The unfairness of online dating

The world of online dating turns out to be one of the most unfair economies there is. It is more winner-takes-all than all but the most unequal countries. Today is probably the least appropriate of days to reflect on this, which is why I’ve chosen to do so.

Perhaps I should say that this is not the usual male post railing at the unfairness of being ignored or unsuccessful on dating sites. There seem to be many of these, contrasting strongly with the usual female complaints about online dating, which appear to be more about the unpleasantness, weirdness and general flakiness of men. Having never used online dating I don’t have a personal complaint to make, but given the data suggesting it is one of the least fair economies in the world, it seemed an interesting area to explore on this blog.

Typically for my blog I reference proper academic articles. However, the sources I’ve been able to locate for this post are far from that, and the most entertaining very far indeed. Worst Online Dater’s ‘study’ included only a handful of participants and his method for gaining their participation certainly would not meet academic ethical standards — he posed as a highly attractive man on Tinder and then sought insights from some of the women who ‘liked’ his profile and started messaging.

His results were striking. He calculated a gini coefficient as high as 0.58 for Tinder’s economy of attractiveness and swipes. This is worse than the income gini coefficient of all but a few of the most unequal countries, such as South Africa. And his Lorenz curve of the Tinder economy demonstrates how far beyond even the unfairness of US income distribution this Tinder unfairness sits:

Tinder lorenz

Though this brief study seems frankly pretty flaky, it is backed up by more robust datasets. The 12% of likes by women it identifies seems consistent with the 14% in more official reports, and with a finding according to OKCupid that women rate fully 80% of men as below average in terms of looks (perhaps contrary to expectations, men appear to have a much less skewed view as to the attractiveness of women). And more generally the inequality of distribution of likes does seem apparent elsewhere. Take Hinge [no? me neither], analysed by one of its own engineers, Aviv Goldgeier (according to an article on Quartz). On Hinge, apparently, users can like aspects of a profile rather than just the individual, meaning that there are potentially more likes to go around. However, their distribution is if anything less fair. The top 1% of men on Hinge receive 16% of all likes, and the top 10% nearly 60% of the total, leaving little to be shared among the bulk of men — the bottom 50% having to make do with less than 5%. The statistics for women are fairly similar but somewhat less extreme in each case:

Hinge dating

This gives Hinge a gini coefficient of 0.73 for men, and 0.63 for women, still worse than Tinder’s unfair economy, though the article discusses this in comparison with country wealth gini coefficients meaning it finds further countries are more extreme in their unfairness than Hinge — including the US and UK. It is perhaps an interesting philosophical debate whether profile attractiveness online should be regarded as equivalent to wealth or income, but whatever, it is clear that these dating services are winner-takes-all and apparently highly unfair economies.

But it seems that, perhaps inevitably in a dating context, the largest driver of this unfair dynamic is gender differences. A search for complaints about the unfairness of (gay dating site) Grindr emphasise more that site’s perceived racism and possible exploitative charging than anything else. As an aside, that general tendency of a number of dating services to exploit the wishful thinking of customers by charging them for additional services is readily apparent — see for example the US Federal Trade Commission’s complaint against in relation to charges for contacting accounts the company allegedly believed to be fraudulent.

It turns out that online dating is seen by men to be unfair mostly because of very different male and female approaches to dating more generally. For example, on Tinder women swipe right (for ‘like’) 14% of the time, while men do so 46% of the time. Women are pickier than men: that is something that even those unversed in the online dating world will recognise as a general truth. So there are less likes to share around the men, and the distribution of them is rather inevitably not fair.

Happy valentines.


Tinder Experiments II: Guys, unless you are really hot you are probably better off not wasting your time on Tinder — a quantitative socio-economic study, Worst Online Dater, Medium, March 2015

Your Looks and Your Inbox, Christian, OKCupid official blog, November 2009

These statistics show why it’s so hard to be an average man on dating apps, Dan Kopf, Quartz, August 2017

FTC Sues Owner of Online Dating Service for Using Fake Love Interest Ads To Trick Consumers into Paying for a Subscription, US Federal Trade Commission, September 2019

Meritocracy’s unfair

Meritocracy is unfair — at least believing in it too much can trap us in unfairness.

Like many British people I have recently been reading a good deal of history. My main era of choice has been the British revolution, usually known as the civil war, or wars, and mostly I have leaned on the brilliant Christopher Hill, still some years on regarded as the greatest historian of that period. Most recently I have read God’s Englishman, on Oliver Cromwell*.

Most odd to the modern ear is the certainty felt by Cromwell that he was led by divine providence. In this understanding of the world, military and political success, which Cromwell enjoyed in abundance, were merely a reflection of God’s will. There was no room for chance; success was itself a sign that he had been chosen and that his power was rightful. As he said to the 1655 parliament: “What are all our histories and other traditions of nations in former times but God manifesting himself that he hath shaken and tumbled down and trampled upon everything that he hath not planted?” Because Cromwell flourished where he was planted, God’s providence was with him.

Hill’s cynicism about Cromwell’s perspective is subtle, noting the tendency only to engage in battle when the roundheads had an overwhelming numerical advantage, and a somewhat equivalent tendency in his political manoeuvrings to act only when it was clear which way the tides of broad opinion were flowing. Cromwell himself would perhaps have seen both of these as merely waiting until the signs of God’s providence were made plain to him. I’m sure that many Irish might be rather more cynical about Cromwell’s view of divine providence, given the horrors in that land that his understanding of his religion led him to believe were wholly appropriate. Nevertheless, Cromwell felt assured by his perceived successes that providence was with him.

This argument that personal success is the result of being chosen, and that it is rightful because of that fact, seems odd to the modern ear. It seems odd, but the modern brain tends to fall into a remarkably similar fallacy. That is where meritocracy comes in: we tell ourselves that we live in meritocratic societies and therefore that we deserve all that comes to us. And through that same route, unfairness comes in: both because our meritocracies are flawed, and because there’s plenty of dumb luck that drives success, not just the skill and hard work that we like to imagine, particularly when the success is our own.

And by falling into undue faith in meritocracy, we become more unfair in our actions and outlook. 

In part, this is down to how humans understand fairness. Various studies have shown that people will tolerate more inequality when it seems justified by merit. Perhaps most striking is the 2019 paper Cutthroat capitalism versus cuddly socialism: Are Americans more meritocratic and efficiency-seeking than Scandinavians? from a team at Norway’s Centre for Experimental Research on Fairness, Inequality and Rationality. 

