Draw Breath

It's good to see the Conservative Party, through the otherworldly presence of John Redwood, arguing strongly for the tax burden on UK business to be reduced (the full report, in pdf format, is here). And it's good to see Ireland's low corporate tax base cited as a warning: if British taxes aren't reduced, globalised businesses might just head to kinder climes where they wouldn't have to fork out so much to government.

Just one thing.

How are we to reconcile a fear about the tax burden on business with the fact that almost a third of the 700 top British business paid not one single penny in corporation tax during the 2005-6 period? Or that another third barely paid any? This, I fear, will require a more advanced mind than my own…

Well, it's certainly the season… Off Draw Breath's bloggers go to put these on:

Update: I get a lot of traffic from people at academic ip addresses googling Foss v Harbottle. I should emphasise that the following is at best rather speculative. So don't go sticking it in a university essay!

One last comment on the Aer Lingus move to Belfast. As I said last night, I have my doubts about Ryanair's motives towards Aer Lingus.

Aer Lingus is, essentially, a 25% subsidiary of Ryanair. But that doesn't mean that the maximisation of Ryanair share values (which its Michael O'Leary's legal obligation to deliver) would result from the maximisation of Aer Lingus share values. So I wonder about what he's up to. Does it involve him envisaging an actual reversal of Aer Lingus's decision? Such a reversal would involve wandering into some strange legal territory.

If Ryanair and the government did succeed in changing the decision, my guess is that Aer Lingus would be liable, at least in theory, to be taken to court by any of the minority shareholders, people like Denis O'Brien.

In law, decisions as to the best interests of a corporation can be taken by the majority of shareholders, at least within the constraints of how the company's terms of association define a majority in any given situation. But there are some exceptions, designed to prevent a majority from screwing around with the share values of the minority for their own ends.

One of these exceptions is fraud. Not dishonest fraud (though that too): fraud as in: "where a person entrusted with powers to be exercised on behalf of others used them for some other purpose," whether unwittingly or not. "Within certain limitations, the majority of the members in exercising their control over the company owe a fiduciary duty to the members as a whole to use that control for the benefit of the company as a whole."

Of course, the limitation on this exception to the Harbottle rule is that it's generally up to the company (in reality generally a majority of members) to decide what the good of the company is. That said, if you can prove that the majority were "seeking to appropriate benefits to themselves to the detriment of the company as a whole", you have a case.¹

So, let's look at the reasons the majority of shareholders might give to reverse the decision. In the unlikely event that the government were to fold, its interests would be clear, at least if O'Dea's "latter day Oliver Cromwell" comment is anything to go by. They would be acting in what they see as the national interest, rather than in the commercial interests of the firm.

As for Ryanair, well, I think my analysis of Ryanair's motives in yesterday's post is sound: they are pursuing the best interests of Ryanair, which are not necessarily compatible with the intersts of Aer Lingus's shareholders. O'Leary is clearly aware of this, stating that he wants the "profitable Shannon link" maintained "for the benefit of all Aer Lingus shareholders," before saying that Aer Lingus would be better off abandoning its Dublin-Gatwick route and switching to Belfast, rather than removing the Shannon-Heathrow link. In other words, that Aer Lingus shouldn't bother with direct airport-to-airport competition with Ryanair.

I'm not saying that, if this all came about, one might win a case (given that the burden of proof about the majority's motives would be on the plaintiff), but certainly the overturning of the directors' commercial decisions would mean that a legal victory would not be impossible.

So – again – what is O'Leary up to?

1 All the quotes are from the fourth edition of Keane's Company Law. (back)

Speaking of which, I see that Sarah Carey is delighted that Michael O'Leary is sticking it to the government by calling for an EGM over Aer Lingus's move from Shannon to Belfast. Sarah says that "I just LOVE him for taking this stance" so I think it's safe to say she's impressed!

Sadly, my capacity for love is more limited. Michael O'Leary has never knowingly undersold himself, but it's worth remembering that he doesn't personally own the shares to Aer Lingus and nor does he own Ryanair. He's an agent of the Ryanair shareholders and is under the same statutory duty as Aer Lingus's managers to maximise returns on their shares.

