Why Vince Cable is Wrong About the Impact of Excessive Pay

Vince Cable warns firms on the dangers of “excessive executive pay”  by highlighting the dangers to their firms of a “loss of public trust” but it seems they and, more importantly, we don’t actually care enough for that threat to hold water. Until we do nothing will change, but what if anything will spark that revolution?

I like Vince Cable. I find myself more in agreement with him than disagreement but his recent pronouncement about the dangers presented by “lost public trust” through excessive pay settlements at large corporates - notably Banks - will fall on deaf ears. The truth of that is entirely apparent. If Banks, for example,  really did believe a loss of trust was in any way a threat to them they would have acted long ago to actually enact meaningful change to address it. Trust was destroyed in Banks and financial institutions a number of years ago when their giant ponzi scheme and unfettered hubris caused the meltdown in a financial farce that we have all suffered the consequences of. I see no evidence that trust has recovered in any shape or form since.

But we didn't act back then. The opportunity to truly make a change was then and despite the activities of the Occupy movement, some street protest and and much vitriolic comment our actual appetite to suffer the inconvenience of bank failure, loss of savings, and a more radical form of unrest coupled with a monumental lack of vision, courage and leadership from the left meant that the chance to bring about radical change was missed. The threat of a loss of trust to banks passed. There is, and never has been, such a thing as “too big to fail”, its just a matter of your stomach for the consequences and challenges of surviving that failure. Of course politicians have little appetite for it and, so it seems, neither do we anymore.

Since then we have seen a prolonged attritional period in which the more lowly bank staff, along with many others, have lost their jobs in order to reinstate the system that produced the problem in the first place. This year bonuses on Wall Street are reaching pre crash proportions, Barclays are awarding themselves huge bonuses despite a massively under par performance despite being called (accurately) “Greedy Bastards” by one investor at their last AGM and the tokenistic vote by Standard Life to not support the bonus award this year. The parting on the left has indeed become a parting on the right

And why do we not act? Why do we not desert banks? Why do we continue to buy the products and services from firms with ghastly levels of inequality in their pay structures between the self serving and mutually self justifying stratospheric pay club of these serialy failing top executives hoping from one corporation to another, and the shop floor?

Well in part we are lazy and unwilling to be as courageous as Samson and push the pillars aside and brave the falling masonry.

Another reason is a our willingness to embrace debt. Debt makes us slaves which is why the institutions, banks - and particularly the Governments love us to take it on. Debt encumbered wages slaves are much more passive and far less troublesome. Marx described religion as the opium of the poor. Well debt is the cudgel.

I am also of the view that many of us are disengaged from the reality of this inequality, thinking that these excesses exist a long way from us whereas in fact they are in organisation that we encounter and transact with every day. To that end I believe in total wage transparency at every employer so that everyone knows how the money gets spread around. At a stroke it would enable us to identify and address gender inequalities in pay, but also it would expose the monstrous them and us distribution in even mid sized firms and make us clamour for a fairer share.

There is also in many cases a lack of alternatives - but that may be changing.

I think Vince knows that his threat of “loss of public confidence” rings hollow as the rumbles of potential other legislation to tackle the situation.  It may be more of a threat to him than the business he aims it at,  

No the answer lies with us to act and until we do nothing will change

Being of a certain age I am perhaps more wedded to the notion of revolution than a modern western generation. And having grown up under the shadow of nuclear conflagration I have always embraced the possibility and prepared for the process of starting again in the ashes of a post apocalyptic world.

But maybe I am un reconstructed and perhaps the brighter future is less born in fire and more in triangulation. The empowerment of social and collaborative publishing and sharing technologies provide us with mechanisms to by-pass institutions by constructing alternatives, and it brings the possibility of greater transparency. And so it is that we see new digital currencies emerge, crowdfunding democratising investment and releasing new capital, and wikis transforming how we create and share information and I am proud to play my small part in using these tools for change and helping these ideas to develop.

If we can perhaps couple this change with the growing interest in circular economics and collaborative consumption models we can perhaps look to a less debt ridden, consumption dependant  future where the corporate monolith and bank dependency is reduced. Here we may not have to desert them we simply never engage with them.Then perhaps a loss of public trust might truly have an impact and focus minds. But, till then, I think Vince is wrong. 