In this large study, so-called ‘spectators’ were given the chance to reallocate rewards between two ‘workers’ to whom pay had initially been allocated wholly unequally (one of the two receiving nothing at all). Playing to national stereotypes, the most popular choice among the US participants was to leave the distribution as initially awarded, whilst a majority of the Norwegians equalised the reward. The core of the study though was to assess how responses differed between situations first where the spectators were told the initial allocation of the reward was based wholly on luck and second where the basis of the reward was said to be differentials in productivity (which was undefined and unquantified) between the workers.

Perhaps unsurprisingly where the source of the inequality was merit (in this sense of greater productivity), spectators from both countries were willing to tolerate more inequality in reward, than if the basis was simply luck. Though many Norwegians still favoured equalising the rewards of the workers, the merit basis led to more being willing to tolerate inequality; more starkly, 80% of the participants from the US allowed unequal distribution of rewards where there was merit involved (though many did not leave the allocation quite as unequal as the starting position), while more than half of them equalised rewards where luck was the driver. As the paper concludes:

“We show that the source of inequality is essential for understanding inequality acceptance in both the United States and Norway; in all subgroups of our samples, we find that the introduction of a difference in productivity as the source of inequality significantly increases inequality acceptance.”

Similar findings come in Merit and Justice: An Experimental Analysis of Attitude to Inequality. Again here there was a comparison between attitudes to earnings based on skill and on luck. A group of individuals played a series of rounds of one sort of game (either skilled or lucky) and then had the chance to fine earnings from the other players. The group then played the other sort of game and had a second opportunity to remove earnings from others. There was a greater tendency to try to ‘rectify’ earnings where the game was one of pure chance, and some greater willingness to tolerate inequality arising from skill.

The paper discusses its findings in the context of a broader philosophical understanding of justice and fairness, and concludes that “Individuals attach merit to an outcome when it is due to skill, and do not when it is due to luck. Thus, the concepts of moral desert and justice are deeply connected, and one needs the other for a proper definition.” 

A further paper concludes something similar: “the perception of fairness is sensitive to the sense of entitlement, an important contextual cue that constitutes distributive justice”. This conclusion arises from The Flexible Fairness: Equality, Earned Entitlement, and Self-Interest. The study framed dictator and ultimatum game decision-making in the context of performance in another game, supposedly one of skill. Framing the ultimatum game with entitlement from merit (or the absence of such entitlement) led to different offers and different acceptances. In essence, those who felt entitled by apparent merit were less generous in their offers, and most starkly those who felt lower entitlement because of lesser perceived contributions were much more willing to accept even very uneven ultimatum game offers. 

This appears to be a universal trait — apparent merit colours how we perceive fairness. And, sadly, we do not seem to test too closely how significant is the merit factor in the overall result, and do not try hard to test whether merit is really there at all. The global nature of this attitude is shown by further work by the same team as delivered Cutthroat Capitalism, under the banner Fairness Across the World: the Nature and Consequences of Inequality. This is ongoing work based on redistribution experiments like those for the earlier paper, involving 65,000 people in 60 countries. It is not yet published, though headline results were released in a talk last November. I have scraped the following images from a twitter thread by @RobertoIacono83, Roberto Iacono of the Norwegian University of Science and Technology, Managing Editor of the Journal of Income Distribution.

Redistribution across countries is less equal in cases of merit than of luck:

Merit treatment slide

Luck treatment slide

Clearly, our understanding of what is fair is framed by an understanding of merit — even where the extent of merit and what has driven differential performance is unclear. Particularly striking is the variation between countries, the willingness in many countries to tolerate high levels of inequality even when it arises purely from luck. But overall, it is clear that people worldwide generally tolerate much less inequality where it arises from luck than where it arises from merit — the luck chart is set at a much lower level than the merit chart — though people from a few countries (most notably India and China) make little distinction between the two, tolerating remarkably similar levels of inequality whether it arises from luck or merit.

Fairness is not inequality. Our understanding of what is fair is shaped by our understanding of merit — or just an indication that one party merits more than the other. The problem arises because that meritocratic urge is not well calibrated and we seem willing to accept undue inequality on even the weakest evidence of differential merit. We want to believe in meritocracy and so are willing to do so even when it isn’t really there — we are tricked by our faith in fairness into believing that we are more surrounded by meritocracy than we really are. And that leads us towards unfairness.

Studies show that where managers are asked to frame their promotions and bonuses in terms of merit, they are more likely to display bias in favour of men rather than women. Where merit is not so heavily pushed in organisations, ironically managers are more likely to operate fairly between the sexes. Even in hypothetical situations, our bargaining position and more significantly our assumption about what we see as fair is coloured by what role we are asked to perform, meaning that our understanding of merit displays bias. In the Flexible Fairness experiments participants’ vision of merit and what proportion of the overall reward that entitled them to was blurred by their own position, as either the better performer or the worse performer: “earned entitlement is evaluated in a self-serving way”. We recognise merit when it flatters us, but are less swayed by the same measures when they do not portray us in as positive a light.

We like meritocracy and respond more favourably to inequalities that arise from merit. And yet we all know that our supposed meritocracies are not perfect. We know that luck is often a big driver of success — though like Cromwell we want to think that success (particularly our own success) is always righteous rather than just the product of chance. We want to believe in meritocracy, and particularly those of us who enjoy some success want to believe in meritocracy. And that leads us to act less fairly than we might, because we are tempted to see success as evidence of merit, not simply of a combination of factors including luck. We might be better off, and happier, if we were grateful for the chances that have helped us to be successful, than if we believe it is simply on the basis of merit.

As the Cutthroat Capitalism paper states: “The lower acceptance among Scandinavians than among Americans of inequalities reflecting luck may contribute to explain why there is greater support in Scandinavia than in the United States for policies aimed at reducing the accident of birth as a source of inequality.” Remember that fairness is a choice and that the evidence shows that the heritage of Scandinavia was no more equal than any other part of the world. There appears to be nothing inevitable that made Scandinavia different, other than political choices in the second half of the twentieth century. The article I reference in that blog was discussing Sweden but note that the chart shows Norway followed the same trajectory as its neighbour, with inequalities as extreme as anywhere in the years around 1900, and notably low inequality now.

