Saturday, 21 November 2015

"Doing a Geoffrey" - Do Consumer Boycotts Work?

This time last year I finally gave in and decided to do some Christmas shopping on amazon. (I know the FiRe community is very down on "stuff" but everyone has to spend a little on it at Christmas don't they?) This capitulation followed several months of trying to do the right thing and boycott  them due to their tax avoidance (their treatment of employees being allegedly none too great either.)

I had been buying at local independent bookshops and feeling much better for it, but Christmas loomed, time was short, amazon deliveries are generally timely and prices competitive. I took the easy way out, felt pretty bad about the whole thing but did it anyway.

Today, with the Christmas shopping fast approaching yet again I decided to take another look at amazon to see what had changed and if I could feel a bit better about using their services this time around . It appears that things are on the move. Diverted profits legislation passed this year has forced the company to pass all it's UK business through HMRC for the first time since 2004. However:

"That development is unlikely to lead to a leap in Amazon’s UK tax bill, however, as the company continues to use further controversial structures to shift profits out of Amazon EU Sarl – which reported a loss last year – and back to the US."

So the answer to whether or not I can feel any better about shopping at amazon is "sort of", but not really. The ethos/character of the company hasn't changed, they're just finding it harder to do the same things and will keep on trying until all the loopholes are blocked. In fact their employee relations has been back in the news again. There is no evidence that they have any intention of reforming themselves into good guys any time soon.

So it's obvious that I can't persuade myself that it's now OK to go ahead and buy from them without guilt. However is boycotting them the best way of making my feelings about all this known or even really hitting them where it hurts?

Of course it's not easy to calculate how effective boycotts are as it's very difficult to count how many people didn't buy things, but last Christmas amazon anonymous had pledges from over 11,500 people to spend more than £2.5 million elsewhere. This was a very high profile boycott with backing from Ethical Consumer, probably just as effective a boycott you're likely to get, still the monetary effect it seems to have had doesn't look immense. In addition it didn't seem to have any impact on amazon's basic modus operandi as they only began to change when legislation forced them to do.

The trouble is that not enough of us were bothered enough to do something about it, and that is overwhelmingly the case where a very popular, convenient and high profile service/product like amazon is concerned. Boycotting amazon won't work, a small minority will put their money where their mouth is, whilst the majority will just make the right noises.

Apparently however, that "noise" is what companies should fear more than the slight fall in sales a boycott can produce. In fact the 2014 Deloitte global survey on reputation risk goes so far as to say:
"According to a study by the World Economic Forum, on average more than 25 percent of a company’s market value is directly attributable to its reputation"
The evidence suggests that companies should take the tag-line "It's got our name on it" very seriously indeed and Jefferey Bezos would be wise to be concerned about the reputation of his company. The fact that he rushed to its defence following the allegations this August proves that he knows this.

In the end though reputation is one thing and character another (the reputation of Volkswagen was obviously built on fairly sandy ground), and there must be serious doubts that the "character"/ethos of companies that continually fall foul of public opinion is sound. This is why our strongest weapon against immoral business practises isn't always in our purse, but in our democratic ability to influence legislation via our politicians. Collective conscience forcing standards of behaviour on business is far more powerful than individual action in this situation.

So, I will be going ahead and buying from amazon this Christmas. However I will also be moaning about them to anyone who'll listen whenever I'm given the opportunity. This post being a case in point :-)

(Oh and by the way, of course I realise that amazon's cheap prices are partly down to the very business practises which put it in the news, but there's also a lot of individual profit involved (for shareholders too, of which I am undoubtedly one). In 2014 Mr Bezos paid himself over the equivalent of £11 million. Paying a little more to get things right is sometimes necessary, and I would argue that people would see this if they are given the full information and choice about what they're actually buying - so long as they're not on the breadline of course.)

Monday, 9 November 2015

Diworsification and the Twitter Effect

It seems that Twitter uptake may have reached saturation point. Apparently the user count has stayed flat since the start of the year. Not good news for a social media service which bases popularity on pure numbers (as in number of followers, the "I follow you, you follow me" syndrome).

I do use Twitter but, I admit, not in the most "Twitter-ish" way. In other words I don't put any effort into boosting my followers and I "mix-up" my interests in the same account (some of my political re-tweets must drive my FI followers mad - if they ever read them, more of this below). In other words, I follow who I'm interested in and I tweet what I'm interested in. I only access my timeline about once a day - more often if there is a breaking news story that I'm curious about as I find it particularly useful for up to the minute information and opinion, and I don't tweet on anything like a regular basis.

Another interesting article about Twitter this week mentions a further effect that comes into play when it is used in the conventional way - i.e. the way aimed at gaining you the most followers by following lots of people yourself  - and that is a situation arises such that:

"genuinely tending to the tweets of more than 200 people becomes impractical (and unenjoyable) ..... with everyone sending out tweets few people have the time or energy to read or act upon." (Andrew Smith)

Over-enthusiastic "following" which is part of the essence of proactive Twitter usage, means you are less likely to actually see the quality tweets that you are really interested in, because your time-line will be full of stuff you're not really interested in .