The Value of Crowds

A little while back I was asked by the Glasgow Chamber of Commerce to provide the closing keynote to the inaugural CROWD conference. The purpose of the event was to reinforce the value of a community like the Chamber and how that crowd of entrepreneurs can assist one another. To draw the threads of a really practical event together I thought I would engage in a bit of an examination of three key assets in a crowd and some one or two main ideas on how one can begin to generate value from a CROWD. Firstly we looked at the role of a crowd as a source of distributed cognition, or collective wisdom. This is where the group can offer a considered view which when aggregated can be very insightful both for the collective insights available from the clusters and grouping of views but additionally through the existence of outliers and their novel perspectives. This can be translated into value through the activities like brand perception exercises, validation and diligence work, to horizon scanning and weak signal detection. Secondly we considered the role of the notion of a crowd as a talent pool, and the reach that it provides to individual point of deep insight. This is distinct from collective approaches where you are concerned with groups and deviations from it. Here we are looking for individual occurrences of specialized knowledge and insight so its value typically comes in crowdsourcing exercises, innovation, crisis management and problem solving. Finally we looked at a crowd as a third asset - a mechanism for collective action, where we work as a group to create a groundswell that is irresistible and brings about change. Here we can see value through activities like crowdfunding, campaign and major project delivery. What is common to all, but is often overlooked, is that to work effectively crowds of individual autonomous agents need to be managed, and simple rule sets are needed to establish a framework within which we can create value. Without them we have chaos. To demonstrate this point we spoke of mexican waves and the wonderful examples of murmurations. This type of flocking has a simple rule set that can deliver extraordinary emergent happenings, and if you haven't experienced one try this one out courtesy of the film makers Islands and Rivers. What is particularly pleasing to learn is that Don Tapscott, Global curator of Social Media Week used a similar example in his TED talk in Edinburgh this week. Nice to know that we see eye to eye on this! How has a crowd been valuable to you?

This article was first published on the twintangibles blog

Sad Mad and Bad - or why the FCA is wrong in its crowdfunding proposals

I have said for a long time now that one of the greatest problems bedeviling crowdfunding is a lack of understanding, beyond the superficial, of the fundamental principles that underpin it, and that its greatest threat is in the fact that vested interests and institutions are some of the least informed around. The FCA proposals for the regulation of crowdfunding have unquestionably proved me entirely correct and whilst in some cases it can be nice to say “I told you so” I take no pleasure in that on this occasion.

There are many pieces I would take issue with in the consultation paper and I shall be participating in the response process - although I have limited hope that it will make a whole lot of difference. But, in the interests of brevity let me just point out a couple of the really truly idiotic aspects of their proposals, those being the notion of  gating equity crowdfunding to only “sophisticated investors” and promoting the mediation of “financial advisors.”

Why is the constraint of participation wrong? Well it’s wrong on a range of counts but for a starter it kills the supply of capital. One of the guiding principles of crowdfunding, in fact its greatest offer, is the democratisation of capital and that is delivered by allowing people to participate who have previously been excluded. By constraining participation you constrain capital flow. This flow must be maintained  otherwise crowdfunding does not bring additional capital into the marketplace and without that crowdfunding is not expanding the offer to businesses and addressing a need. A need, we should remind ourselves, that was greatly increased by the failure of the traditional “sophisticated” investment market to run itself very well.  In fact it did it so badly that it needed to be saved by significant contributions from the "unsophisticated".

At the same time lowering barriers to participation is a fundamental principle that underpins the transformational nature of the online world. It by passes gatekeepers, it embraces innvoation, it is a force for equality of opportunity, and it allows people to re imagine themselves into roles that have previously been denied to them. By applying constraints you curtail that transformation and reign in freedoms.

Secondly, what constitutes a sophisticated investor?  I had an interesting chat with a financier the other day who proudly described himself as a sophisticated. However he was one that clearly had no real understanding of crowdfunding and seemed unconcerned when I pointed out that Lehman Brothers were considered pretty sophisticated in the time before they took a multi billion dollar fall from their sophisticated heights.

One of the fundamental criteria used  to define oneself as a “sophisticated investor” is individual wealth and income. It makes no distinction as to how this wealth is acquired and, I have to say, based on my experience the holding of wealth has never been a good indicator of  either sophistication, intelligence or judgment. One outcome from the proposal would, of course, be to help ensure those with wealth have the best chance of retaining and increasing it.