A belief in meritocracy seems to play a significant role in the US view that there is less need to intervene to prevent accidents of birth having broader impacts. This slide from a recent presentation by Harvard University’s Stefanie Stantcheva on Perceptions of Inequality (given at the San Diego meeting of the Allied Social Sciences Association and the Econometric Society earlier this month, as part of a special session dedicated to the IFS Deaton Review into inequalities in the twenty-first century) is very striking in this context. It compares the real likelihood of someone born in the poorest fifth of the population making it to the richest fifth in their lifetime with the perceived probability. In the study, only the US participants thought this was more likely to happen than is in reality the case (and they put the greatest likelihood on that event of all participants even though it is least likely to happen in their country).

US optimism

People in the US are lulled by the myth of the American dream into believing their nation is more meritocratic than it is in reality — leading them to tolerate more inequality and to accept undue unfairness. It is surely this excess faith in meritocracy that leads to the US stereotypes displayed in a number of the studies discussed here.

We are all lulled by our wish to live in meritocratic societies into a belief that merit is a greater driver of success than it in fact is. Meritocracy may be fairer than the alternatives, but we risk becoming decidedly unfair when we have too much faith that we actually live in wholly effective meritocracies.


*I post this blog on the anniversary of Oliver Cromwell’s hanging and beheading.
That was in 1661, more than 2 years after his death and burial.


Cutthroat capitalism versus cuddly socialism: Are Americans more meritocratic and efficiency-seeking than Scandinavians?
Ingvild Almas, Alexander Cappelen, Bertil Tungodden, NHH Dept. of Economics Discussion Paper No. 4/2019

Merit and Justice: An Experimental Analysis of Attitude to Inequality
Aldo Rustichini, Alexander Vostroknutov, PLoS One 2014, 9(12)

The Flexible Fairness: Equality, Earned Entitlement, and Self-Interest
Chunliang Feng et al, PLoS One 2013, 8(9)

The Paradox of Meritocracy in Organizations
Emilio Castilla, Stephen Benard, Administrative Science Quarterly, 2010

Biased Judgments of Fairness in Bargaining
Linda Babcock, George Loewenstein, Samuel Issacharoff, Colin Camerer, American Economic Association, 2011

A belief in meritocracy is not only false: it’s bad for you
Clifton Mark, 2019, Aeon

The fast track to a life well lived is feeling grateful
David DeSteno, 2019, Aeon

Better ways of showing how people matter

In brief follow-up to my last blog, it is worthwhile to reflect on the latest report from the FRC’s Financial Reporting Lab which on January 16th published a report on the ways in which leading companies currently report on their workforce. The report provides suggestions on how others can consider adopting better practice.

“In trying to understand which companies are able to build and maintain a productive workforce over time, investors are interested in how a company intends to support the development of its workforce in a sustainable, long-term fashion,” the report states, making clear the challenge by going on to say: “there is no single approach that captures how human capital considerations have an impact on company performance”. 

The proposed model of placing human capital investments on the corporate balance sheet, as critiqued in People matter, but not like that, is certainly not the favoured single approach for any of the companies identified as producing leading practice. That’s welcome.

The fact that there is no single approach to appropriately capturing human capital considerations is in a sense the opportunity for companies, who can highlight the value of their people in the way that most suits their business model. As the Lab rightly highlights, the other thing that investors are keen to understand is the effectiveness of board oversight of employee issues, without which the link to strategy and business model cannot mean anything of substance. 

My favoured among the sample of good practice that the Lab identifies is Rentokil Initial:

Rentokil clip

From this small sample of their reporting in the Lab report, it is clear that the company is willing to talk openly about challenges as well as the positive stories, and it publishes clear metrics about performance, including year-on-year performance. Rentokil takes seriously the skill levels of its workforce and has an idea of the culture it has and is seeking.

The example from the report that perhaps best covers issues of fairness is that from SSE:


While I’m rather dubious about the very precise numbers put on this (for every £1 invested in 2017, apparently SSE generated £4.52 in return on inclusion, ROI; it predicts £7.56 ROI on each £1 of investment in 2020 just from business as usual, £11.33 ROI from a tweaked strategy or £15 ROI from a fully upgraded strategy), the company’s approach is admirable and does attempt to address some of the current unfairnesses and inequalities in our country — as well as allowing the company to identify and build a workforce that should prove effective and loyal. The hoped for £15 return happens to be the organisation’s target for delivery by March 2021, with the main driver for achieving it appearing to be a still more inclusive approach that seeks to advance many individuals now most neglected by employers. That can only be a good thing, something that must advance fairness.

As discussed in People matter, but not like that, at the end of the day the real driver for that fairness will be when these metrics on people actually matter for executive reward. It’s therefore welcome that Rentokil Initial recently switched to make employee retention a measure in its performance share plan (albeit only 5% of the total) as well as (rather opaquely) part of its bonus scheme. SSE determines fully 20% of executive bonuses (though none of its performance share plan) based on a range of workforce measures. In this, as with their reporting on workforce issues, the two companies are unusual and exemplars. Sadly they remain uncommon still as insufficient companies genuinely seek to take the steps necessary to deliver workforce fairness.

People matter, but not like that

Taking the workforce seriously and treating people fairly and well is not served by mechanical approaches that hide as much reality as they purportedly reveal. Yet too often those proposing radical reform see the need to squeeze things that are by their nature hard to measure uncomfortably into a single box of a spreadsheet. That risks failing to do justice to the issues involved.

Their aim is an admirable desire to ensure a focus on fairness to stakeholders — in this case workers — and to drive long-term business success. Yet the approach is surely wrong-headed. Things absolutely need to change, but it would be best to focus on the areas where change can best be delivered and where it will have the greatest effect.

Two recent reports suggest specifically that investments in people be added to corporate balance sheets. One is in the US, Leo Strine’s Toward Fair and Sustainable Capitalism (see The Limited Responsibility Company), and the second in the UK, part of the British Academy’s Future of the Corporation work. This blog seeks to unpack these proposals, to the extent that they are clear, and test whether there is a better route to achieve their aims.

Strine is most explicit. One of his headline calls is: “Change accounting rules to treat investments in human capital like other long-term investments and require companies to disclose more information in narrative form about their human capital investments.” The second portion of this is unarguable, particularly in a US context where companies report little — mostly because they claim to feel constrained by litigation risks to disclose only what they are required by regulation to disclose. But the first portion is rather more debatable. In case there is any doubt about the proposal, the unnatural revolutionary later makes his meaning explicitly clear: 

“instruct the Financial Accounting Standards Board to revise generally accepted accounting principles to treat investments in human capital as capital expenditures like investments in plants, property, and equipment”

His intent is that investments in human capital should be capitalised on corporate balance sheets.