As I mentioned before, Ryanair's shareholders were not best pleased with the original Aer Lingus bid, so whatever O'Leary is up to now, he'd better make it count. My guess is that he's happy enough to have Aer Lingus flying into expensive Heathrow from Shannon where Ryanair has been competing with them successfully. He's most likely less delighted at the idea of them doing the same from Belfast when Ryanair is set to open new routes from Belfast City in October. I doubt Aer Lingus's decision was included in the Ryanair business model for Belfast.

So: what to do if you can't own your major competitor and stop them raining on your Northern Parade? And what do you do if your shareholders are wondering why you spent all of their money? Well, you do the next best thing: you perform a grandstanding wrecking job. PR and regional monopolisation all in one.

Welcome to the free market. 

Oh the joys of being an all-Ireland party! Marvellous to read two posts on the Sinn Féin site from the 7^th of August and one from the 13^th:

First we hear that:

"Sinn Féin West Belfast MLA Paul Maskey MLA has welcomed the Aer Lingus decision to base its new regional hub at Belfast International Airport.

Mr Maskey said:

"This is good news for local people who get new flights and hopefully cheaper flights."

and then, from Sinn Féin's Limerick representative, Maurice Quinlivan:

This decision on the Heathrow route if confirmed could prove very detrimental to our local economy and will make it difficult to attract tourism and future investment. Direct jobs will also be lost at the airport. We are a small island nation we need a national airline, one that will play a dynamic role in the national and local economy ensuring we have adequate cargo and freight routes as well.

Then there's Arthur Morgan TD:

“Fianna Fáil through its privatisation agenda has facilitated this financial loss to the country thus proving again that the privatisation of key public services and interests does not deliver better services, more jobs or a stronger economy."

So that's a clearly all-Ireland party line then.

How strange. I set up a Google Alert thingy last week for any news on Irish Credit Unions. So, I get an alert this morning telling me about Hyndman et al's Accountability: A Study of Credit Unions.

Now, this book is available directly from Oak Tree Press for €45, including shipping. It's available for £31 from Amazon (including their £1.99 sourcing fee), which is about €46, or for £18.99/€27 incl postage from one of their marketplace sellers.

But the page Google directed me to belongs to some group in the Guinness Enterprise Centre in Dublin called Research and Markets. They sell the book for the same price as Oak Tree Press: €40. What I find intriguing, though, is the €50 'handling and shipping fee.'

I dare not ask what sort of handling the book would receive but I assume it involves tongues.

We could soon have the ability to be walking solar panels according to a new fashion initiative previewed in the Siggraph 2007 show and featured in yesterday’s Guardian. Smart clothes have been with us in bulky form for quite a while now. However, technology has been honed to produce ever smaller and more lightweight garments. Take for example the solar bikini. A perfect way of keeping both skin tone and ipod charged. Just don’t forget the factor 50!

I've spoken before about the evidence on how SUV drivers, having exported the risks to people outside their cars, tend to drive more recklessly. Not that this makes SUV drivers a particularly unique demographic: for instance this graph suggests that, if anything, the introduction of mandatory seatbelt-wearing led to a worse situation than would otherwise have been the case in terms of overall deaths: the reduction in driver deaths was more than matched by a the growth in pedestrian and other deaths. As the study from which the graph was taken says, "to compel a person to use protection from the consequences of hazardous driving, as seatbelt laws do, is to encourage hazardous driving."¹

So. What has this got to do with the ongoing subprime crisis? Well, they're both stories about risk.

As this article in Wednesday's Financial Times (subs req'd) suggests, there is quite a bit of ground-level fraud at the root of the subprime problem.

It seems that people were falsifying applications for mortgages they couldn't afford partly by paying for people to pretend to be high-paying employers for instance. And it seems that they were encouraged by mortgage brokers to do so. As the article says,

"fraud has been detected up and down the financing chain: just as borrowers have lied to get better rates and larger loans, mortgage brokers and loan officers have lied to borrowers about the terms of their loans and may also have lied to the banks about the qualifications of the borrowers. Appraisers, likewise, have lied about the value of the properties involved.