 In many ways this emphasis on quantity rather than quality reminds me of the investing sin of diworsification - i.e. holding so many funds/stocks that any inherent quality/value in the portfolio is lost or watered down by the fact that it makes up such a small part of the whole.

The subject of this week's Portfolio Clinic in Investor's Chronicle is a case in point. The investor holds 46 funds, and as the commentators point out, he may as well be holding a global index fund at far less cost and trouble. But also, as with the Twitter "too much noise" effect any quality brought to his portfolio by actively choosing funds is drowned out by, and buried in, the quantity of assets he owns.

"46 is far too many. Apart from being a large number to manage, research and review, there is the potential for overdiversification or 'diworsification' - where a portfolio is spread so thinly that any outperformance is too small to be noticeable." (Danny Cox).

The obvious answer for us ordinary investors to the issue of diversification in equities is, of course, to hold a global tracker and not to look at it too often. This incidentally is also perfect advice for the ordinary Twitter user (celebrities excluded) who is determined to get their follower count as high as possible. Follow everyone, (if you're really dedicated to the task you can even use software to do the job for you) and don't even try to asses the quality of what they say. Trying to mix quality with quantity in either stocks or Twitter is a self-defeating exercise.

Monday, 2 November 2015

October 2015 Update

This month sees an ongoing reduction in our cash reserves (as intended). The markets have been doing what markets do, but the end result is a slight uplift to our investment portfolio from last month.

I am still waiting for the "aye" or "nay" on voluntary redundancy, but in the meantime, a colleague's discussion with the council's senior pension officer has raised an interesting point. He advised her to apply for VR this year rather than wait until next in the hope that by doing so she will beat proposed legislation to cap public sector redundancy payments.

Make no mistake I agree wholeheartedly with the statement that It’s not right that highly paid public sector workers should receive huge taxpayer-funded payouts when they’re made redundant" (Greg Hands, Chief Secretary to the Treasury). However some interesting effects of this ruling come about because the cap is to be applied to all forms of compensation on redundancy. And yes, this could, in slightly different circumstances, have meant me.

My top line salary is around £33,000 (pro-rata £26,000 as I'm part-time). I have worked in various part-time/full-time roles in local government for a total of 17 yrs 360 days, earning much less than I do now for the bigger portion of that time, before I funded myself through my MSc and got myself promoted. 

My colleague (the one who had the conversation with the pensions officer) is the same grade as me but works full-time. She has worked in local government for over 40 years, also in a variety of roles and, until the last 8 years or so, at much lower rates of pay. I wouldn't consider either of us "highly paid" even now, but we do both have long service and are in our late 50's, and that means that we are now eligible to receive our pensions if we are made redundant. This is where we (or people like us) could fall foul of the £95,000 cap.

If I am made redundant the system works like this:

I am entitled to redundancy pay of £24,000. 

Because I am now also eligible to claim my pension, the entitlement I have built up until the day I leave becomes payable without actuarial reduction. This is funded mainly from the pension fund coffers, but the actuarial reduction that would have been applied if I hadn't been made redundant has to be "made up" from local government funds (i.e. you and me - the tax payer). A quick calculation of my figures for this component works out somewhere around £18,000 in total. The actuarial reduction reduces for every year closer to scheme retirement you get, so in year 1 - from age 57 to 58 - it is 37% - around £3,300, in year 2 from age 58 to 59 - it is 34% - around £3,060 and so on (My total pension will be circa £9,000 by March 2016). In addition my tax free lump sum would also be granted without the actuarial reduction of around £1,000.

I will therefore be costing the tax payer £43,000 in total to let go. So it's not hard to imagine a situation whereby someone who has been in a middle income technical/professional/managerial role in local government for significantly longer than I have and/or has very long service and consistent full time employment, could fall foul of the cap. Someone of my age with built up pension entitlement of £18,000 a year would be very fast approaching the limit. On the other hand if I'm made redundant, the tax payer doesn't have to find my salary for the next 9 years, so saving themselves £234,000. As a "by-product" we have the degradation in the service I help to provide if I am no longer there, which is difficult to assess, but I would guess that it will eventually be significant. I really can't see how the slack could be taken up by the existing infrastructure as we've got way past that point now. "Value for money" for the tax payer is very difficult to assess depending on what that particular tax payer values. :-)

How I feel about this is mixed. On one hand I totally agree that large costs attached to redundancy for public sector workers should be tackled, especially the situation - which I have seen - whereby someone gets made redundant and is then re-employed, often as a "consultant", a couple of months later (mainly because the work still needs doing and in this way the "paper" costs have been reduced and the boxes ticked, but the person who can do the job most efficiently is re-employed to do it). But on the other hand I object to the "spin" that this change in the rules will only apply to "high earning" public sector workers.

I have no objection to being treated with fairness (even if that is via a degradation of the terms on which I embarked my employment) but I want it to be recognised that this is what is happening. Public sector workers, many of whom have professional qualifications doing jobs that do not have comparable roles in the private sector, have been taking a hammering on salary and status for a considerable time now. Maybe things will go OK if we decide that we've had enough and opt out back into the private sector where at least you're treated with "dog eat dog " respect. Maybe not. I suspect that we will all find out before too much longer. Personally I just hope to be allowed to go without having to see the mess I'll be leaving behind, either with redundancy "benefits" or without.