The Future of the Corporation’s proposal is less explicit — indeed a cynic might say that the bulk of its Principles for Purposeful Business is opaque and too high level to be meaningful — but appears to head in the same direction. It states that: “Measurement should recognise investment by companies in their workers, societies and natural assets both within and outside the firm.” The confusion of what is actually being proposed is shown by its call both for a “greater consensus … and standardisation of available information” and that “the board of a company should determine the firm-specific metrics against which fulfilment of purposes … can be evaluated”. How measures can be standardised and at the same time bespoke and company-specific is a mystery to me at least.

The intent of the Principles for Purposeful Business is made less opaque in one of its underlying papers, How to Measure Performance in a Purposeful Company? This states: 

“from a purpose driven, non-financial management perspective, investments into training of employees is viewed as an investment into building social and human capital for the company and its employees. This investment would be expected to yield positive operational results and should therefore be capitalized.”

Again, the intent seems to be that investments in human capital should be capitalised on corporate balance sheets.

There are practical challenges around this — not least the question of whether such capitalised employee assets should be amortised or subject to periodic impairment assessments. Those who follow accounting debates will know that this is a highly controversial area where there is much doubt about the effectiveness of the impairment process — but also a recognition that amortisation does not really reflect the economic reality of many capitalised assets, which often endure rather than deteriorating in value on a straight line basis over an arbitrary period. If we did capitalise it as an asset, would the value of training simply be amortised, or would it be written off when significant numbers of the trained individuals departed the business or a business process changed? 

There’s the old adage about half of the spend on advertising being wasted but that it is impossible to know which half. Investing in a business’s people surely suffers from a similar challenge, with the added complication that it is impossible to know how much of the half of spending that hits home will in practice remain in the company to its own business benefit. This makes both impairment and amortisation models hugely challenging. But none of the proposals I have seen suggesting that these be balance sheet assets have started to consider the most basic practical challenges around their proposal.

There is also a philosophical challenge — to whom does the value of training belong? It is surely hard to state that the value of everything in staff members’ heads belongs to their employers. The old saw of the majority of some companies’ value going down in the lift at the end of the day is a truism, so saying that training is a capital asset for the corporation is surely philosophically difficult. Regular readers will not be surprised to find that I do not wholly agree with Milton Friedman’s take on human capital, as set out in What is human capital? on the ever-excellent Aeon. This argues that the concept was invented as an argument in the Cold War, turning each individual into a mini-capitalist hawking their personal assets around businesses. The long-term consequence of this approach appears to have been divesting in people rather than the opposite — but the philosophical point that a person’s brain cannot belong to a corporation surely has some weight. 

Friedman’s argument that it is for individuals to invest in themselves and that corporate spending on staff training is worthless is clearly wrong. But seeing training and employee relations as generating an asset purely for the corporation must also be wrong — it must be about generating productivity within the business and about employee retention. It is certainly hard to keep good staff if the message to them is that they do not matter to the organisation. 

The academic literature on intangibles, which for many include aspects of employee skills and experience, focuses most often on the challenges with inclusion in accounts that arise from difficulties of measurement and objectivity. But as IAS 38 on intangibles clearly recognises, separability from the operating business is key — how can intangibles be calculated as separate assets when they only exist within the business processes? This is why many investors (and preparers of accounts) are frustrated by the current rules requiring the breakdown of goodwill into some separately calculated intangible assets — which exist only for accounting purposes because they cannot in practice be severed from the business as an operating business. That intimacy with ongoing value creation is precisely why these contributors to corporate value matter so, but that does not mean they need to be turned into balance sheet assets. Putting a false single value on something core to the ongoing business is more likely to mislead rather than inform (see What gets measured gets managed, unfortunately).

At their hearts, these proposals to capitalise employee expenditure are attempts to deliver greater fairness between spending on staff and spending on capital assets, and attempts to avoid disincentivising investment in people, which has led in part to less productivity in business. What might be a better approach to deliver on this intent?

Many will find it hard to disagree with the conclusions of the Brookings Task Force on Intangibles, as quoted in a 2019 FRC discussion paper on the issue:

“After some internal debate and extensive interviews with individuals preparing financial statements, users, auditors, standard setters, and regulators, the task force has concluded that the debate about capitalization versus expensing of R&D focuses on the wrong problem. What investors want, and need, is information about the value of internally developed intangibles and the other factors that drive the value creation process in firms.’’ 

This is also the conclusion of the IIRC (International Integrated Reporting Council). While its model talks about six capitals, one of which is human capital, it doesn’t argue that these need to be capitalised assets on balance sheets. Rather, first it notes that each of its six capitals are simply reminders for companies to ensure that their understanding of value creation fairly respects all relevant stakeholders, and that companies are not expected always simply to report on each of the capitals separately but should consider how they are best reflected in the company’s business model. As an aside, it would be great if more (some!) integrated reporting companies respected this call to think independently. But more relevantly, the IIRC model is that the capitals should be disclosed in the narrative reporting, using KPIs and hard metrics of performance and what has been delivered over the reporting period, but not altering the financial reports themselves.

This is the general model of the IIRC — that the reporting on key issues should be in the narrative section of reporting and not influence the financials. This seems wrong in some areas, such as climate change, where the financial implications of carbon constraints will need to be fully integrated into the balance sheet and income reporting by companies — as Nick Anderson of the IASB has recently acknowledged. But the approach does seem right for human capital issues. 

At its heart, what matters is not what is on the balance sheet, but that management should not be disincentivised from appropriately and fairly investing in the long-term of their business, including in the skills of their people. That’s why a recent study by Nesta is for me so depressing. The Invisible Drag on UK R&D demonstrates just how short-termist are the measures applied by the bulk of UK corporations (and there is no reason to assume that the UK is any worse than other markets, so this criticism is likely to apply to most public companies):

NESTA LTIP incentives

In particular, the chart shows just how low a rating most companies place on employee issues. It appears that just one company across all the UK listed businesses studied uses a health and safety measure, and only three use other employee measures in assessing executive performance. Even when they are used, their proportion within the overall incentive structure is so low as to be largely irrelevant. And unfortunately the three-year time horizon typical of LTIPs and their total shareholder return (TSR) measures is not sufficient to compensate for this as any underinvestment in staff skills is unlikely to become reflected in share prices over such a time period, whereas the cashflow benefit from the underinvestment will be felt immediately. The statistics for bonuses are no better: employee measures represent only 4.1% of the non-financial performance metrics, with a further 12% using health and safety measures; again, even where these metrics are used the portion of the overall incentive that they represent is paltry. 

