:LPE:

The House of Lords passed a Company Law Bill in the U.K., which included some interesting reforms on the duties of directors. Link.

The stated objectives of the Bill are to enhance shareholder engagement and long-termism, accomodate small corporations needs, make it easier to set up and run a company, and to introduce a new reform power to allow updating and amendment. I have not done a close reading yet, but here is the Economist’s take. Link.

The Globe writes today that the “vast majority” of economists prefer consumption taxes to income taxes, and that Canada “lags behind” other OECD countries for having a lowerr proportion of tax revenues from consumption taxes (i.e., GST) than income taxes. Link.

It would be interesting to know who those economists are. It is a principle of tax policy that taxes should, as little as possible, distort economic decision-making. The Globe’s claim is that consumption taxes distort decision-making less than income taxes, because they do not hinder incentive to earn income and save it (for re-investment).

Aside from the questionable empirical basis for this claim (which relies on a chain of incentives, and typically under highly constrainted conditions), public finance economists recognize that consumption taxes are regressive — poor people spend 100% of their income, and pay consumption taxes on 100% of their income. Rich people save a portion of their income, and therefore are taxed on less than 100% of their income. Our tax system is progressive, based on the ability to pay. Moving to consumption taxes erodes this fundamental principle of taxation.

In effect, the Globe is advocating that rich people pay less tax, and poor people pay more.

From the American Society of Statisticians based on 2000 census data, via boingboing. Intriguing.

Windows Live Academic Home Page

From Windows, a new search tool. Note that they don’t use citation rankings for relevance, but (I suppose) are going for a more textured marker of relevance. I’m told there is software out there that better maps concepts to authority of papers. How, I’m not yet sure. Apparently the CIA invented it…and look where it got them.

A piece from the NYT on how courts are querying whether corporations can legitimately *not* pay the legal defence fees for employees accused of crimes (and not just negligence). The article goes through the usual reasons - and notes that defence fees in fraud trials (which can be a criminal charge) can be massive. It does not mention that typical D&O policies or insurance against employee wrongdoing would not cover intentional wrongful conduct, or do so at huge premiums. In other words, such legal fees cannot be economically insured, and so they come out of the profits of the corporation directly. Link.

You could even query whether corporation have equitable duties not to indemnify Boards where it is found they have acted intentionally wrongfully (a prohibition that applies to trustees, for example). This is also consistent with a defence available to employers when they are linked to actions against employees by the doctrine of vicarious liability.

It has its atttractions when we think of white collar criminal activity - but you can see the danger as it is applied to employees lower on the ladder.

Simon thinking

Originally uploaded by Simon Archer.

Milly caught me on the phonecamera last night at a birthday dinner.

A UK-based ethical investor (calling itself an ethical bank) has publically declared that it will not invest in International Financial Corporation securities. The IFC is the private sector arm of the World Bank. Link.

The Cooperative Bank’s reasons are that the IFc invests in fossil fuels, not renewables, and does not have a strong record of investments associated with poverty reduction. Thats a no-brainer. More work needs to be done on the IFC’s role in subsidizing risk — or more accurately, transferring risk.

The NYT reports that proposed changes to the method for measuring GDP further exacerbates something labour economists have been worried about for some time - that economic growth has become de-coupled from distribution of that growth through market mechanisms, primarily wages.

The new measurement of GDP would count intangibles investment as capital expenses, not expenses in the current year. Shifting this amount creates a greater capital:labour ratio, and implies that labour is getting less of the pie.

Link.

A real securities case unfolds. Citigroup has been accused by the Australian national securities regulator of insider trading - the first ever case against a firm, not an individual. This is a great case - Citgroup was tradings the securities of firms it was giving investment banking advice to, and making a profit from this inside information (it appears — the case is not yet heard). The defence is of course that the internal “chinese wall” stopped this and internal conflicts management are sufficient to prevent fraud. Anyone who has worked in this area knows just how damn porous a chinese wall can be. This is exactly why the US Congress passed the Glass-Steagal Act in 1933 (repealed in the 1990s), prohibiting banks from lending and providing investment advice at the same time. Time for Glass-Steagal II. Link.

Two cases, two current securities issues.

The first is whether banks can sell insurance. Alberta legislation prohibits selling insurance except by those permitted under insurance legislation. The banks are federally regulated. They clazim they can sell insurance without the province’s ‘ok’. The constitutional lawyers have sharpened their pencils.

The second is a Saskatchewan Financial Services Tribunal case holding that SROs, (self-regulating organizations), which are a key part of the de-centred, deterrence model of securities regulation, cannot censor former members, only current members, because they are no longer bound by contract. The SRO says it can. Depends on the language of the contract, which ther SRO says includes terms from its by-laws permitting the censoring of former members. The Saskie FST disagreed. It will be appealed.