A key idea behind crowdfunding is that, by opening up participation, it brings in a much more broadly based set of evaluation criteria and, importantly, a breadth of different motivations to invest. This means that the traditional investors with their existing lense, often aggressive expectation of return, short termism and limited motivations can continue to turn their gaze away from investments they do not consider suitable, and this is fine. But by stopping new participant from engaging it threatens to prevent those same opportunities from being considered by investors with a different set of criteria who may find something of value in the proposition and invest in an idea that would otherwise have stalled.

The availability of this alternative assessment model  is absolutely imperative at a time when banks - the major source of business investment in the UK - have systematically deskilled themselves in this area. I would, and have, argue this is to the extent that they are largely incapable of making suitable decisions at a local level now and frankly lack the level of local autonomy to change that arrangement in the short term anyway.

Of course making retail investments of the type offered through crowdfunding brings with it risks for the investor, but so do all investments. And it’s not as if the track record of our sophisticated investors is infallible.

To suggest that people are so dumb that they don't recognise the risk to their investment is patronising in the extreme. Amazing though it may seem to the FCA but to the best of my knowledge pretty much everyone in the local branch of betfred (other betting shops are available) seem to understand that their little flutter on the 3 o’clock at Aintree is not a sure thing and they don't ask for their bet back when their chosen nag comes in last. Of course drawing such an analogy to the attention of the FCA - as I have - tends to get the lame response of “we are not responsible for regulating the horseracing industry”. My response would be THANK GOD FOR THAT! They are not responsible for house purchasing either and it seems entirely possible to make the largest investment in most people's lives without the intervention of a regulated body - estate agents famously aren't of course - and to even own that asset without insurance.

My point is that I have greater faith in people to make the sensible choices than the regulators it seems but, more importantly, the introduction of alternative evaluation criteria is key to the crowdfunding model and by gating participation to only “the usual suspects” you are removing one of its most important characteristics. I also believe this is because the FCA don't recognise the value of, or understand, this concept.

Lets consider the second point of issue - easier participation for those who take financial advice. The lunatics really have taken over the asylum on this one. These would be the financial wizards that advised so many people take out the hopeless endowment mortgages, or advise on those those ISA or pension investments that have performed so catastrophically recently.To take our horse racing analogy a little further it  seems the message is better not invest more than 10% of ones net investible protfolio down the bookie mate - unless of course you happen to have a quick chat with Arthur Dayley first of course. I have no issue with people taking advice that wish to but to actively encourage it, no lets re phrase that, to actively favour those that do is barking.

The arrogance of their stance is that what they are tacitly saying is that you should not be allowed to lose your own money, you have to give it to a “sophisticated” fool to lose it on your behalf! If the financial crisis taught us anything it was that the financial emperor really did have no clothes.

The conspiracists amongst you might think they, the FCA, have been got at by lobby groups on the part of a financial industry bruised and threatened by a new upstart. For what is worth I love a good conspiracy but this one I don't buy. I hear lots of voices from traditional finance huffing and puffing but I don't believe they feel threatened, and nor should they. No, this is a case of a body given a task to which they are either unsuited, unwilling  or unable to apply themselves effectively.

For all the ideas around secondary markets (which I heartily endorse) and other froth to squarely challenge the most fundamental principle of crowdfunding - lowering the barrier to participate - is a case of the most monstrous vandalism of a growing asset and an appalling misjudgement.

It is deeply ironic that the uniqueness of the light touch approach that has allowed crowdfunding to thrive in the UK to now and establish this country as the leading exponent of the form is now being reigned in by group of dullards on little evidence of anything being wrong whilst at the same time other countries are clamoring to liberalise their rules in order to access a resource we already have. Sadly this would have us destined to coalesce in the middle and the parting on the left will simply become a parting on the right.

As a historian  by training I look at this as reminiscent of the journey of the great emancipation and reform acts of the 19th Century. The rigid resistance and arrogance of anti reformists then read, from todays relative freedoms, like the ravings of lunacy , and the FCA might one day go down with with unrepentant pomposity of a Viscount Sherbrooke declaring that  “we must educate our masters”. But be sure of this - we will mount the barricades, we shall overcome, and financial emancipation will come - one day!