It is perhaps no wonder that the UK has a productivity problem if no senior management has any incentive to invest actively in their people — indeed they appear to have active disincentives from doing so. Let’s address that problem fairly and squarely rather than reshaping corporate balance sheets as an indirect — and highly dubious — route towards the same direction.


I explored some of the ideas in this post further in: Better ways of showing how people matter


Toward Fair and Sustainable Capitalism, Leo Strine, Harvard John M. Olin Center for Law, Economics, and Business Discussion Paper No. 1018, September 2019

Principles for Purposeful Business, British Academy Future of the Corporation project, 2019

How to Measure Performance in a Purposeful Company? Analysing the Status Quo, British Academy Future of the Corporation Working Paper 3, JC Strehle, K Soonawalla, M Metzner (2019)

What is human capital? Aeon, 2017

Unseen Wealth, Report of the Brookings Task Force on Intangibles, Ed Margaret Blair and Steven Wallman, October 2000

Business Reporting of Intangibles: Realistic proposals, FRC discussion paper, February 2019

IFRS Standards and climate-related disclosures, Nick Anderson, IASB, November 2019

The Invisible Drag on UK R&D: How corporate incentives within the FTSE 350 inhibit innovation, NESTA, 2019

The limited responsibility company, or the tale of the unnatural revolutionary

“If companies do not focus on making sustainable profits by selling useful products and services, and treat their workforce well, our economy will not work fairly for everyone.”

Companies are at risk of losing their connections to the real world. It is some 200 years since the creation of the first limited liability companies in something close to the form that we now know them. The risk now is that some businesses are seeking to be limited responsibility companies.

This is the unwritten thesis between the lines of a radical set of proposals from a remarkably conservative source. Leo Strine does not strike one as a natural revolutionary. Most recently chief justice of the Delaware Supreme Court, he has spent more than 20 years as a judge in that state’s courts — the most important for corporate law because diminutive Delaware made its corporate framework attractive enough that over half of the US’s publicly traded companies are incorporated there. Strine has consistently been a careful jurist who has maintained the status quo more often than move the law forwards. For example, he has consistently reinforced the ‘business judgment rule’ which essentially frees US company directors from challenge to the bulk of their decision-making.

And yet now, Strine is questioning US business’s collective judgment — as the quote that heads this post indicates. Indeed, he is proposing something that for US culture at least amounts to little less than a revolution. This is in a paper published in his last month in office before his recent retirement, for the consistently challenging John Olin Center for Law, Economics and Business at Harvard. In it, Strine puts forward “A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing between Employees and Shareholders…” and several other things besides. 

The paper is called Toward Fair and Sustainable Capitalism. Naturally, I like the title.

strine pic

Strine puts forward what he claims to be no less than a new model for capitalism. For this, he adopts the acronym EESG, adding ‘employees’ to the start of the usual ‘environmental, social and governance’. Let’s set aside the issue that employees are central to most people’s understanding of what the ‘social’ in ESG means — perhaps the fact that this is not understood by so smart and thoughtful a commentator as Strine indicates just how much change is needed to US corporate culture. Setting that misunderstanding aside, the proposals are more than worthy of careful consideration.

It is a broad-based manifesto, only some of which I will seek to address this time around. Strine’s proposals include:

  • requiring operating companies to give appropriate consideration to and make fair disclosure of their policies regarding EESG issues;
  • giving workers more leverage by requiring large companies to have board level committees charged with ensuring fair treatment of employees, enabling works’ councils, and reforming labour laws to facilitate wider union membership and bargaining for fair wages and working conditions;
  • changing accounting rules to treat investments in human capital like other long-term investments and require more disclosure of human capital investment;
  • that if a company provides quarterly earnings guidance, it must also provide a broader context considering longer-term factors such as EESG;
  • requiring institutional investors also to have due regard to EESG, and explain how their policies and practices deliver on this requirement;
  • closing loopholes on disclosure of company ownership so that activists must disclose their economic positions in companies promptly and honestly;
  • reforming the corporate voting system in a number of ways that Strine suggests are supportive of sustainable business practices and long-term investment; these include transforming the vote on pay from up-to-annual to every four years, making it harder to submit shareholder proposals, and requiring the disclosure of the economic interests in the company of any investor making a shareholder proposal or soliciting proxies;
  • improving the tax system to encourage longer-term investment and discourage speculation — not least by extending the holding period for capital gains taxation, ensuring carried interest is taxed at the same rate as other income and establishing a financial transactions tax — with the resulting proceeds being used to green US infrastructure and tackle climate change; and
  • reforming corporate political spending and forced arbitration, to level the playing field for workers, consumers, and ordinary investors.

So is Strine right? First, it is fair to say that Strine reserves some strident criticism for institutional investors as well as urging them to put EESG at the core of their work (clearly, he has seen no evidence that they do so already). I will perhaps return to this criticism of investors in a later blog. Second, it is important to note that Strine’s criticism of capitalism is focused exclusively on the US, and it is fair to say that capitalism in the US is very much an outlier, particularly in the area of Strine’s greatest focus, the treatment of employees (workforce may be a better term given that one of the issues with the current version of US capitalism is that some companies carefully structure themselves and their contractual relationships so that the bulk of their workers are not in fact employees). 

The US is an outlier. Much of what Strine proposes in relation to EESG looks very much like the standards expected of UK companies through the modern interpretation of directors’ duties under s172 of the Companies Act. In particular, the Corporate Governance Code now insists that boards in some way ensure that the voice of the workforce is heard at board level, offering ways in which this may be done including by having worker representatives on the board itself, or having a designated non-executive director with the specific role of liaising with staff. Clearly much of this — not least worker representatives on boards — is already in place in much of Europe, and some UK voices are pressing hard for this particular solution to be taken forwards here. Strine’s proposals would only amount to a partial catching up with these approaches.

In part, the US hesitancy over taking account of stakeholder interests in a way similar to that called for in s172 reflects the ongoing misunderstanding that US law insists that corporate boards must focus on shareholder interests alone. This is not actually what US law requires. And US companies make much less disclosure than others on ESG (or EESG) matters, fearing greater exposure to legal action than necessary if they report more than the Securities and Exchange Commission (SEC) strictly requires of them.