"The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud," Ben Bernanke, Fed chairman, recently told lawmakers."

In other words, this weeks crisis in the securities markets hints at a disease at the roots: a pattern of reckless lending either through actual deception or through the encouraging of deception on the part of the borrower. But why would lending institutions collude in behaviour that could ultimately lead to their downfall? Why would the word be coming down from on high that volumes of borrowing was a higher priority than the quality of the loans?

The reason lies in the exporting of risk, itself the reason for the stock markets' responses to the crisis in subprime. Individual subprime mortgages were packaged together and sold on the securities markets so that all the risk didn't lie with the lending institutions, but with hedge funds. Not only did no single group own the risk, but there was an almost total disconnection between the people on the lending coalface and the people who owned the risk of their decisions.

The division between ownership and control is the classic dilemma of corporate governance – something I have a bit of a professional interest in. What happens when people – CEOs etc – get to make decisions using other people's – shareholders – money? In a sense, the subprime thing highlights another question – what sorts of risks will some people – investment bankers – take when the consequences of the risk either won't fall on them or are diluted through hedging?

The dynamics of subprime, just as with mandatory seatbelt legislation, gives us at least some part of an answer: risks are far easier to take if they're not your own.

I'm a fervent user of Google products, all in all working off Gmail and Google Documents, Calendar and Reader. So how comforting it is to read of this hack. Apparently if you're using the Google Suite over unsecured wireless, say in an internet café, someone can simply pick up the cookies Google sends you and then impersonate you to gain access to all of the applications in the suite.

Marvellous.

Anyway, I'm glad to report that – so long as you use Firefox – help is at hand: Lifehacker's Better Gmail extension has an option forcing you to use encrypted Gmail (something that Google seem to mysteriously discourage). For everything else there's the Customize Google extension, where you can not only encrypt your connection, but get rid of ads and all sorts of other stuff. Actually, Customize Google also deals with Gmail, but I like the Better Gmail extension for the other handy stuff it does.

Slugger's been having a fine old day of it today. What with the 132 comments on the new cross-border road thread (and counting of course), discussing such central issues as 'how my culture is threatened by road signs' and 'where are tourists when they're in a border town?', the place is a bundle of giggling toddlery joy.

And then there's some people's responses to Darren Graham's allegations of sectarian abuse while playing hurling for Fermanagh… I gave up just about at the point where someone had announced that 'no, you're really really bad.' So who knows? Maybe the thread emerged unstained by all the nonsense on the first few pages. I didn't stay to find out. While lots of people made sense, there's only so much creeping you want to do into a thicket of comments when some of them read like a colonic irrigation.

Still, what really made me blush with chest-bursting effervescence was the series of comments suggesting, essentially, that it's fine to call someone a Protestant cunt because – because – lots of people get called black cunts. Ah sure, isn't it only a spot of roughty-toughty gamesmanship?

Indeed, why don't we all hop onto the new road to Dublin so we can make monkey noises at Jason Sherlock or Seán Óg Ó hAilpín from the stands? All in the name of equal opportunities of course.

I'm off to Croke Park on Sunday to watch what – if the first match was anything to go by – will be a marvellous hurling replay between Cork and Waterford. I wouldn't for the life of me consider any other way to cap off what for me is set to be a very important weekend – more on that mid-month.

I'm constantly amazed at the degree to which the national game (rather too national for many people's comfort¹) continuously reflects Ireland's fluid, shifting society. And I am stunned at the capacity of people to give up their time to train when – everwhere else in industrialised world – voluntary activities are in decline.

But it's the people (not solely Ulster people by any means) who insist that every action – every signpost and every kick of a ball – is more than itself, it's these people that seem most foreign to me.

They are foreign because the state they are most happy in is very much a state of mind – one where the semiotics are facts and the facts mere semiotics.

1 I'm not all that impressed with Michael's rhetorical flourish here, but surely it's time the constitution of a sporting organisation sort of clarified that it's not our Marianne? (back)