Robinson Hambro
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Karina's Column

An insider’s view on the City of London and beyond

Watch out for a Saudi failed state

 

All change on the ECB and BoE boards

I plan to be an old lady whose smiley enthusiasm will be tempered by a series of oft-expressed bugbears. Every other sentence will begin with a croaky shout of, “It’s a scandal that…!” I shall then proffer solutions that are fairer and more sensible, with a wave of an imperious, wrinkled hand.

In a bid to get some practice in, here are five of my current irritations: greedy fund managers; greedy companies; inconsistency on the ECB and BoE boards; the rash change in foreign policy towards Saudi Arabia; and reckless Brexiters.

  1. Greedy fund managers whose missives begin with endless paragraphs on the world economy, the markets and their strategy, finally ending with a throwaway line which almost makes it clear that they lost money. Your money. Your capital. Yet they talk about “underperforming” their benchmark. You as the investor still pay their fees. The CEO of Aviva Investors recently had the gall to say that he didn’t think his company’s charges were excessive. “The vast majority of our funds are ahead of their reference benchmark (my italics),” said Euan Munro.

What would be fair: There should be a commensurate loss of fee income for fund managers when their funds lose investor money.

  1. Greedy tech companies. The focus on the Panama Papers and the wealthy with legitimate offshore entities is misguided. True, there are criminal money launderers who must be apprehended because they are breaking the law. But the biggest non-payers of tax in the world today are technology, digital economy and sharing economy companies. The British Office for National Statistics (ONS) announced in April that it is (finally) working on a feasibility study to officially gauge how to measure the sharing economy i.e. companies like AirBnB and Uber.

Governments are busy bowing very, very low to all these companies, in the erroneous belief that they create many jobs and that any tax increase will scare them off to another country. Google’s pitiful £130m tax settlement with the UK authorities earlier this year was defended by Google’s UK chief Eileen Naughton with the phrase: “Its international tax law. Google didn’t set the law.” She admits that if the law were different, the company would pay more.

What would be fair: Operating in the UK, or any other country, should be dependent on paying a reasonable amount of corporate tax here. What is “reasonable” could be decided in a number of ways, including a committee of representative stakeholders.

  1. The Governing Council of the European Central Bank consists of 25 members. Two of them, or 8%, are women. Germany, France, Italy and Spain, the major euro area countries governed by the ECB, all have gender quotas for their larger company boards, including banks. These range from 33% to 40%.

The Bank of England’s Court of Directors does better than the ECB on the gender front: two, or 18% of the Board is made up of women. There are no quotas in the UK, but there are targets under the Davies Review. 25% of FTSE-100 boards, including banks, are now made up of female directors. The next target is for all FTSE-350 companies to have 33% female board representation by 2020.

What would be fair: The ECB should bring its governance up to date with that of the banks it governs. So should the Bank of England. At least 33% of the ECB Governing Council should be women and at least 25% of the BoE’s Court of Directors.

  1. Saudi Arabia could well face its own Arab spring within the next twelve months. Four factors are playing a big role. The fall in revenues due to the collapse in the price of oil; US disengagement – both real and perceived – from its erstwhile allies; arch-enemy Iran’s re-joining of the international community; the Saudi demographic challenge, with 70% of the population under 30 years old and around a third of them unemployed.

There is no question that the country’s alliance with the West is defective. There are reportedly ties between a few members of the Saudi establishment and some of the 9/11 bombers, detailed in a US intelligence report whose findings could well be published if a US Senate bill is passed. It is no secret that the royal family owes its permanence in power to a deal with Wahabi clerics, including the export of this particularly unpleasant branch of Sunni Islam. Women still cannot leave the house without a male guardian nor open a bank account without their husband’s permission. The country’s strategic decision to push down the price of oil so as to safeguard its market share has been done by bankrupting Western shale producers.

On the plus side, the powerful new Deputy Crown Prince, 31-year old Mohammed bin Salman, is intent on transforming the economy. Yet even here, MBS, as he is known, has as many detractors as fans. The German secret service published a memo stating that he is a danger to regional stability, while it is not even clear that he will make it to the top job when his 80-year old father, King Salman, dies.

What would be sensible (fair not being the right word): realpolitik demands that we continue to support a flawed, authoritarian regime. The West cannot afford for the House of Saud to be overthrown, resulting in another failed state like Syria or Libya, let alone one with a massive population of 32 million which happens to be a geopolitical anchor, and within whose borders is Mecca.

  1. It is a scandal that Brexiters talk about a few years of disruption as the price to pay for access to the promised land of EU-free legislation. It is impossible to estimate how long and how deep a recession would ensue. But it is possible to say that this would most affect the young, the children and grandchildren of many of those advocating an exit. Jobs are precarious enough in our modern economy without taking our families down dark alleyways where additional risks lie. Plus, a vote for Brexit is a vote for Boris Johnson to take over as Prime Minister, as David Cameron would resign on principle. What emotion, gentle reader, is inspired by the thought of Boris’s finger on the nuclear button?

The vast majority of countries belong to clubs. For geographical reasons, ours happens to be the EU. However imperfect, a much better strategy is to implement a pro-active policy so as to wield more influence.

What would be sensible: vote Remain.