In theory, the major US companies have now asserted their belief that stakeholders matter. Through August’s Statement on the purpose of a corporation, 181 US corporate leaders asserted that other stakeholders are as important as shareholders to their businesses. Yet this statement from the Business Roundtable has not been followed by any substantive changes in business approach. Indeed, it has become apparent that those same corporate leaders continue to pursue business as usual; for example it was within days of the issuance of the statement that Amazon (led by signatory Jeff Bezos) decided that its newly acquired Wholefoods should move to withdraw healthcare coverage from hundreds of part-time workers. So much for providing workers with important benefits and for stakeholders more generally (see also Demanding Supply).

Amazon is not alone. Apple, probably the most lauded company of recent years, has prospered by outsourcing its manufacturing, denying much of the responsibility for the lives of those in its supply chain by putting its business at contractual arm’s length from ongoing allegations of mistreatment of workers by, among others, Hon Hai Precision Industry (usually known as Foxconn). Uber has in effect outsourced its whole driver workforce, seemingly absolving it of all responsibility for their earnings or welfare. A couple of years ago I had the privilege of sitting on the panel alongside an anonymised Tesla worker who risked his job by making allegations that the company was irresponsibly risking the health and safety of its workforce in a rush to meet accelerating production targets.

This corporate denial of responsibility to those who create their products and provide their services has to be recognised as wholly irresponsible. 

With the development of such limited responsibility companies, no wonder there is a sense that the corporate world has become disconnected from society. In a very deliberate way, too many companies have sought to be so, cutting the ties that earth them. The company, an invention of law which is really just a nexus of relationships with actors in the real world, is in some cases at risk of morphing into a pure fiction drifting free of all reality. 

Perhaps it is therefore no wonder that the unnatural revolutionary Strine feels the need to rework US capitalism to put workers back at its centre. His proposals offer an interesting step towards reinjecting responsibility into US business, reconnecting companies with the factors that make them part of the real world — most importantly by reconnecting them much more fully with their workforce. His is a lengthy set of prescriptions, but it may be a long journey back from the world of the limited responsibility company.


Toward Fair and Sustainable Capitalism

Accountable Capitalism, Governance

Statement on the purpose of a corporation, Business Roundtable

Solidarity: fairness and the workforce

“Cooperatively calling for a fair workplace reflects a basic human desire to care for others in a mutually supportive way.”

I’m not sure that Google would be high on my personal list of employers showing the way forward for workers’ relations, but there is a recent Aeon article that is well worth a read from the perspective of fairness and industrial relations.

Aeon is one of my favourite venues for accessible academic thinking, and I’m pleased to be a supporter. This brief article is written by Carl Rhodes, deputy dean of the business school at the University of Technology Sydney.

Find the article here Solidarity is not dead: how workers can force progressive change.

“The pursuit of workplace fairness is not just a matter for the individuals who have been mistreated, maligned or manhandled. Justice is not just justice for me. It forms the heart of a community. What that community is collectively prepared to accept as fair and unfair defines its moral character.”

Demanding supply

There has been much talk in both British and US business of late about stakeholders. A couple of years ago UK politicians and commentators appeared to rediscover section 172 of the Companies Act 2006, which codified the pre-existing law on directors’ duties. Section 172 makes clear that prosperity in business can only be delivered by taking into account the interests of stakeholders (including, specifically, employees, suppliers, customers, local communities and the environment). Companies are now responding to a new call in the Corporate Governance Code to report on how they have done this in practice. More recently, the US’s Business Roundtable (BRT) in August purported to redefine the purpose of the corporation by asserting the need to consider the interests of customers, employees, suppliers and communities as well as shareholders. 

I’ve explained elsewhere that the modern US assumption that shareholder interests always come first is a misreading of the legal precedents, so this restatement seems unnecessary. It’s also worth noting that the negative response to the BRT statement from the major US investors was based more on a disbelief that any of the 181 corporate signatories actually meant it than on a belief that stakeholder interests are unimportant. The actions since its publication of many of the companies whose leaders signed the statement have not demonstrated any shift in their approach to the treatment of stakeholders: none has demonstrated greater fairness of late.

For these key stakeholder relationships all need to be mediated by fairness — indeed the BRT statement specifically mentions fairness, at least in relation to employees and suppliers. Yet, all of these stakeholders are at various times mistreated and not dealt with fairly — if this were not the case there would be no need for the US corporate elite to restate something that amounts to no more than motherhood and apple pie. 

Of all the unfairnesses, perhaps the most consistently unfair is the way that large companies treat their suppliers. The power imbalances in most supply chain relationships were brought home very clearly to a friend of mine early in his business career when his triumph over a successful negotiation, knocking down a supplier’s prices significantly, turned to rather different emotions a few months later when the supplier went bust. This, and the challenge and cost of replacing that supplier, apparently amounted to a highly chastening experience. 

Most choose to sweep it under the carpet, but the unfairness of these differential power relationships is made plain by those handful of companies that are transparent about their economic treatment of suppliers. The result is economic madness as well as supplier unfairness. A typically excellent recent report from the Financial Reporting Lab highlighting best practice disclosures on the sources and uses of cash includes a small section on supply chain financing. It is mostly obliged to lean on invented examples as there is precious little best practice in reporting on such financing. The report does, however, include some disclosures from AstraZeneca which allow us to have some insight into the economic irrationality that underlies how big companies treat their suppliers.

AstraZeneca reveals in its Annual Report (p34 and p177) a relatively recently established supply chain financing programme, whereby suppliers are able to be paid earlier than their contracted due date through payments from financiers Taulia and Greensill Capital. AstraZeneca then pays Greensill on the contractual date. The suppliers in effect pay an interest rate for the privilege of being paid earlier than they might be. As at the year-end December 2018, 2548 suppliers were enrolled and the trade payables associated with the programme amounted to $166 million (the newness of this programme is clear from the fact that this balance has risen from $64 million in the prior year, and $0 previously).

A more mature such programme is operated by Vodafone. It has 3500 suppliers enrolled, and the balance of supplier invoices in the programme at year end March 2019 was £2.5 billion (this seems to be near steady-state as the prior year balance was £2.3 billion). The company explains this as follows: “Our suppliers have the opportunity to take up early invoice payments on a completely voluntary basis, where payment can be taken in advance of agreed terms at much lower rates than they are likely to receive under traditional factoring or borrowing arrangements” (quote from p63 of the latest Annual Report, other information p161). 

It is that ‘at much lower rates than under traditional borrowing arrangements’ that reveals the unfairness of this approach for our economy as well as for the individual suppliers. Having had discussions with the financial institution that provides this financing, the model is clear: it is an arbitrage between the cost of debt of Vodafone (very low) and that of its suppliers (higher, by a lesser or greater margin). In effect, suppliers are allowed to piggy back on Vodafone’s credit rating and so borrow money more cheaply than they might otherwise be able to.

For many finance teams, this reflects a way they seek to demonstrate their effectiveness: they try to manage down the company’s working capital, minimising the amount of money tied up in the business. Among other actions, they work to extend supplier terms, and measure success by paying as close to the final deadline as possible. Nirvana in this mindset is negative working capital — being paid by consumers or customers for goods before having to pay suppliers for the inputs. Some finance teams wear this like a badge of honour.

It’s economic nonsense though. As the Vodafone case shows (and note that I have no reason to believe that Vodafone or AstraZeneca are any worse than other companies, it’s just that we have some visibility on what they do), this is a deliberate shifting of the borrowing burden onto those with a higher cost of capital. Before anyone suggests that money is essentially free for consumers, do remember that at least 4% of consumer spending is on (expensive) credit. Even on relatively modest assumptions, the economic drag from just this visible portion of Vodafone’s approach to paying its suppliers runs into the tens of millions of pounds.

Companies act as though this money that they use to run their business, the money that is in effect borrowed from customers and from suppliers, is free. But the cost drag is clear: a higher cost of debt is built in to the prices companies pay their suppliers. So not only is the differential power relationship between companies and suppliers leading to unfairness, it also represents a drag on the economy. If the larger companies provided the financing, and did not seek to minimise their working capital, the overall cost of debt in the system would be reduced, leading to greater economic efficiency and greater fairness to all participants.

We need to find a fairer approach.


Accountable Capitalism, Governance, October 2018

Statement on the purpose of a corporation, Business Roundtable, August 2019

CII Responds to Business Roundtable Statement on Corporate Purpose, Council of Institutional Investors, August 2019

Disclosures on the sources and uses of cash, Financial Reporting Lab, September 2019

Lessons from Argentina, and Copperfield

As Argentina’s economic problems worsen, with capital controls reintroduced and the value of its debt fallen back to around 40c on the $, I have been reflecting again on a recent trip there. It is a wonderful country, with beautiful countryside and delightful people. My memories are clouded though by the economic lessons that are impossible not to see around you. It was unfairness visible.

I was there on the day in August of the primary elections when current President Mauricio Macri was trounced by his populist rival Alberto Fernandez. These votes didn’t mean anything in themselves other than foreshadowing the real thing, due at the end of this month. There had been huge and angry demonstrations leading up to the election date, and the streets were filled with political billboards. During the day itself, the streets seemed quiet and the main impact I felt personally was the ban on alcohol sales until 9pm on the day of any vote.

The waiter who brought me that 9pm beer was thus particularly welcome, but he was also particularly glum. The exit polls were already showing victory by 40% by Fernandez, which he regarded as a disaster. Others were more positive: I am told supporters of Fernandez flooded some streets in Buenos Aires in noisy celebration, though I didn’t witness that.

The currency markets, however, agreed with my waiter: the peso fell almost at once by 25%, and share prices by 35% (in non-peso terms, shares halved in value), putting further pressure on an economy already facing steep recession through Macri’s tough austerity programme. Unemployment is high, and inflation is creeping upwards despite administrative controls — in spite of those controls, it is running at over 50% a year.

I have never before travelled in an economy falling apart in front of my eyes. Cuba was non-functional but still people coped; everyone seemed to have some small scam going, mainly revolving around getting hard cash from the tourist market. The number of people who ought to have more productive lives who were operating as tour guides was hugely depressing. In a similar vein, I vividly remember the shelves of a supermarket in Soviet Russia holding only distinctly blue-tinged milk, and nothing else; and yet the people seemed to expect nothing better and survived. Both were messes in their own ways, but in their own ways they were steady state situations. Argentina was different.

I had only before studied the theory of shoe leather costs — the daily grinding additional burdens that arise in an economy weighed down by high inflation. But in Argentina there was no escape from seeing its reality. There were long daily queues at cashpoints to take out the meagre amount permitted for withdrawal each day — P2000, at a fee of P350-450 per transaction (those administrative measures to limit inflation are pretty blunt). The blackboards showing prices which changed rapidly, or the multiple labels on menus to reflect the fact that last week’s prices no longer reflect economic reality; or the side-stepping of both with lengthy negotiations about what price is appropriate and can be afforded on both sides. Silent queues of protest outside the offices of the failing municipal utilities. In a country of high unemployment and little opportunity, time is cheap and so gets wasted in various mundane frustrating ways. Soviet Russia used to formalise this by requiring shoppers to queue up three times to make a single purchase, should there have been anything other than blue milk to buy. This was in part a make-work scheme and in part a make-slow scheme. But Argentina demonstrated that formality is not needed and queuing can become a way of life. Mostly those queues and protests were quiet and dignified but the underlying anger was not hard to sense, and it was not hard to imagine more of those quiet protests at some point boiling over into something more — the point at which unfairness can no longer be tolerated.

One of the most poignant sights of a proud economy that is failing came at the border with Brazil — the mutual bridge proudly painted with each nation’s colours to halfway, the green and gold of Brazil glowing with a recent coat and the blue and white of Argentina cracked and peeling. The saddest sight was the bags and bags of onions seized at the border. Smuggling even this mundane a product was lucrative enough to justify the risk of being caught and all that might entail. 

But Argentina’s problem is more fundamental and mundane even than onions: with 10% unemployment and a third living in poverty life is impossible for many, but even the average middle class wage of around P30000 a month is no longer proving possible to live on. As inflation has outstripped wage rises, everything has become too expensive, so even the middle class is struggling and barely coping. Perhaps the queues at the bank would be still longer if people had more money available to them to spend. Discussing the situation reminded me of Wilkins Micawber in Charles Dickens’ David Copperfield (freshly and dazzingly brought to our screens by the magical Armando Iannucci). He states the problem with precision:

“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Micawber, like too many Argentines, is always the wrong side of that equation. The tragedy of Micawber is that while his sunniness in the face of what ought to be misery allows him to believe that something will turn up to unlock him from the inability to afford to live, we the readers believe that it never will (though Dickens is ever a benevolent author). That we have whole economies now operating on the false promise that something will turn up is our current tragedy — it is unfair that we seem to be lying to such people, who do not have the benefit of salvation at the hands of a kindly writer.

