for those further down in the hierarchical system, and disregard for them at the top permeates downwards—as they say, “a fish rots from the head”.  I could go on and provide more examples, but I am sure you get the picture.

I have been reflecting on the question of “where else have I seen this behaviour in the world we inhabit?” I wonder……………   As many will recall, the Conservative government under Boris Johnson was strict with regard to COVID restrictions. Citizens who had the audacity to sit on a park bench as they took their daily walk at the height of the restrictions were quickly moved along by police and those found to have had group gatherings were punished. It is a matter of public record that while we were adhering to these restrictions those who governed over us were flaunting them with abandon. I presume that they believed it was important that restrictions were put in place in order to keep us healthy and to prevent hospitals overflowing with patients, but clearly they did not seem to worry about this for themselves.  Were they not worried?  Did not care?  In any event, the rules were only applicable to us but not to them!  I have decided to call this behaviour “hierarchism”, whereby those in power strictly enforce rules and regulations on those over which they have power without feeling any obligation to abide by these rules themselves.

This feels an important political lesson, but one I suspect the university has taught unintentionally. It’s about people in power using this power to procure benefits for themselves or make their lives easier  without any regard to those over whom they have power, further down the hierarchy. The irony in both cases is that it is actually students and citizens who are theoretically in charge. As students we are the customers of universities and are paying them to provide us with a service.  They work for us—it rarely feels that way. As citizens, politicians are nominally meant to be public servants, acting in our interest under authority delegated to them. Yet this theoretical model does not seem to work in practise.  Even if it did operate in Athens many centuries ago it certainly fails in the modern era.

Students exert pretty much zero power over the universities, despite being the customer.  Frankly even the professors seem relatively powerless and are often forced to undertake inane tasks for wages that are far too low.  But this is the nature of hierarchism—each tier dumps on the tier below.

My time as a student is limited, and this is true for most of us.  However, we are (unless you are Shamima Begum) forever citizens of our countries.  Democracy cannot operate effectively in an environment where citizens feel—and arguably are—powerless.  Yes, we have elections, but……….. Until we seriously address this, a vibrant healthy democracy cannot exist.  Perhaps in future blog posts I can explore this issue and analyse those governments which are at least taking a few steps in that direction.  In the meantime, I will just keep on learning, grateful to the university for the many lessons it is teaching me 😊

Rodney Schwartz

London, UK—28 February 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments.

The Departures of Ardern and Sturgeon Reveal a Sad Political Truth

Within the space of a month the western world has lost two of its most powerful and respected political leaders following the resignations of Jacinda Ardern on 19 January and Nicola Sturgeon on 15 February.  As they are both women, still sadly a rarity at the top of government, commentators have been drawn to view these two resignations in a similar light and draw similar conclusions.  The common themes are “burnout”, the pressures on women, the toll on them both, and the immense personal sacrifices politicians must regularly make.

In in reading Ardern’s resignation letter, and in viewing the actual speech, one gets a clear sense of the exhaustion she seemed to feel.  She herself confessed that she “no longer had enough in the tank to do it (the role of PM) justice”.  Fair enough. 

However, this is not a fair reading of Sturgeon’s letter, neither as it is written or in its delivery.   Whilst Sturgeon does admit that she is “a human being, as well as a politician”, this hardly seems a revelation.  She also refers to her niece and nephew, who have grown from infants to 17 years of age during her tenure in high-level politics.  Nevertheless, this does not strike me as a story of exhaustion, pressure, or sacrifice.  Sturgeon notes that she absolutely possesses the “resilience to get through this latest period of pressure”, and that she has resolved “seemingly intractable issues”, on many previous occasions.  However, she makes a strong and convincing case that: 1) Politics has become personalised in Scotland, and judgements are too often about her rather than the underlying issues, 2) That this is undermining the causes she cares about and has dedicated her life to addressing—most importantly Scottish independence, 3) That the SNP, like all parties, needs to move on beyond a single individual, and, 4) That someone else might be better suited to reach across the divide and bring along those who are required to yield a solid majority in favour of independence,  Essentially, she has convinced everyone she is capable of convincing, and that another leader might be more effective in broadening support and reaching across the divide.

So frankly, I find it a bit irritating and patronising that this “ahh, the poor things were exhausted” theme has emerged. Women in politics are often subjected to the most simplistic stereotypes, and this seemed once again to be the case.  It is lazy journalism and not an accurate portrayal of Sturgeon and what she asserts is behind her decision.  I pray for a time when women politicians are judged according to similar standards to their male counterparts, rather than made to fit into simplistic tropes.  But this is not the main point of this post. 

Whilst it is true that both Ardern and Sturgeon lead nations (each of which has between 5.0 and 5.5 million), and that both are women, I believe there is noble common ground which is the most interesting thing about these characters and their 1Q23 decisions.  These two leaders see themselves as true public servants, who owe it to themselves and their respective countries, to give it their best—and if they cannot, to move on.  Although they possess very different styles and personalities, both seem to me to have a sense of responsibility, of duty, of respect for the parties they led and the offices they held, as well as the citizens who elected them.

The contrast with the two selfish megalomaniacs who led the US and UK until recently could not be greater—I am of course referring to Boris Johnson and Donald Trump.  Whatever one thought of their politics or their policies, it would be challenging in the extreme to see either of these two men as anything but self-serving.  The idea that either cared deeply about their citizens, their parties, their offices or their governmental responsibilities is laughable.  There was almost nothing or no one they would hesitate to throw under a bus in pursuit of their own self-aggrandizement.  I am not sure even they knew what goals or objectives they were pursuing, beyond the need to stay in power.  Putin, Netanyahu, Erdogan and others are more extreme examples of this type of politician—what will they not do to remain in office?   It is here that the contrast with Ardern and Sturgeon is so great—not in their gender, or their tenacity, or their resilience, but in their values, in their sense of decency and in their respect for their roles as public servants.

It is true that Sturgeon and Ardern are women—but not all female politicians possess these commendable character traits.   I confess, I do struggle to come up with male politicians who have resigned whilst at or near the top of their game, and before they were thrown out of office, either by their party or their electorate.  Perhaps Paddy Ashdown was an example.  He led the Liberal Democrats (the UK’s third largest party) to more than double their seats in the 1997 general election (from 20 to 46, in comparison with 11 after the last election in 2019) and then resigned of his own accord, eventually to become UN High Representative for Bosnia Herzegovina from 2002 to 2006.  However, Ashdown was never elected leader of the UK, and thus his stepping down from the LD leadership was a vastly different class of decision.  If there are men you can think of, I would be delighted to hear from you.

So I think a more careful reading of these two departures is about a more profound and depressing political truth.  The people prepared to put up with the bullshit, and survive and thrive as leaders, are far too often the LAST people we should want to have in office—and those we might most want to keep are those who might be most inclined to depart sooner than we may wish.  The nearly simultaneous departures of Sturgeon and Ardern bring this depressing fact into sharp relief.  How on earth can we fix this?

Rodney Schwartz

London, UK—17 February 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments.