Twelfth Night, or whatever you want, CEO

It is Twelfth Night, the last of the Christmas festivities and by tradition when the decorations should be taken down. But Britain’s CEOs may be tempted to leave their decorations in place and risk the threat of the goblins that apparently invites, because today is also the day when top executive pay exceeds that of the average worker — named High Pay Day by my thoughtful friends at the High Pay Centre as a way of drawing attention to these differentials in pay between CEOs and the average full-time employee.

The bad news for FTSE 100 CEOs is that High Pay moment is a full hour later than last year as it now takes a CEO 34 hours of work to surpass average annual pay rather than the 33 hours it took last year. It is not that CEO pay has reduced; it has stayed relatively unchanged. Rather, average worker pay (perhaps counter-intuitively in these times of furloughing and Covid-driven unemployment) has risen a little. This pay ratio is around 120:1. High Pay moment this year is at around 5.30, about the time this blog is being posted.

Companies are now required to disclose their own internal pay ratios, that of CEO to the company’s average-paid worker in the UK (note ‘average-paid worker’, not ‘average worker’; no worker is average), and also a comparison of CEO pay to the lower and upper quartile worker in terms of pay. These ratios were analysed in another recent publication by the High Pay Centre, at whose launch late last month I had the privilege of being invited to speak. 

The results are striking, though the headline averages are lower than the 120:1 marked today:

For the FTSE 100, the median CEO/median ratio is 73:1,
and the median CEO/lower quartile ratio is 109:1 

For the FTSE 350 as a whole, the median CEO/median employee pay ratio is 53:1,
and the median CEO/lower quartile employee ratio is 71:1

These averages mask some remarkable variation, with the highest ratio, 2605:1, being that at Ocado, whose Tim Steiner enjoyed (and one assumes continues to enjoy) an extraordinary one-off level of pay of £58 million. Another seven companies saw CEO:median paid employee ratios over 200:1 (JD Sports, Tesco, Watches of Switzerland, GVC Holdings, Morrisons, CRH and WH Smith). The variation is shown a little in this chart:

It is clear from this that the biggest driver of the largest ratios is less the CEO’s individual pay (setting aside the unusual case of Mr Steiner) and more the pay of the workforce. That is still starker when the ratios in comparison with lower quartile workers by pay are considered. At Ocado, this ratio is 2820:1, at BP it is 543:1 and at Tesco it is 355:1. There are some sectors that are disproportionately represented among those with high ratios and notably low levels of pay — particularly retail and hospitality [Note that while AB Foods is classified as a ‘consumer goods’ company, its lower quartile paid workers are likely to be employed at its Primark subsidiary]:

In 11 cases, the High Pay Centre notes, the revealed lower quartile thresholds are below what would be earned from a 35-hour week paid at the £9.30 real living wage as calculated by the Living Wage Foundation (note, this is not the statutory minimum wage – no allegation of illegality is being made). We should note that in part these sectors being notably lower paid is an output of long-standing sexism in pay: retail and hospitality have traditionally been seen predominantly as women’s work and so have never been paid as well as other sectors. That is a clear unfairness.

And it is important to note that, as low as the pay revealed by these lower quartile figures is, fully a quarter of the workforces of each company is paid less.

When we focus on the lowest paid, it’s important to note as the High Pay Centre does that this data includes only those people that companies actually employ. HPC argues that outsourced workers should be included in pay ratios; I’m not convinced that this is practical, but I think it is realistic to ask for greater clarity of disclosure in business model reporting of all the additional workforce on which the company is dependent that are not necessarily staff members. More general enhancements to workforce discussions in business model reporting would also be helpful because these pay ratio disclosures include only UK workers. For some companies that will cover the whole business, while for others it is only a very small portion. Business model reporting can be made much more transparent and informative, and these sorts of disclosures would help towards a better understanding of how each company sits within its broader economic environment.

The High Pay Centre also calls for a number of ways in which the accountability of companies, and particularly remuneration committees, for pay decisions — including outcomes like pay ratios — should be enhanced. Personally, I have long said that there should be greater formal accountability of remuneration committees to staff members, in particular a formal presentation annually by the remuneration chair to employee representatives. I think that could prove salutary, and be a strong route for understanding staff perspectives that could then be fed into discussions in the boardroom. It might also help alleviate some of the ongoing suspicions that CEOs and other executives have too much influence on their own pay.

CEOs may be tempted to leave their decorations up. I suspect the rest of us will be moved to take ours down.

See also: Resentment and rents: fairness in executive pay

Fairness in the pay ratio

High Pay Day 2021, High Pay Centre

Pay Ratios and the FTSE 350: An analysis of the first disclosures, High Pay Centre, December 2020

Living Wage Foundation

The failures of algorithmic fairness

Technology will not of itself generate fairness. Merely asserting that the independence and lack of human intervention in a process removes bias isn’t true — indeed it may require human intervention to overturn failures to be fair. After all, fairness requires effort. This is the lesson that ought to be being learned in the world of algorithms, but unfortunately too often the creators and users of algorithms seem to prefer to state that they will be fair without actually carrying out the work effort that will deliver fairness in practice.

No parent of secondary school age children in England needs to be told that algorithms are not inherently fair. The debacle this summer of the supposedly standardised grades for students leaving school, who had lost the opportunity actually to sit their final exams because of Covid-19, brought the potential for technological unfairness fully into view. 

The key political decision was that there should not be significant grade inflation arising from the use of teachers’ assessed grades. The way that was operationalised created the unfairness, particularly the view that results awarded should be in line with schools’ historic performance (startlingly, fully 40% of teacher assessed grades were downgraded). The unfairness arose despite regulator Ofqual’s explicit aim being to deliver fairness for students. For example, the regulator required less standardisation of smaller classes than larger ‘cohorts’, because adjustments in smaller classes might appear more arbitrary. But a key consequence of this was that fee-paying private schools (which market themselves in part based on offering more esoteric subjects and smaller class sizes) faced fewer downgrades than free state schools. That looked like unacceptable unfairness to many.

Furthermore, the tying of performance to historic grades anchored exceptional years, or improving schools, to their less successful heritage. Fundamentally in a system that has to be all about what the individual her- or him-self deserves, an automated process for determining performance is always going to create some degree of unfairness at a granular level — especially so when the algorithm directly limited the number of certain grades that could be awarded to a particular school, condemning some individuals to multiple downgrades from those their teachers predicted for them. 

The scale and number of these apparent individual unfairnesses in the end led to a government decision to abandon the algorithm and simply revert to those teacher-assessed grades. No doubt there is some unfairness in that, but at least it appears less systematic unfairness.

So even where the aim explicitly is fairness, that is not necessarily what will be delivered if the design of the algorithm is faulty and it is subject to inadequate testing.

The scope for unfairness is much greater in cases where fairness is not the aim being sought. And where that application is to areas as sensitive as law enforcement and incarceration (as it increasingly is) then unfairness creates very fundamental problems. 

Take facial recognition, a technology increasingly used particularly at border crossings to identify those who can be allowed into a country and those who should be excluded. In theory perhaps the use of technology should remove bias. In practice, however, the technology is racist.

A remarkable December 2019 study by the US’s National Institute of Standards and Technology of more than 100 leading facial recognition systems, including ones from the most famous names in technology, reveals that even the best facial recognition systems misidentify black people at rates 5-10 times higher than the misidentification of white people. This chart is but one sample of the striking data the analysis reveals:

Differential success rates by nationality and gender, from one of the better recognition algorithms.
Source: National Institute of Standards and Technology

As is obvious from this chart, not only are the facial recognition systems racist, they are also sexist. They are not as sexist as they are racist, but the algorithms are consistently worse at identifying women correctly. They also happen to be worse at identifying older people and children, getting worse and worse at the increasing extremes of age. 

There is a consistent reason for these general errors: the development of the AI has been focused on one demographic, trained on a set of data. In most cases, that has predominantly been adult men from the locality of the developer. There is a strong home bias in the datasets used to develop the algorithms, meaning that there is a contrast between the data from most of the systems with the results from those developed in China: “with a number of algorithms developed in China this effect is reversed, with low false positive rates on East Asian faces”.

This reveals a general challenge about AI. There is a sense in which the creation of algorithms is based on the creators’ existing understanding of the world around them. Given that our world is riddled with unfairness, it is not surprising that unfairness is an outcome of their work — unless they deliver actions that actively work to remove the unfairness. 

As Hetan Shah, then Executive Director of the Royal Statistical Society, now CEO of the British Academy (and also vice-chair of the Ada Lovelace Institute and chair of the Friends Provident Foundation), sets out in an excellent brief paper on Algorithmic Accountability

“Algorithms for the most part are reflecting back the bias in our own world. A large part of ‘bias’ in algorithms comes from the data they are trained upon.”

It therefore follows that we need to lean actively against existing bias and prejudice in order to make algorithms more fair. Among the steps which would assist in this, Shah argues, are enhancing the diversity of the technology workforce, ethics training and a professional code of conduct for all data scientists, and new deliberative bodies to help set standards, and build ethics capacity.

The tech industry is alive to at least some of these issues — or sounds like it is. The language of fairness is used freely in its discussions of its own work. For example, in January 2018 Microsoft published its “ethical principles” for AI, which start with ‘fairness’. In May of that same year, Facebook announced its “commitment to the ethical development and deployment of AI” which includes a tool that it claims can systematically seek out and identify bias in algorithms, called ‘Fairness Flow’. That September saw IBM announce its ‘AI Fairness 360’, which is similarly designed to “check for unwanted bias”. The word appears prominently among the stated intents of Alphabet (Google) and Amazon.

The firms have also freely sponsored academic and other programmes supporting the development of fairness in AI, such as the Algorithmic Fairness and Opacity Group at Berkeley, that same University’s Center for Technology, Society & Policy (which has a project on Just Algorithms: Fairness, Transparency, and Justice), and the US National Science Foundation Program on Fairness in Artificial Intelligence.

Rodrigo Ochigame, who has worked within at least one of these organisations, is cynical about this: “Today’s champions of ‘algorithmic fairness’, sometimes sponsored by Silicon Valley firms, tend to frame discrimination and injustice as reducible to the stated distinction between the optimization of utility and other mathematical criteria”. His charming short article on the history of algorithmic fairness travels far — from 17th century English real property law, through 19th century US insurance contracts — and makes it clear that delivering fairness is not, and never has been, as simple as the champions of technology want it to seem.

In an earlier, excoriating article, Ochigame argues that the current efforts are little more than active lobbying for limited regulation. “Silicon Valley’s vigorous promotion of ‘ethical AI’ has constituted a strategic lobbying effort, one that has enrolled academia to legitimize itself,” he argues. This lobbying effort “was aligned strategically with a Silicon Valley effort seeking to avoid legally enforceable restrictions of controversial technologies”. 

Certainly, despite all the language of fairness, the example of the facial recognition algorithms suggests that there is still a long way to go to deliver fairness in practice. Ochigame identifies a number of other uses of algorithms in law enforcement and the criminal justice system that appear in practice to be delivering clear unfairness. 

The US’s Brookings Institute shares these concerns, highlighting a series of biased outcomes from algorithms, including gender bias in an Amazon recruitment algorithm, and bias in the online advertisements shown to online searchers, reinforcing existing prejudice and closing the door to difference. Just as with the facial recognition algorithms, the approach of building from what already exists or is near at hand leads to algorithms “replicating and even amplifying human biases, particularly those affecting protected groups”. This tendency, Brookings argues, is particularly concerning where technology is used in the criminal justice environment, to identify ‘potential’ criminals or sites of crime, or to help determine sentence lengths or the availability of bail. The solution, they believe, is not a technology one:

“companies and other operators of algorithms must be aware that there is no simple metric to measure fairness that a software engineer can apply, especially in the design of algorithms and the determination of the appropriate trade-offs between accuracy and fairness. Fairness is a human, not a mathematical, determination, grounded in shared ethical beliefs. Thus, algorithmic decisions that may have a serious consequence for people will require human involvement.”

Indeed, it seems as though algorithms risk becoming in some way a technological version of the sus law, the 1970s use of long-standing laws enabling the UK police to stop and question any individual suspected of intent to commit an arrestable offence. The sus law became a vehicle for blatant prejudice and harassment of ethnic minorities, and was repealed in 1981 following a series of race riots. The crudeness of social profiling by the police in the 1970s — even senior officers claiming that disproportionate targeting of black people was justified because they were over-represented among robbery and violence offenders — is reflected in much of the algorithmic modelling now being applied. Using technology does not make the work more fair or justifiable. It is just prejudice in another, perhaps less accountable, form.

The use of algorithms in the business arena has also been found to introduce unfairness. A recent study considers the German retail petrol (gasoline) market, which started to adopt algorithmic pricing in a significant way in 2017. Essentially, this study provides evidence that such pricing algorithms can drive anti-competitive behaviour: adoption of algorithms increases margins by 9% on average, even though non-monopoly markets show no margin enhancement at all. Looking just at duopoly markets, the researchers conclude: “we find that market-level margins do not change when only one of the two stations adopts, but increase by 28% in markets where both do.” The consequence is “a significant effect on competition”. It should probably come as no surprise that pricing algorithms push prices up; the question is whether this can be justified or whether it just amounts to a technological cover placed over the gouging of customers.

So fairness continues to be a victim in practice of the use of at least some algorithms, despite the apparent efforts by the technology giants to promote and assure the delivery of fairness. And rather than coming from the organisations they fund, in practice the best outlines of what is really necessary to deliver fairness in artificial intelligence — at least that I have been able to identify — come from other sources.

Of course the EU’s High-Level Expert Group on AI includes individuals from many of the leading technology firms, but the group is wider than that. In April 2019, it presented its Ethics Guidelines for Trustworthy Artificial Intelligence. Among the seven key requirements that AI systems need to meet to be deemed trustworthy, is the fifth, Diversity, non-discrimination and fairness. This states: “Unfair bias must be avoided, as it could could have multiple negative implications, from the marginalization of vulnerable groups, to the exacerbation of prejudice and discrimination. Fostering diversity, AI systems should be accessible to all, regardless of any disability, and involve relevant stakeholders throughout their entire life circle.”

In July 2020, the High-Level Expert Group took this work further and presented its final Assessment List for Trustworthy Artificial Intelligence. This provides questions for assessing whether AI delivers on the trustworthiness measure that the Group set. Among the questions under Diversity, non-discrimination and fairness are:

Is your definition of fairness commonly used and implemented in any phase of the process of setting up the AI system? 

  • Did you consider other definitions of fairness before choosing this one? 
  • Did you consult with the impacted communities about the correct definition of fairness, i.e. representatives of elderly persons or persons with disabilities? 
  • Did you ensure a quantitative analysis or metrics to measure and test the applied definition of fairness? 
  • Did you establish mechanisms to ensure fairness in your AI system?

This looks very similar to the simple model that Hetan Shah suggests for reducing and perhaps removing bias: (1) pilot to check for bias in multiple ways, with different datasets; (2) offer transparency to enable external scrutiny; (3) monitor outcomes for differential impacts; (4) provide a right to challenge and seek redress; and (5) enable enhancement through good governance (e.g. through independent oversight). In the context he is considering, of public data being used in algorithms by private companies, he also suggests (6) use of negotiating strength by the public sector as monopoly owner of data which private sector rivals are competing for.

Brookings reaches similar conclusions, proposing the idea of ‘Algorithmic Hygiene’, “which identifies some specific causes of biases and employs best practices to identify and mitigate them”. It is unsurprising therefore that one of their key recommendations for enhancing fairness is to: “Increase human involvement in the design and monitoring of algorithms”.

As an aside, this danger that arises from assuming our starting point needs to be the world as it is and as we understand it is consistent with other concerns — as Brookings notes, the biases in search arise from similar errors. I worry about algorithms constraining our horizons and feeding confirmation biases. In particular, I worry about the role of algorithms in defining search and so much of our online lives, of cookies constraining what we see. This removes the joy of serendipity and happenstance. A friend complains that using any search engine other than his usual one of choice (you can guess which) means that he sees all sorts of untargeted, irrelevant material. Perhaps his approach is more efficient by fractions of seconds, but inefficiency occasionally has its benefits and I suspect we lose much by seeking to avoid it — or by handing the power of happenstance over to a machine which tends to want to confirm our certainties rather than enable us to happen upon challenge and difference. The algorithm is the echo chamber.

Algorithms, like any human technology, are neither fair nor unfair. They are not automatically fair, as their IT proponents would like us to believe; nor are they automatically unfair as many campaigners seem ready to argue. Like any human technology, they reflect the prejudices and understandings of their creators and the society in which they are created. We live in an unfair world and so most technology, if it does not actively lean against unfairness, will be unfair. There needs to be much more work to ensure that algorithms operate fairly — merely being technology does not deliver that, without much, much more. A technology industry that fails fully to engage with this challenge will not build the necessary trust and will see confidence in algorithmic technology erode. Current unfairnesses suggest that the industry has much more work to do.

See also: Learning from the Stochastic Parrots

Awarding GCSE, AS, A level, advanced extension awards and extended project qualifications in summer 2020: interim report, Ofqual, August 2020

Face Recognition Vendor Test (FRVT) Part 3: Demographic Effects, Patrick Grother, Mei Ngan, Kayee Hanaoka, National Institute of Standards and Technology, December 2019

Ada Lovelace Institute

Algorithmic accountability, Hetan Shah, Philosophical Transactions, Royal Society, A 376: 20170362, April 2018

The Long History of Algorithmic Fairness, Rodrigo Ochigame, Phenomenal World, January 30 2020

The Invention of ‘Ethical AI’ – How Big Tech Manipulates Academia to Avoid Regulation, Rodrigo Ochigame, The Intercept, December 20 2019

Algorithmic bias detection and mitigation: Best practices and policies to reduce consumer harms, Nicol Turner Lee, Paul Resnick, and Genie Barton, Brookings Institute, May 22, 2019

Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market, Stephanie Assad, Robert Clark, Daniel Ershov, Lei Xu, CESifo Working Paper No. 8521, August 2020

Ethics Guidelines for Trustworthy AI, High-Level Expert Group on AI, European Commission, April 2019

Assessment List for Trustworthy Artificial Intelligence, High-Level Expert Group on AI, European Commission, July 2020

Fairness – the human lens for addressing our current challenges

A version of my presentation to the Church Investors Group (CIG), November 20 2020

My name is Paul Lee, and I am an investor. I have been in the City for 20 years now, first for more than a dozen years at Hermes, helping create and build its Equity Ownership Service (EOS) business and most recently at Aberdeen Asset Management, leading its stewardship efforts, and leaving following the merger with Standard Life. I am now an independent consultant, mostly to investment institutions.

But I am here to talk with you today about fairness. It’s an issue that I have done a good deal of thinking about over the years, and most particularly over the last two years in which I have been writing a blog on the topic. That blog and the issues it discusses seem to have gained a good deal more resonance in this year of Covid when many more people have been thinking about the role of business in society and how business, and investment, can more clearly be seen as working in the interests of all of their stakeholders.

I’m going to talk about two things in particular:

  • First, how fairness is central to how we as humans view the world, and central to our understanding of how we want our world and our communities to be.
  • Second, how this understanding might help us think about our role as investors and how we might best address some of the challenges our world faces.

Before that though, I should just talk about what fairness is. It is actually one of those things that is hard to define, but we certainly, viscerally know when it is absent. Unfairness is something that troubles people on a very fundamental level and language around fairness is central to how we want our world to be: we talk about level playing fields and removing unfair barriers to both competition and individual advancement. But fairness is not the same as equality; it is a sense, a feeling, not a number. 

Economists love inequality. Actually, some economists probably do love inequality but what I mean to say is that economists love the concept of inequality and talking about it. They measure it in precise detail, usually using the Gini coefficient, which measures disparity in either wealth or income, and largely ranges in practice from around 0.65 for the highly unequal South Africa to just under 0.3 for more egalitarian Scandinavian countries. For me, the fact that inequality can be reduced to single numbers like this makes it less meaningful for people. 

But crucially, inequality is less interesting than fairness because humans can stand some inequality – it is acceptable for us where individuals do better because they have particularly valued talents, or are particularly hard-working, or even where they enjoy particular luck. What is not acceptable, the inequality that humans cannot stand, is where that inequality arises from unfairness. And I don’t think it is controversial to say that this is something that the world is currently suffering from.

Now I promised you a human view of fairness. But actually I am going to start with some of our brethren, capuchin monkeys. They also display a sense of fairness, as can be seen in this video. It is taken from a talk by a great Dutch zoologist Frans de Waal who has done more than anyone to reveal the inner lives of our ape brethren (I would heartily recommend his book Mama’s Last Hug in particular). These capuchins are happy to perform a small task for the reward of a piece of cucumber. That is, they are until it seems that their fellows are rewarded for the same task with a grape. Let’s see.

From Frans de Waal’s TEDTalk 2012

So capuchins have a sense of fairness. But it seems to me a selfish form of the sense of fairness, righteous anger when another does better out of a given situation. It’s the same sense of fairness expressed by the six-year old stamping their foot and yelling “It’s not fair” when things do not turn out precisely to their liking. Yet humans show not just this selfish form of the sense of fairness but an unselfish form, an altruistic sense of fairness. Indeed, there’s evidence that even 15 month-old humans can show an altruistic sense of fairness.

Adult humans show this altruistic sense of fairness too – and apparently universally so, across cultures, across geographies. The main way that this has been studied and shown by social scientists is through two tests, called the Ultimatum Game and the Dictator Game

In the Ultimatum Game an individual is given a pot of money and invited to give any chosen portion of it to the other player. The recipient has a simple choice – either they take what they are offered and the two players walk away with their resulting outcome, or they refuse, in which case neither party gets anything at all. Now, if we listened to economists and were actually their version of humanity, homo economicus, the recipient would accept any offer that left them with something other than zero. But we aren’t, and I am sure you are all imagining what you yourselves might do in this game, what offer you might make and what offer you would be willing to accept. We’ll look at some real world evidence in a moment.

The Dictator Game is a simplified version of the Ultimatum Game. Again the offeror is given a pot of money, but this time they are a dictator because whatever allocation they make automatically happens. The recipient is given no choice to make at all. Clearly, in this game only one of the two individual’s view of the sense of fairness matters rather than it being a matter of the interaction of two individuals’ sense of fairness. Again, no doubt you are considering what outcome you might impose were you a dictator.

There have been many studies, and here is just an example of the largely consistent outcomes from them: 

From Markets, Religion, Community Size, and the Evolution of Fairness and Punishment, Henrich et al, Science Vol 327 (2010)

This study considers a range of scales and styles of community and tries to identify differences. The first thing to note though is the consistency– nowhere in this study does the average dictator proffer less than a quarter of the pot, even though economics would argue that they should hand over nothing. In many places the award is near to half of the overall pot – even in the highly unequal and unfair US (about which more later). Again, in most communities of any size the study shows that really the only acceptable Ultimatum Game offer is around 50% of the pot. 

One might suggest that the reason why smaller communities, or those less involved in markets, are less demanding of fairness in each transaction is that they have a greater sense that what goes around comes around – that there will be a further transaction with the individuals in question and fairness can be achieved over time. In larger communities (anything more than a small village to most of our perceptions) or where commercial life operates, it seems less certain that there will be further interactions so perhaps we feel obliged to seek fairness at each opportunity.

Members of this audience in particular might have noticed the word ‘religion’ in the title of this study. And you may be gratified to hear that it provides some evidence that participation in ‘world religions’ (here defined simply as either Islam or Christianity) is associated with a greater sense of fairness. However, I am not sure that it is very strong evidence as the only studied community with zero participation in world religion is the Hadza, one of those in the bottom left corner of the dictator game chart; all the others have well over 50% participation, and most are at or near to 100%, so it’s far from clear that that particular finding is strongly meaningful.

While we are on the topic of small communities I want to talk a little about the Ju’hoansi tribe in Namibia. This is a hunter-gatherer tribe, and believed to be one of the few to have a culture that has been consistent for tens of thousands of years. It may therefore offer the best window we have to the cultural outlook that framed the development of the human brain. And the Ju’hoansi have a very interesting approach to success. A hunter returning with a kill is not celebrated but rather teased. The kill itself is denigrated – it was barely worth bringing back to the camp, it will barely feed anyone – that sort of thing. There is a strong sense that individual success should not be praised but rather should be brought low, because what matters is success of the community as a whole – in a real sense, this can be a matter of life and death.

It is interesting to contrast this Ju’hoansi mindset with our own. We believe in merit, we believe in rewards for success. We like to believe that we live in meritocracies – in fact, believing that we do reflects our need for fairness – and so rewarding success is only right. We can perhaps see echoes of the Ju’hoansi approach in the banter that we experience in office environments, and in the tall poppy syndrome to which we are prone, where we tend to denigrate those among us who stand out. But we also see the opposite:

From Executive pay: review of FTSE 100 executive pay, CIPD and High Pay Centre, August 2018

This is a chart from my friends at the High Pay Centre. They are currently updating the numbers to the latest year, but from what I have seen the shape is not markedly different. It shows in effect the opposite of the Ju’hoansi mindset: it shows substantial reward, and in effect praise, for the successful. Just to be clear about the numbers – the red bars show CEO annual pay in thousands, so ranging from over £9 million in the oil and gas business down to a ‘mere’ £2.5 million in utilities. The line shows the ratio between this and the reward for the average worker – sorry, there is no such thing as an average worker – the worker paid in the middle of the range. This ratio shows the variation of CEO pay being around 50 times average pay, to 85 times, 140 times, or indeed 277 times.

I’m sure that there is nothing too surprising in this chart, but I will draw your attention to two things. First, the right-hand side, the two most generous paying sectors – oil and gas and consumer goods. It seems relevant to note that in those sectors the UK has companies that genuinely are global competitors (BP and Shell, and Unilever and Reckitt Benckiser or RB, respectively) and so compete with US rivals; there is a marked contrast in the pay levels with, say the utilities sector, which is a UK domestic industry. The second thing to note is that the ratio is driven less by the pay of the CEO than by the nature and structure of the businesses in question. For example, consumer services, which has a high spike in the ratio, includes retail where we know there are many part-time workers and many who are low-paid; in contrast, the financial sector ratio is much lower because as we know many in financial services are tremendously well-paid.

No doubt all those who are well paid believe that they are well worth it. We live in meritocracies and so of course those who succeed deserve their success. That is the myth of meritocracy, which those who have some success are keen to believe in. They tend to emphasise their own merit and their own hard work, and perhaps to ignore the element of luck that no doubt helped them towards their success – perhaps luck in their start in life or in terms of a lucky break, or otherwise. We do not live in as meritocratic societies as we might like to believe, but we still fall prey to the myth of meritocracy. And the evidence is that believing in meritocracy allows us to put up with more inequality than we might otherwise do: people around the world are much less likely to correct manifestly unequal allocations if they are told there is some (however tenuous) connection to merit or hard work than they are if they are told it arises from luck.

And while we believe in meritocracy, we do not live in meritocracies: 

From Perceptions of Inequality Using Social Economics Surveys, Stefanie Stantcheva (Harvard University) January 2020

These charts are from a recent presentation by a US academic, looking at perceptions of how meritocratic societies are – which, after all, is one measure of how fair they are. This shows how difficult it is for someone born into the bottom quintile of society financially – the bottom 20% – to escape from that quintile, and also to break into the top quintile – the top 20% – financially. Just to state the obvious, in genuinely meritocratic societies these numbers would be 20%, or very near to it. And all of the countries that we are looking at here are a long way from that 20%. But it’s worse for the US, because they are frankly delusional about how meritocratic their society is. In both senses US citizens believe their country is more meritocratic than the perceptions in the other countries studied, and in both cases it is by some margin the worst in reality. This enables that nation to accept much more inequality than other countries – truly that fantasy is the American Dream.

While we may enjoy a little more realism in the other countries, we cannot pretend to ourselves that they are genuinely meritocratic as each is a very long way from 20% in both cases. Perhaps we need a little more Ju’hoansi thinking.

So that is a very brief view of what fairness is, how central it is to our view of ourselves as humans and of the communities in which we want to live, and of some of the implications of the distance we currently are from fairness. 

So to turn to what this might mean for us as investors. I have one suggestion for a space to explore in terms of investment opportunity, and three areas (each with two arms) to consider in our broader investment and stewardship approach.

Taking the investment opportunity first, I believe that there must be an opportunity in providing opportunity, in leaning against the unfairness and barriers to advancement in our society. That might mean investing in deprived areas to generate economic activity and more opportunity for those who currently face barriers. Given that successful investing is buying cheap assets in the expectation of valuation improvements, at the very least it is worth considering as there are cheap assets to invest in and improve.

To take the other three areas in turn:

  1. Supply chains
    1. First, there is an economic problem with supplier relationships. The purchasers, typically larger companies, require suppliers to finance the supplies – they take goods on credit, at 30-day terms or 60-day terms. So the cost of financing the supply chain sits with the supplier rather than the purchaser. Given the purchaser is as I say typically larger, its cost of finance is lower so there is a clear economic cost from this unequal relationship.
    2. Second, the impact of the downwards pressure on pricing leads to bad things happening in supply chains. We have seen stories just this week about inappropriate behaviours at suppliers in India, we know the stories about the abuses within fast fashion supply chains in the great city of Leicester; more broadly, we know deforestation is driven by our demand for cheap products. We need to look harder at supply chains.
  2. Tax
    1. The responsible tax movement is growing and it is really important. More companies need to be challenged to be responsible taxpayers, to ensure they pay a fair level of taxation in their countries of operation. Too much profit is syphoned away into tax havens and we need more honesty and fairness over tax.
    2. We as investors need to look at our asset classes beyond listed equities. In particular, we should look at our private equity and fixed income portfolios. Too often, companies are thinly capitalised and financed with heavy debt loads, reducing their profits and so their tax load. Too much of private equity return arises from this tax arbitrage, and possibly too much of the debt in many portfolios is playing the other part in this game. Companies with too much debt have proven not resilient enough in this crisis, and we need to consider this actively – as well as the simple fairness of ensuring that the exchequer receives a fair level of tax.
  3. Executive pay
    1. I would actually suggest that in the UK and Europe it would be better to look not at CEO pay – remember that in the UK we have successfully held down CEO pay for around the last seven or eight years – but at the other end of the pay ratio, the pay of the least well off. I would suggest a focus there, on contractors as well as staff, might lead us nearer to fairness.
    2. Put simply, if you are not already leaning hard against the levels of executive pay in the US, you should be. As we saw in the rewards for consumer goods companies and oil and gas businesses, the high levels of executive pay in the US infect the world.

Thank you for the opportunity to talk a little about the sense of fairness and also what it might mean for us as investors. I’d welcome thoughts and questions.

Mama’s Last Hug, Frans de Waal, Granta (2019)

Fairness Expectations and Altruistic Sharing in 15-Month-Old Human Infants, Marco Schmidt, Jessica Sommerville, Plos One (2011)

Markets, Religion, Community Size, and the Evolution of Fairness and Punishment, Henrich et al, Science Vol 327 (2010)

Envy’s hidden hand, James Suzman, Aeon, May 2018

Executive pay: review of FTSE 100 executive pay, CIPD and High Pay Centre, August 2018

Perceptions of Inequality Using Social Economics Surveys, Stefanie Stantcheva (Harvard University) January 2020

We will be judged: the knell of intergenerational fairness

“For me the question now after six months of the outbreak, the question remains to the elders and decision-makers, what kind of world are you leaving for us? Is it fair that we inherit this unequal, violent, empty of values world? We are paying for a system we did not co-design and yet we are inheriting this anyway.”

So said Aya Chebbi, the African Union’s first Youth Envoy, at the Tortoise G7bn Summit in September. Where youth has a voice, it is already calling older people to account. If we listen, we are being reminded that we have not been, and are not being, good ancestors.

The challenge of intergenerational fairness is one that our world is currently failing. A recent WHO-UNICEF-Lancet report, A Future for the World’s Children?, found that current policies are failing future generations in every country in the world. Bluntly, it reports that in spite of the dramatic improvements in survival, education, and nutrition for children worldwide over the last 50 years, meaning that “In many ways, now is the best time for children to be alive”, nonetheless “economic inequalities mean benefits are not shared by all, and all children face an uncertain future. Climate disruption is creating extreme risks from rising sea levels, extreme weather events, water and food insecurity, heat stress, emerging infectious diseases, and large-scale population migration. Rising inequalities and environmental crises threaten political stability and risk international conflict over access to resources. By 2030, 2.3 billion people are projected to live in fragile or conflict-affected contexts.”

One chart from the report is particularly stark, showing a clear correlation between income inequality and measures of child flourishing (data newly synthesised for the report), particularly relative to countries of a like income bracket. “Equity [fairness] is essential to ensure that efforts to promote children’s present and future flourishing truly leave no one behind,” it notes. There is an implication for global fairness from this analysis: if global inequity worsens, so will the prospects for our children; conversely if we can improve fairness we have the opportunity to enhance the prosperity and wellbeing of all.

The WHO-UNICEF-Lancet team suggest that children’s interests should be placed at the heart of the Sustainable Development Goals (SDGs), the UN’s ragbag charter of 17 global development aims for the 15 years from 2015, from zero hunger and clean energy to climate action and responsible consumption. “Fundamentally, the SDGs are about the legacy we bequeath to today’s children. For that reason alone, children should be placed at the centre of the SDG endeavour,” the report suggests. It also references the General Comments to the Convention on the Rights of the Child, which includes the right to “Be treated fairly”. Our record against the SDGs suggests we are not succeeding in fair treatment.

But this is not a challenge for developing economies only, and not a challenge that only developing economies are failing. Intergenerational unfairnesses are stark in many developed economies. Take the Resolution Foundation’s Intergenerational Centre statistics for the UK, as exemplified in the following chart from their excellent interactive data dashboard tool. This shows relative poverty after housing cost over time for the population as a whole (olive line), the over 65s (sage line), the under 17s (pink line) and those from 16-29 (purple line):

While the headline poverty number for the population has risen somewhat, from around 13% in 1961 to just under 20% in 2017, this masks radically different experiences for different portions of the population. The pension aged population has gone from a scandalous 40% living in poverty to around 15%, while the proportion of children living in poverty has nearly trebled from just over 10% to just under 30%. But the trajectory of the 16-29 age group is perhaps most startling: having seen by far the least poverty in 1961, at only 4%, they are now well above the population average at 22% in 2017 (and 27% as recently as 2012). 

As Aya Chebbi’s comment indicates, there is a short-term, virus-related element of these unfairnesses, and also a longer-term aspect, particularly in relation to the scale of the climate crisis. Taking the immediate issue first, it is clear that Covid-19 will further erode fairness between generations. As can be seen from this chart from Resolution Foundation’s recent intergenerational audit, there is a stark age effect in furloughing, and still more so in jobseeking. And it is set to worsen further: Office for Budget Responsibility estimates see unemployment for the 18-29 age group spiking to 17%; older groups are expected to see unemployment no worse than 7% (though of course that is bad enough). While these statistics are for the UK, the experience is likely to be universal given the jobs usually taken by the young — both less stable and skewed towards sectors hardest hit by the virus and the constraints it places on our lives. Some of this is inevitable, but it could be mitigated better.

We are making life harder for the generations that come after us. That’s the opposite of what we are called to do.

In his reactionary 1790 diatribe against the French Revolution, Edmund Burke chastised those who do not recognise that “we are temporary possessors and life renters” of our world and our society. He criticised those who are “unmindful of what they have received from their ancestors, or of what is due to their posterity” and instead “act as if they were the entire masters”. He charged that we “should not think it amongst [our] rights to cut off the entail, or commit waste on the inheritance”. 

While that was a highly conservative message, it is clear that refusing to change can in some circumstances cause just as much damage to future generations as can revolutionary change. 

It is the very heart of good stewardship to build in thoughts about the future. As temporary possessors, we are all called to operate with consciousness of the needs of the future rather than assuming it will be able to look after itself. Life renters must find a way to resolve the tension between short-term pressures and longer-term needs. For example, Edward Laurence in his 1727 The Duty of a Steward to His Lord (which I elsewhere identified as The Original Stewardship Code) discouraged the use of clay for bricks as that depletes the land; similarly, he charged that stewards should not sell off timber that rather needed be retained for use as building material within the estate. His tome is almost obsessed by maximising the availability of fertiliser to enrich the estate’s soil for the future.

However, instead of acting as good stewards in this way, we continue to deplete the world’s resources on a Micawberish assumption that something will turn up.

More recent thinkers have reached similar conclusions. In 1977 economist John Hartwick set out what has become known as the Hartwick Rule of intergenerational equity. He stated that “to ensure intergenerational equity, society should invest enough of the rental income from extraction and use of exhaustible, and thus naturally scarce, resources so that future generations would benefit as much as today’s”. As the World Bank puts it in The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium (2011): “The Hartwick rule holds that consumption can be maintained — the definition of sustainable development — if the rents from non-renewable resources are continuously invested rather than used for consumption.”

John Rawls, the great thinker on fairness whose ideas have become decidedly unfashionable as the liberal American postwar economic success that he sought to justify has receded from view, posited a similar just savings principle. This argues that there is a duty to save justly such that future generations enjoy at least the minimal conditions necessary for a well-ordered society. In other words, we must not consume so much now that it is at the expense of future generations, instead we should set aside savings to benefit future generations. This goes one stage beyond Hartwick because it contemplates not only avoiding a negative such as limiting depletion of scarce resources but also actively pursuing positive measures, including investment in education and technology.

The perceived limited resources have changed over time. Once it was wood or mineral wealth. Now the most urgent limitation is seen to be the capacity of our atmosphere to absorb further CO2 and other greenhouse gases without further increases in global temperatures. There is some investment in technology to mitigate carbon intensity, but many doubt it is anywhere near sufficient. But the philosophical mindset remains the same: we have a duty to our successors not to bequeath them a worse world. We are failing in that duty currently.

Some are at least considering how the interests of future generations can be more fully built into policy-making and current planning. “The fear is that today’s adults are mortgaging our children’s future; taking too many policy decisions with an eye to short-term benefits while disregarding the long-term harms. In the years ahead, the sense of intergenerational tension is set to intensify, with more generations alive simultaneously and tightening availability of limited resources, from ecological resources such as water and forests to pensions savings,” say Cat Tully, the School of International Futures and Luis Xavier, Calouste Gulbenkian Foundation, in a June 2020 article on designing policies that are fair to future generations. 

They highlight the 4 key principles and approaches to intergenerationally fair policymaking identified by the Gulbenkian Foundation’s Intergenerational Fairness initiative. These offer a method for discerning policies that do deliver fairly between generations. They are written for the world of public policy, but applicable with some sensible adjustment to help shape corporate strategic thinking (essentially, all are about giving space for the interests of neglected stakeholders to be considered):

  • Run regular “national conversations” to (a) engage the public in exploring possible futures for their country, and (b) devise the detailed measures of intergenerational fairness for the framework. 
  • Give immediate responsibility for “vetting” policy for its fairness or unfairness to an independent government body or bodies.
  • Put in place the wider conditions to lock in the institutional and public pressure for the new framework to work.
  • Activate “outside-in” (public-on-government) pressure.

Some business leaders are already trying to give effect to such a mindset. Dan Labbad at the British Academy’s Future of the Corporation Purpose Summit referred to future generations as “arguably the most important stakeholder” for his business. But, given he is CEO of the Crown Estate, which runs the assets of the British nation’s monarch, he has an unusually long time horizon for operations, not least as “We have a statutory obligation to protect, maintain and enhance the estate into perpetuity”. Nonetheless, he argues that future generations are an important stakeholder common to all businesses, “often neglected, but crucial”:

“While they don’t get to hold us to account today they are the recipients of what we leave behind. That’s why our purpose at the Crown Estate will be guided by the creation of something that ultimately represents them and their interests to ensure that they are more than mere recipients but ultimately beneficiaries, inheriting something that will be the foundation of their future, a legacy that they’ll be proud of. I strongly suggest we take their role as a stakeholder seriously and as a humble reminder of why we need to operate with purpose in the first place.”

Building the interests of future generations into our decisions now is something we seek to do (not always successfully) when we think about our own children, and grandchildren. But we struggle to do it on a grander scale, and yet we need to. Certainly, most business fails to live up to this demand. Instead, we are mortgaging future generation’s inheritance now, and that is not fair. We are bequeathing a worse world, not a better.

Where youth has a voice, it is holding older generations to account for their unfairnesses. We need to ensure that youth has a voice, and that their voice is heard, so that they can begin to help co-design their own future. As we have failed to do so in the past it is perhaps not surprising that we have caused so much damage to their future, notwithstanding the longstanding calls to operate with a long-term mindset that does provide them with a fair world to grow up into.

“Is it fair that we inherit this unequal, violent, empty of values world? We are paying for a system we did not co-design and yet we are inheriting this anyway.”

I am grateful to my friend Peter for challenging me to write about this topic finally, and flagging up the article on apolitical (sorry it’s taken a while!)

Tortoise G7bn Summit

The Good Ancestor, How to Think Long Term in a Short-Term World, Roman Krznaric, 2020

A future for the world’s children? WHO-UNICEF-Lancet, February 2020

Resolution Foundation Intergenerational Centre

An intergenerational audit for the UK, Resolution Foundation, October 2020

Reflections on the Revolution in France, Edmund Burke, 1790

The Duty of a Steward to His Lord, Edward Laurence, 1727

The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium, World Bank, 2011

How to design policies that are fair to future generations, Cat Tully, Luis Xavier, apolitical, June 2020

Gulbenkian Foundation Intergenerational Fairness initiative

What is the role of stakeholders in purposeful business?, from the Future of the Corporation — Purpose Summit, British Academy

What’s the Purpose of Purpose? (II)

It turns out that those of us who have been cynical about the Business Roundtable statement on the purpose of the corporation (see the Limited Responsibility Company and What’s the Purpose of Purpose?) were right. There is strong evidence that the statement is words merely, with no intent for action.

“we show that the statement is largely a rhetorical public relations move rather than the harbinger of meaningful change”

These are the conclusions of a forthcoming article in Cornell Law Review by the dazzling Harvard law professor Lucian Bebchuk and his colleague Roberto Tallarita, flagged through an op-ed in the Wall Street Journal earlier this month. They start with the assertion that the Business Roundtable statement is “remarkably vague as to the nature and content of the commitment that is being made” and conclude that there is no real underlying commitment at all.

The most concrete evidence of this that Bebchuk and Tallarita bring is to have asked the 173 companies who signed the BRT statement what was the highest authority in the organisation that approved the signing of the statement. Only 48 corporates replied, and of those 47 stated that the CEO had approved the signing without the involvement of the board. Only a single company said that it had taken the decision for board approval. Yet the academics note that this should be no personal assertion, but rather a top-level decision about how the company is to operate going forwards. The statement explicitly says that signatories “commit to lead their companies for the benefit of all stakeholders”, and it is expressed as a full redefinition of the corporation. 

In spite of these words, signatories seem to assume that nothing has changed: “two of the companies that responded to our survey stated that joining the BRT statement reflected an affirmation that the company’s past practices have been consistent with the principles of the BRT statement rather than an expectation that the company would make major changes in its future treatment of stakeholders”. Furthermore, a third company, JP Morgan, asserted that it has always operated in accord with the statement and will continue to do so.

So nothing has changed, and the statement does not have meaningful effect in spite of the fanfare with which it was introduced. This is reflected, Bebchuk and Tallarita note, in a lack of change to board corporate governance guidelines, which continue to focus exclusively on shareholder interests. It also reflects the ongoing focus on shareholder interests in executive pay. At least in the sample of signatories the academics considered, there is no reference to stakeholder interests as a driver of executive pay. “With strong incentives to care about shareholder value, and little incentive to care about stakeholder interests, CEOs are discouraged from making any decisions that would benefit or protect stakeholders beyond what would be necessary for shareholder value maximization.”

The lack of admission that there are trade-offs between stakeholder interests is a fundamental flaw in the statement, according to Bebchuk and Tallarita. They single out the wording that “while we acknowledge that different stakeholders may have competing interests in the short term, it is important to recognize that the interests of all stakeholders are inseparable in the long term.” Bluntly, Bebchuk and Tallarita say, “This is at best a naïve misunderstanding or, more realistically, a mischaracterization of economic reality.” In practice, they argue it will mean that shareholder value drivers will continue to predominate.

The academics argue that there needs to be clarity on how to approach the challenge of balancing different stakeholder interests in decision-making. The only way through this challenge conceptually is to give decision-makers broad discretion to exercise judgment, they say (this blog argues that this needs to be done using the lens of fairness). For a UK lawyer, the model of enlightened shareholder value is a helpful frame for exercising that discretion, however Bebchuk and Tallarita tend to see that as not very different from shareholder primacy. I am not sure many UK boards, especially now they are obliged to report against their directors’ duties to consider stakeholder interests under s172 of the Companies Act, would agree with that assessment.

While the question of enlightened shareholder value is open to ongoing debate, the Bebchuk and Tallarita conclusion does not seem to be. There are fine words in the Business Roundtable’s statement and grandiose expectations for its meaning, but those who signed it do not see it as changing anything:

“corporate leaders don’t contemplate a significant change in corporate strategy…Notwithstanding statements to the contrary, corporate leaders are generally still focused on shareholder value”


‘Stakeholder’ capitalism seems mostly for show, Lucian Bebchuk, Roberto Tallarita, Wall Street Journal, August 6 2020

The Illusory Promise of Stakeholder Governance, Lucian Bebchuk, Roberto Tallarita, forthcoming Cornell Law Review, December 2020

Statement on the Purpose of a Corporation, Business Roundtable, August 2019

What’s the purpose of purpose? Will the focus on corporate purpose deliver real change in the way companies behave?

For all the active discussions about purpose in the context of business, and all the force with which the concept is advocated by its champions, there is a lack of clarity at the heart of the debate. Indeed, too many seem to be seeking deliberately to obscure the fact that there are at least two separate discussions going on. If purpose is actually to deliver on its promise — in the terms used by this blog, fairer business and society — clarity is needed.

Clarity is lacking, though. What’s worse, there seems real disagreement over what a corporate purpose is, and there is even disagreement about what the debate on corporate purpose is all about.

At a recent London School of Economics Systemic Risk Centre event on Sustainability and Systemic Risk, I asked law professor David Kershaw what the distinction is between the new agenda of purpose and the former company law model of articles of association including objects clauses which in effect bar companies from acting ultra vires, beyond their stated scope. This objects clause approach was swept away by the Companies Act 2006 (though it had been rendered largely obsolete prior to this by such clauses being drafted incredibly broadly, giving boards in effect almost unlimited freedom). David highlighted that objects clauses set out what the company was there to do, and purpose statements are about how the company does it.

This idea of purpose as the how is to me an attractive one. But there is active disagreement over which of Rudyard Kipling’s six honest serving men purpose might represent.

For example, Douglas Lamont, the CEO of Innocent Drinks, speaking at the British Academy’s Future of the Corporation Purpose Summit offered his own seductively simple outline of how those serving men operate in framing corporate activity:

“Purpose is the why
Vision is the what
Values is the how”

And Patrick Dunne, former 3i executive, in his magisterial but still highly practical new tome Boards (produced by the excellent Governance Publishing) asserts a further version of this (ironically perhaps, discussed in the ‘Process’ segment of a book he divides into 3 sections, ‘Purpose’, ‘People’ and ‘Process’):

“Vision: What we want to see happen
Purpose: Our contribution to making that vision a reality
Mission: A description of what we actually do
Strategy: How are we going to make it happen”

“Deciding what they [these four plus also brand and culture] should be is one of the most fundamental things for a board and management team to determine,” Dunne says.

The confusion is still worse in some cases, where purpose appears to fulfil multiple roles at once. Take one of the most quoted statements on purpose, Larry Fink of Blackrock’s 2019 letter to investee company CEOs. This shifts from one perspective on purpose to another from sentence to sentence: “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being — what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving them.” Here, purpose is simultaneously both ‘what’ and ‘why’ it seems. 

But the disagreement goes deeper. It is not just about what purpose is and what it means, but about at what level corporate purpose is being discussed. One of the challenges with business purpose is that there are two very separate conversations going on, and rarely is a clear distinction drawn between them. Indeed, some of the leading proponents of the question of purpose elide the distinction almost entirely. One conversation is about a business’s purpose — what is the driving force for an individual company’s operations — and the other about the purpose of business — what is the overarching role of business corporations in economic life and society as a whole. For example, while the bulk of the focus on purpose in the British Academy’s work on the Future of the Corporation is about individual companies, it does not shy away from brassily huge assertions such as “the purpose of business is to solve the problems of people and planet profitably, and not profit from causing problems”. 

This wide-reaching version of the corporate purpose debate is well illustrated by an article and blog from a pair of law professors from Rutgers, Can a Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera. This sees the debate about purpose purely in the sense of the overall purpose of corporations generally, and seems to take for granted that currently US companies can only consider narrow shareholder interest (a view disputed in Accountable Capitalism). And it views a switch from this shareholder-centricity to a stakeholder model as risky because it is likely further to entrench corporate management: “a stakeholder approach is unlikely to achieve meaningful redistribution of power and resources to weaker constituents and would likely work in the opposite direction. We suggest that a stakeholder approach gives corporate executives both a sword and a shield with which to preserve their advantageous status quo.”

The authors take their cynicism about the Business Roundtable purported restatement of corporate purpose beyond that of the major US investment institutions represented by the Council of Institutional Investors (see The limited responsibility company), and argue that this is not just entrenchment of current power structures but an active distraction from addressing fundamental problems in society: “in our view the entire debate over corporate purpose has so far revolved around the wrong question: it has centered on whether directors are disproportionately focused on shareholders’ interests, neglecting the more important questions of why are weaker constituencies faring so bad in modern-day American capitalism and what can actually be done to elevate their interests”. They believe that these issues would be better solved with more direct interventions, such as changes to labour, tax and competition laws.

This is certainly a worthy debate, but I think focusing the discussion on corporate purpose with regard to the individual company and what it is aiming to do is both more practical and more immediately needed. It should help individual companies prosper and succeed. That certainly seems to be the intent of the FRC in bringing purpose very clearly into the board’s remit in the Corporate Governance Code. Principle B states “The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned.” It does not explain much of what it means by this, other than framing it in terms of long-term success and the business in the context of its stakeholders, and the need to ensure that “policy, practices or behaviour throughout the business are aligned with the company’s purpose, values and strategy”, and that executive pay is also so aligned.

According to David Kershaw and his LSE colleague Edmund Schuster, this introduction of purpose in the Corporate Governance Code is a potential watershed moment, a “purposive transformation of company law”. They suggest this even while noting the FRC’s omission of a definition of purpose, and so the scope for misunderstanding. Again, their focus is on the broader horizon of the overall purpose of the corporation, and they argue that the shareholder-friendly nature of UK company law will frustrate the intent of purpose. They appear to have little trust in the concept of enlightened shareholder value as embodied in s172 of the Companies Act, and the view that a focus on stakeholder interests facilitates long-term value creation for all, including shareholders. Instead they argue that company boards and management will only feel empowered fully to reflect their stated purposes if they have a ‘zone of insulation’ from the usual pressures of the financial markets. In effect, they disbelieve the fine words of institutional investors and think that in practice they will simply favour their own interests as shareholders.

This, though, is surely a chicken and egg situation: shareholders supportive of purpose are drawn to companies with clear, publicly stated and lived purposes, just as much as companies with supportive shareholders are able to develop and assert a purposeful approach. I have argued elsewhere that one reason Unilever was able to survive the bid approach from aggressively managed Kraft-Heinz was because it had previously set out its stall as a long-term business. When Paul Polman started as CEO one of his first acts was to abandon quarterly reporting, encouraging a longer term mindset among shareholders. It put off some investors but encouraged others, meaning the shareholder base was longer term when the hostile approach came. Given the subsequent near-implosion of Kraft Heinz as its zero budgeting model reached its natural come-uppance (as all under-investment will in time), those longer-term shareholders have served themselves — and their clients — well. They also acted in a way that served the interests of Unilever’s employees, customers and suppliers.

Despite the professors’ mistrust, it would seem that institutional shareholders genuinely are ready to embrace purpose, if they believe that managements are themselves committed to them. My friends at SquareWell recently surveyed institutions on the topic, receiving responses from firms with a total of $22 trillion in assets. Not only are these institutions supportive of purpose, more than three-quarters are expecting companies to have set out their purpose:

Squarewell purpose Screenshot
SquareWell: Making Corporate Purpose Tangible

Furthermore, fully 86% expect some sort of declaration that the company has successfully fulfilled its purpose over a relevant reporting period. And they expect purpose to be concrete enough to be measurable: some 75% of these investors believe that KPIs should be set and disclosed with regard to the delivery of purpose, and 59% believe that those KPIs should affect executive pay. Personally I think that this risks attempting to measure the unmeasurable, and certainly it is a further example of the investment community expecting companies to do things they themselves are not yet doing, given that only 22% of the sample have actually themselves incorporated purpose issues into their evaluations of ESG.

Yet in practice uptake of purpose in a formal way has been limited. The SquareWell team report: “In the French market where companies have the opportunity to amend their bylaws to define their ‘raison d’être’, which requires shareholder approval, less than ten companies have taken the leap. Most companies are reluctant as they fear creating new legal risks while they are not convinced of the benefits. The ones which have done so received very high level of shareholder support though.” My informal discussions with investors also indicate a nervousness about the lawyering that is likely to be involved in any incorporation of purpose into bylaws or articles of association, which might risk making purpose meaningless; however, 41% of SquareWell’s surveyed investors believe that the purpose should be so enshrined (though this is fewer than those believing that it is more appropriate for purpose to be asserted through a regular statement in the annual report or otherwise by the board — 55% and 45% respectively).

One example of a French company that has adopted purpose formally was Danone, which at its AGM in June 2020 won no less than 99.4% approval for such a move. Its declared purpose does not seem to have been narrowly lawyered to the extent it is meaningless; indeed, it is general and broad: “The purpose of the Company is to bring health through food to as many people as possible.” Under the société à mission model, the corporate form that Danone has switched to, the company is held to account for delivering on this purpose through the oversight of a special committee, independent from the board (though the rules allow board directors also to be members). This committee’s role is to monitor delivery against the purpose, and to produce an annual report to that effect.

Elsewhere, much has been made by a few commentators of recent IPOs by some B Corps, a corporate model that puts stakeholder interests before those of shareholders. This, they suggest, is a sign of purpose potentially driving changes to business behaviour. Notable amongst these has been insurance business Lemonade, which listed on NYSE at the start of July. “As a public benefit corporation, our focus on a specific public benefit purpose and producing a positive effect for society may negatively impact our financial performance,” states the IPO prospectus in its lengthy Risk Factors section, apparently highlighting just such change. However, sharp insurance industry commentators Oxbow have highlighted just how little of Lemonade’s money actually ends up heading towards its purported purpose: “anything left over is donated to charity in the annual ‘giveback’. This giveback has been a major emphasis in the company’s marketing, but in reality, it’s a very small proportion of actual spending.” So perhaps the legal drafting of risks is just another element of the breezy sales style of the rest of the prospectus, which at times shades into pomposity. Certainly, some investors believe shareholders will make real money from the company, as the share price leapt nearly threefold on debut and even after a drift downwards values the company at some $4 billion. The prospectus reports total 2019 revenues of just $67 million, and a loss of more than $100 million; ‘giveback’ was around $600,000.

A change in business behaviour is the point. It is the purpose of purpose. As the good people at Blueprint for Better Business say in their excellent recent paper Purpose for PLCs: Time for Boards to Focus: “The business needs to be led by that purpose, seeing itself as a social organisation which cares about people and generates the profit necessary to sustain the pursuit of that purpose.” In the Blueprint analysis, purpose is a discipline, a reason to say no to doing things that, while they may be profitable, do not fit with the purpose — the company’s role in society. “The shift is from a narrow focus on financial value creation alone to a wider, richer view of what a company exists to do in the world.” To my mind this paper is one of the clearest contributions to the debate, short and usefully to the point. It goes on:

“While some stakeholder relationships are more material to business success, being purpose-led means seeking to have a positive impact on all those whose lives are touched by the company, avoiding manifest unfairness to anyone.”

This is the purpose of purpose, unlocking the opportunity of positive impact through business — and perhaps more importantly, having a reason to avoid negative impacts, even if they are profitable in the short term. For all of the cynicism that the noise around corporate purpose evokes, not least because so many users of the term seem to have no real intention to change anything that they do, and all the disagreement about what it actually means, there is a big opportunity for positive impact. Establishing a corporate purpose does need to change what a company does, perhaps on all the dimensions of what, why and how. By each company seeking to have a purpose that goes beyond the simple generation of short-term profit but that instead looks to generate long-term prosperity, we are more likely to achieve that economic prosperity. A broader and larger economic prosperity can then be more fairly shared between stakeholders. Perhaps we should do that on purpose.

See also: What’s the purpose of purpose? (II)


Purpose for PLCs: Time for Boards to Focus, Blueprint for Better Business, 2020

The Purposive Transformation of Company LawDavid Kershaw, Edmund Schuster, LSE Law, Society and Economy Working Papers 4/2019

Boards, Patrick Dunne, Governance Publishing 2019

Profit & Purpose, letter to CEOs 2019, Larry Fink, BlackRock

Principles for Purposeful Business, How to deliver the framework for the Future of the Corporation, The British Academy, 2019

Can a Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera, Matteo Gatti, Chrystin Ondersma, forthcoming Journal of Corporation Law, 2020
Also Oxford Business Law blog, June 11 2020

Making Corporate Purpose Tangible, SquareWell, 2020
Also Harvard Law School Forum on Corporate Governance blog, June 19 2020

Who’s drinking all the Lemonade?, Oxbow Partners, July 30 2020

Lemonade IPO Prospectus, 2020

Poverty isn’t bashful

Poverty is bashful says the Pope repeatedly in the first of the BBC’s Rethink essays. Rethink is a series of podcast reflections on the recovery from Coronavirus, and the world that we might aspire to creating once we escape our current constrained existence. Many hope that this is an opportunity to build a fairer world.

Far be it from me to suggest that, contrary to Catholic doctrine, the Pope is fallible — and I must admit that this particular Pope has far more direct experience of poverty than I do. So I won’t say that he is wrong; I will say that I disagree. Poverty is not bashful.

Poverty isn’t bashful. Rather, it is forced to the sidelines of our lives, it is ignored, it is chased from our streets by officious authority, squeezed into slums and ghettos, moved from public space by private closures — the gated communities of the wealthy or their ungated analogues POPS (the informal acronym for the privately owned public spaces that increasingly crowd our cities). It is hidden because it is inconvenient and difficult and so rarely reaches public or media attention. Companies hide it away by casualising their own workers, or outsourcing services or manufacturing, in effect pushing poverty down their supply chains, while squeezing what they pay suppliers making poverty wages more and more likely. That makes poverty less visible but no less present.

Poverty is forced into the corners because we hide it away, preferring not to know, preferring not to be embarrassed by the shame it inflicts on our comfort in the face of its discomfort. We collectively turn our eyes away, just as we do from the beggars on our streets or the sellers of the Big Issue (and other street papers around the world). In our comfortable lives it is more reassuring not to think of those on the margins, those who struggle day-to-day. These are not just the homeless, but also those struggling to put food on the table, dependent on free school meals and foodbanks — people whose ranks were growing ahead of the Covid crisis and have swollen still further during it. 

Poverty is not bashful. We choose to ignore it.

In part, we ignore poverty because we tend to fool ourselves that somehow most poverty is deserved. While some — perhaps — is, much arises from unavoidable circumstance. We so love to believe in meritocracy that we tend to ignore this unavoidable nature of much of the poverty around us.

One benefit of Covid 19 is that it has become harder to ignore others, it has become harder not to see the poor. Instead, it has become more clear how connected we are, how intimately our very chance to live is tied up with others. In a similar way, it has become harder for businesses to ignore the interests and basic needs of their workforce and the implications of how they are paid and treated. It has become almost a cliche among stewardship-minded investors that they will need to focus more in the next several months on the S (social) in ESG — meaning that they will increasingly challenge the companies in which they invest to do better in terms of how they treat their workforces. In part I suspect the reason for this new focus is guilt that they have previously given these issues only limited attention.

The Pope says we need to see the poor, that currently we don’t see them because we perceive them as only part of the landscape, just things. This I do agree with: we need instead to recognise their humanity. Companies need to recognise the human needs of their employees, and of the workers in their supply chains also. Just seeing more clearly would deliver to us all a greater sense of community, and would deliver a real opportunity to reduce the poverty and unfairness around us.

That would be a great, and a fairer, legacy of the Covid crisis. Let’s not be bashful.

The pursuit of happiness II

The Covid crisis is getting in the way of our pursuit of happiness.

Perhaps unsurprisingly, it has made us all more concerned about our health, both physical and mental, and it is also putting relationships under pressure. In addition, job satisfaction, the other leading driver of our sense of well-being, is being challenged for many as work changes, or in some cases disappears altogether.

These are findings of statistics from across Europe reported by McKinsey in a recent article, Well-being in Europe: Addressing the high cost of COVID-19 on life satisfaction. As the subtitle says, “Recovery will depend on saving lives, sustaining livelihoods, and supporting quality of life”. 

It is to my mind completely counter-intuitive to try to convert well-being into monetary terms (another case of misleading apparent accuracy of measurement when money is not the answer), but that doesn’t stop McKinsey, which delights in putting specific numbers even to the most subjective concepts. It leads them to the striking conclusion that Covid has led to a reduction in well-being three times as large as the fall in GDP experienced by the continent: 

McK wellbeing Covid

This analysis is particularly counter-intuitive given that McKinsey itself states that: “When it comes to life satisfaction, leaders tend to overestimate the relative importance of money and underestimate the value of non-monetary factors.”

To re-emphasise the importance of those non-monetary factors, the largest drivers of the reduction in well-being, or the fall in happiness, are the non-financial. By far the most substantial drop is in overall satisfaction with relationships; second, but with an impact less than half as large, is the fall because of lower health outcomes. Only after this come the more financially-driven factors: third is reduced income, and half as big as this is the impact from increases in unemployment. While one assumes that this last factor may have an increasingly negative impact as the extraordinary employment support measures that exist in much of Europe are unwound, it would have to quintuple in scale to reach the significance of the relationship element.

The conclusion is simple enough: leadership out of this crisis will take more than a focus just on the financial, just on the narrowly understood economic life. Instead, it will need to foster well-being, fairness and a focus on enabling the pursuit of happiness. As I suggested in The pursuit of happiness, we need leaders who remember what it is that makes life worthwhile.

The pursuit of happiness

All eyes are currently on the USA. Many there now acknowledge that rights to pursue life and liberty, as promised in the assertions of the Declaration of Independence, vary unfairly depending on the colour of an individual’s skin.

History echoes. In 1963, Martin Luther King Jr made his ‘I have a dream’ speech and spoke of the Declaration of Independence as a promissory note written to every future US citizen. “It is obvious today that America has defaulted on this promissory note, insofar as her citizens of color are concerned.” Perhaps this failure to deliver on those fine words is not surprising when the nation’s founding documents were written by slave-owners who asserted that all men are created equal without any apparent sense of irony.

The lack of equality, the lack of fairness, currently is clear. Research shows that “In 99% of neighborhoods in the United States, black boys earn less in adulthood than white boys who grow up in families with comparable income.” As reported by the New York Times, overall, 46% of poor black boys will remain poor as adults, while the same is true of 32% of poor white boys. Poverty should not be a heritable condition and should not depend on arbitrary factors, especially not in a nation whose self perception is that every individual has the chance to prosper. It does not fulfil the American Dream that unfairness infects that society, and merit is not the determinant of success (and too many over-believe in the power of merit: see Meritocracy’s Unfair). 

As well as the questions about the rights to life and liberty, the third of the ‘self-evident’ rights — to the pursuit of happiness — seems very much in doubt. The USA is not happy. According to the Hedonometer, these are the world’s unhappiest days in the sad long decade since the financial crisis, with the protests against police violence marking the single saddest day:


While the Hedonometer attributes this to the world as a whole, the data is mostly a function of the US experience. The Hedonometer uses the Twitter Decahose feed, a 10% random sample of the 500 million daily tweets worldwide, and selects those tweets deemed to be in English for its analysis. It then assesses the degree of happiness of the 200 million individual words that those tweets include. Since 21% of Twitter users are from the USA, and they will form a much greater percentage of those tweeting in English (Japan and Russia being the second and third largest sources of Twitter users), it is fairer to say that these are the US’s unhappiest days (the dominance by US sentiment is amply demonstrated by the double happiness spike towards the end of each year, representing Thanksgiving and Christmas). 

While the recent plummet is striking, perhaps most notable from this chart is what appears to be an overall downwards trajectory. People in the US in 2019 were consistently less happy than they were a decade previously, at the height of the financial crisis; that in spite of consistent GDP growth in 2019 and a dramatic recession in 2009. It is clear that economic success and GDP growth do not equate to happiness, and clear that the pursuit of happiness is failing.

It seems that the USA may unhappily have been aiming for the wrong things. Perhaps it is another case of the errors that are introduced by managing to what is easily measured.

For just as President Trump evidences his foolishness by continuing to equate stock market performance with the performance of the economy as a whole — it would be impossible for any truly successful businessperson to mistake the one for the other — it is foolish to equate GDP growth with general success, and so with happiness. Yet that is what the US, and much of the world, continues to do.

The founding fathers, for all their evident hypocrisies, were wiser. Jefferson’s choice of “the pursuit of happiness” for the rhetorical third arm of the self-evident rights marked a deliberate rejection of the more common use of “property” as the right sitting alongside life and liberty. This focus on property was based in the work of John Locke, who variously talked about life, liberty and ‘estate’ or ‘possession of material things’. While scholars debate Jefferson’s thinking in this respect, it is clear that he abandoned a narrow focus on material things and invited a broader look to a richer understanding of life satisfaction. Human flourishing is not just a function of property and wealth; and fairness in society is a necessary element of flourishing human communities, so that happiness is shared across society and is not enjoyed only by those who are most financially successful.

The failings of GDP have been broadly articulated. For example, I very much enjoyed Kate Raworth’s thoughtful and beguiling account in Doughnut Economics. As she notes, this harks back to the origins of economics itself. Aristotle distinguished economics, effective household management, from chrematistics, the art of acquiring wealth. The fixation on GDP growth as the measure of success feels more like chrematistics. 

Some countries have made an attempt to think more broadly about the purpose of government and of economics. The country most explicitly trying to break this fixation is tiny Himalayan kingdom Bhutan, which ignores GDP altogether and aims to deliver instead Gross National Happiness. While some are cynical about the happiness project, and indeed the genuine happiness of the nation’s people as a whole, the 33 measures under 9 domains that it uses to calculate the GNH score give an indication of the breadth of interests that need to be considered in a full understanding of what a true pursuit of happiness might entail:

  • living standards 
  • health
  • education
  • good governance 
  • ecological diversity and resilience 
  • time use [a sense of work-life balance]
  • psychological wellbeing [quality of life and life satisfaction]
  • cultural diversity and resilience 
  • community vitality

I share concerns about an attempt to put a number on happiness, but at least the Bhutan approach feels more coherent than the wreckage left in the UK of former prime minister David Cameron’s short-term fixation on wellbeing rather than just hard economic numbers. The Office for National Statistics is still attempting to collate and report on this, on a basis that amounts to little more than calls to a random sample of the population asking how they feel.

The interesting thing is how much is needed fully to deliver on happiness, and how little of that is currently represented in what is counted as economic life, and in GDP. Indeed much of it, particularly the ecological, runs expressly counter to how GDP is calculated. And the prominence of health in the calculation feels particularly apposite in current circumstances.

If the US truly is to think about how to deliver on its promissory note of the pursuit of happiness, it will need to rethink things fundamentally. Part of that will be to treat all of its citizens fairly, but a large part is to develop a very different consideration of what success looks like. Building and favouring resilient and vital communities will prove a part of that.

As history echoes down the years it is worth reflecting on Robert Kennedy’s words at the University of Kansas in the first days of his presidential run in 1968 (three short months before his sad assassination, the anniversary of which was just a couple of days ago): 

“Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things.”

Bobby railed at the oddness of the calculation of GNP, that it includes as positives pollution and environmental destruction, it counts additional home security measures and building more gaols, it counts military spending and the purchases of criminals’ weapons, while ignoring health, quality of life and joy: “it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

All eyes are on the US. Many are wondering if they should continue to respect the country, whether the nation should retain its pride in itself. Fairness is a necessary step. But perhaps if it paid out on that promissory note to all its citizens, particularly with regard to the right to the pursuit of happiness in all the richness and depth that the phrase implies, there might be a reason for real pride.

Jefferson, and his fine words

See also: The pursuit of happiness II


I have a dream, Martin Luther King Jr, 1963

Race and Economic Opportunity in the United States: An Intergenerational Perspective, Chetty, Hendren, Jones, Porter, Quarterly Journal of Economics, March 2018

As reported in Extensive Data Shows Punishing Reach of Racism for Black Boys, New York Times, March 2018


Doughnut Economics, Kate Raworth, Random House 2017

Bhutan Gross National Happiness

Office for National Statistics Wellbeing data

Taxing gains, closing loopholes

It seems certain that taxes will have to rise, at least in due course. It will not be the full answer to this need, but fairness demands that a simple first step must be to close loopholes and deal with anomalies in the system. I’ll write shortly again about corporate taxation, but this blog is regarding the unfairness embodied in capital gains taxation.

Just as anomalies around differential taxation of the self-employed have been exposed by Covid bail-outs applying in an equivalent way to them as to furloughed employees, so have the anomalies around personal service companies. These are used by individuals to offer out their consulting and advisory services, paying out income as dividends and used as stores of value that can be unlocked as capital gains at winding up — both forms of income facing lower levels of taxation than employee rates. Again, many of these individuals have sought Covid bail outs as if they were employees. The bail-outs imply that we are all in this together, but the prior tax advantages of this small group indicate again that we most definitely are not.

To give some shape to the disparity of the distribution of taxable gains, the US’s Tax Policy Center identifies that the top 1% of taxpayers by income received around 75% of the total benefit from that country’s preferential tax treatment of capital gains. This is far from fair and equal:

“Preferences for capital gain and dividend income will reduce tax burdens in 2019 by 5.7 percent of income in the top 1 percent of the income distribution, compared with 1.4 percent of income for other taxpayers in the top 5 percent of the income distribution and a smaller share of income for lower-income groups.”

Few taxes are as regressive in their impacts. The unfairness could be removed by equalising the tax rates charged.

The UK and much of the wider world, including the US (at least for gains on assets held for more than 1 year), charge lower tax rates on capital gains than on income. Personal service companies are just one way in which this differential is exploited by those able to choose to take income as gains. Another is carried interest, through which a number of private equity and other investment professionals are paid significant portions of their reward — in a form that is ostensibly aligned with the interests of their clients. 

The Resolution Foundation recently issued a report highlighting the extent of capital gains as a portion of the overall level of income in the economy. Using HMRC data analysed by a team based at LSE, the paper identifies the significance of taxable capital gains, worth some £55 billion overall in 2017-8. While this represents around £1000 for every adult in the UK, it is much more highly concentrated even than overall income levels: that total was shared by only 260,000 individuals and 62% of it was received by just 9000 individuals, each of whom gained more than £1 million.

The fact that much of this is income by another name is amply demonstrated by a chart that does not seem to appear in the report but was part of the associated presentation. This shows the persistence of taxable capital gains: fully a third of those with significant taxable gains in one year had also had significant gains in recent prior years. Gains are less lumpy than theory would indicate, suggestive of this being an exploited loophole.

RF capgains persistence

One of those areas likely to be persistent, because it clearly is income in another form, is carried interest. This is a very significant income for a small handful of individuals, as the table of data gleaned from HMRC under FOI legislation amply shows:

RF carried interest

Those benefiting from the favourable treatment of capital gains are already well paid: 45% of all gains were received by those in the top 1% of income earners (understanding income now in the narrow sense usually used, ie excluding gains). Only a tenth of the top 1% of income earners change when capital gains are included in the calculation. And the existence of capital gains makes the disparity between the haves and have nots starker than it is already: the top 1% by income take home fully 13.8% of overall income; when gains are included, the top 1% receive 16.8% of the total pie. Including capital gains in income calculations for other countries also leads to greater apparent disparities, and disparities that are also increasing over time. We know that capital has been favoured over employment since the financial crisis, and this is the natural — and unfair — consequence.

It is clear that the favourable tax treatment of capital gains is unfair, and in the context of a need for taxes overall to rise, it is also unsustainable.

But perhaps we should not stop there: taxable capital gains are an understatement of overall capital gains enjoyed by recipients. Loopholes could also be closed. For example in the UK there is an annual capital gains allowance, currently £12,300, meaning gains less than this are not taxed at all. Removing this allowance, perhaps just for those calculating self-assessment tax (ie all higher earners), would seem fairer. Cars are exempt, which is bizarre given that it can only be a very small subset of cars that ever see a gain in valuation — a subset open only to the wealthiest owners. Gifts to spouses and civil partners are exempt also, allowing some sharing out of assets (at the same time sharing capital gains, and indeed inheritance tax, allowances). Removing these exemptions seems logical and fair. More justifiable economically is the exemption for the gains on a main residence given that taxation of those might potentially have a chilling effect on mobility and freeing up unused property.

Capital gains taxation is only one example of income from wealth being taxed less heavily than income from work. That differential tax burden seems unfair and unjustifiable, and now is probably the time for that broader unfairness to be addressed also. One step in the right direction might be a land value tax. In an environment that will need economic stimulus, such a tax could have the benefit of promoting economic activity by giving an incentive to put assets to good use. The taxation of unearned gains, such as those from winning the lottery of planning consent, might need to be more generally considered. Whether we are ready yet for broader wealth taxation may be doubtful, but taxation focused on land, and on gains on land values, do have the benefit that these cannot be expatriated and taken beyond the reach of the exchequer.

Radical steps have already been taken to keep the economy alive. Radical steps will be needed to rebuild the fiscal base. Fairness needs to be part of those considerations.


The LSE team are holding a forthcoming webinar on their tax research:
How Much Tax Do The Rich Really Pay And Could They Pay More?
Monday 15 June 2020 4:00pm to 5:30pm


Distributional Effects of Individual Income Tax Expenditures After the 2017 Tax Cuts and Jobs Act, Tax Policy Center, June 2019

Who gains? The importance of accounting for capital gains, Resolution Foundation, May 2020