And sadly we cannot assume that this phenomenon is restricted to emerging economies. How else can we explain the ever-increasing personal debt levels, the use of equity in housing and rising credit card balances, that are a feature across major developed economies? While interest rates are low, significant portions of the world are now operating on the never never. While it temporarily keeps individuals’ heads above water, overall it will not make us more prosperous. Indeed, it might seem that there are pockets of troubled economies hidden within the wider, supposedly prosperous developed economies: that’s what our inequalities and unfairnesses have brought us to.

consumer credit data UK

Take the latest Bank of England figures on consumer borrowing (above). There has been no overall repayment of consumer debt since 2012, and while the monthly growth in debt has reduced marginally in recent months it still has a run-rate of around £1 billion a month, and now totals over £200 billion (this is in addition to mortgage borrowing, which also continues to grow, at around $4 billion a month, and totals some £1.4 trillion). That £1 billion a month, £12 billion a year, is a significant portion of the overall level of household expenditure in the UK, which runs at around £300 billion annually. Mr Micawber’s hopes make up around 4% of personal spending. The inequalities and unfairnesses that we all face mean that we are collectively hoping that something will turn up. False and unfair aspirations are likely to end in tears.

To return to Argentina, and the lessons that we might learn from it, I can do no better than quote from the conclusions to a recent (US) National Bureau of Economic Research working paper on Latin American populism: 

“Populists implement redistributive policies that violate the basic laws of economics, and in particular budget constraints. Most populist experiments go through five distinct phases that span from euphoria to collapse. Historically, the vast majority of populist episodes end up with declines in national income. When everything is over, incomes of the poor and middle class tend to be lower than when the experiment was launched. I argue that many of the characteristics of traditional Latin American populism are present in more recent manifestations from around the globe.”


On Latin American Populism, and its Echoes Around the World, by Sebastian Edwards, NBER Working Paper No. 26333, October 2019

Funds facilitate unfair pay

Institutional investors wave through pay practices that are unfair — to themselves as well as to others. Even the best barely manage to arrive half-way towards fairness. Funds thus fail to have fairness at the heart of what they do.

These are the conclusions of a fascinating recent presentation by Steve O’Byrne and his Shareholder Value Advisors, still available as part of an on-demand webinar (at least at the time of writing). 

It’s worth noting of course that Steve has developed a particular definition of fairness, and his own detailed statistical analysis of whether companies deliver it — and also whether investors respond appropriately. But the mere fact that he considers fairness is clearly welcome, and his analysis at the least confirms that there is a problem (as if further confirmation were needed). It’s worth also noting that he focuses purely on the US, where that problem is arguably greatest, and his main focus with regards to investors is their voting on so-called ‘say-on-pay’ resolutions, the normally annual non-binding votes to approve company pay practices.

Steve’s definition of unfairness is essentially one of excess rents — ie payouts that are undeserved, essentially because they provide rewards for performance that is no better than the industry standard. By this definition, these are unearned payments and so should not form part of any individual’s earnings. To the extent that investors are supporting payments that amount to unearned rents they are harming their own returns and signing off on skewed economics.

He has developed what he believes to be the perfect structure for a fair pay scheme, which derives awards based on TSR and the level of vesting based on returns greater than the industry. Whether everyone would deem the outcomes of these calculations ‘fair’ may be in some doubt, as the starting point is ‘market pay’, ie it assumes that generally pervading pay levels for top US executives are appropriate, in effect baking in current levels of unfairness. Nonetheless, the model does appear to deliver some greater relative fairness between executives and between companies, and it is a useful thought experiment stepping towards a broader fairness that reflects economic rationality. Steve is good enough to recognise that there is another form of ‘perfect’ pay structure to have been proposed for corporations: the Dynamic CEO Compensation model developed by excellent UK academic Alex Edmans. Both this, and Steve’s own version of perfection, have some striking similarities with the proposals for lifetime restricted stock compensation that a number of investors (notably Norges Bank and Hermes) have been trying to promote.

While there are dangers in a focus on TSR — this must always be an output of decision-making and there are dangers in bringing it into the foreground through making it a metric — over the long term it should be a reasonably fair measure. It is usually regarded by investors as the least gamable of performance measures. It is potentially subject to gaming, yes, but less so than other metrics and with fewer perverse incentives built into it. 

In some ways, it appears that investors are doing a good job: Steve identifies a high correlation between votes against US say-on-pay resolutions and the amount by which CEO pay exceeds fair levels in terms of company size, industry and relative TSR. However, he notes “extraordinarily high pay premiums are needed to get a majority ‘no’ vote” so majority opposition is only brought about by truly egregious cases. His other yardsticks on fairness include whether the CEO is paid more than 2.5x the median of the other 4 disclosed highest earners at the company and assessing pay against relative returns on invested capital. Both seem sensible measures of some aspects of fairness, though it is impossible to know if the calibration set is the right one.

However, despite this limited positive, two of Steve’s overall conclusions are pretty damning:

  • only 3 of 213 funds are halfway to what he would say is fully informed and fair say-on-pay voting (kudos to Irish Life, Calvert and to Wells Fargo, which leads the pack with a calculated 56% vote quality); and
  • three quarters of funds vote with a lower quality than the overall average, which itself is sadly below 40% of perfectly fair levels according to the calculations.

And his chart on the fair voting performance of the largest fund managers is unimpressive:

Fair pair voting

BlackRock is the only one of these for which he provides broken out data, and the 28% average according to Steve’s calculation is dragged down in particular by his analysis that the firm votes against only 7% of those situations where the CEO’s pay premium above a fair level is more than 100%.

It must be clear that this is an idiosyncratic analysis, and a particular and personal perspective on fairness. No doubt through other lenses the performance of the investment industry would appear better. But the clients of the industry, who can only dream of the rewards received by top CEOs — and would welcome small portions of the pay inflation that they have enjoyed — could certainly be forgiven for asking if this is fair. It is further evidence that too many investors continue to be content to allow the persistence of much unfairness, in effect facilitating it.