The SEC's vote this week to change the rules on shareholder influence in US boardrooms has predictably ruffled corporate feathers.
While SEC Chairman Mary Schapiro sees the move, which allows shareholders with a 3% plus holding in a listed company to nominate board members, as "a matter of fairness and accountability", business lobbyists are far from convinced. "A giant step backwards for average investors", reckons David Hirschmann of the US Chamber of Commerce. “So fundamentally and fatally flawed that it will have great difficulty surviving judicial scrutiny,” argues Kathleen L Casey, one of the two Republican Commissioners who opposed the change.
Paul Atkins, in the Wall Street Journal, warns the new rule would "increase the clout of special-interest groups at the expense of the vast majority of shareholders", and business leaders have vowed to fight on against the changes. On the wider principle of regulatory oversight of board behavior, there is still intense debate as to whether bosses' pay is any of the government's business.
But given what's happened in the last couple of years, it's hardly surprising shareholders are looking to flex their muscles. In a survey of senior investment and pensions figures published earlier this week by Penrose, two thirds of respondents anticipated growing shareholder presure on fund managers to boost levels of engagement with corporates.
Whatever your view on government "interference" in corporate governance standards, few would deny the behaviour of business directors falls within the remit of business owners. And since even the biggest institutional investors couldn't possibly hope to keep tabs on governance at every company they invest in, there would seem to be only two alternatives. Cross your fingers and rely on the good faith of directors (seriously?). Or take an active approach to engagement within a reasonable and proportionate regulatory framework.
AF
Friday, August 27, 2010
Thursday, August 19, 2010
The Age of Austerity?
Yesterday, for the first time since 1986, the opening day of an Oval test match did not sell out. This could be down to the pusillanimous performance of the touring Pakistan team in the preceding matches, or maybe the looming crisis facing English cricket. But seen alongside a range of other recent developments, it might be perceived as an indication that we are entering what the boss of Asda this week rather gloomily termed an "Age of austerity".
The debate about how best to approach this daunting prospect continues to rage. Lord Skidelsky and Michael Kennedy, writing in the Financial Times recently, invoked Keynes' argument that “the boom, not the slump, is the right time for austerity at the Treasury”, and concluded that "austerity in the capital budget is the worst possible remedy for a slump".
But, as P-Solve CIO, Glyn Jones, pointed out in this week's Financial News, the snag with this argument is that austerity measures weren't applied during the boom years. Furthermore, are we really looking at meaningful austerity measures anyway? The outgoing Labour administration's final forecast was that the value of all UK gilts in issuance over the next five years would rise by another £567 billion, whereas the new coalition government forecasts this figure will now be "a mere £454 billion. And we are told this is austerity." In fact, he continues, it's unlikely that any government will have the nerve to impose anything resembling real austerity, because of the harmful impact on the electorate. More likely, inflation will come to be seen as the best way to write off colossal debt levels. As Mr Jones concludes, "outright default is unlikely for most countries, but inflation is not. It is simply the easiest way to share the pain of removing excessive debt."
AF
The debate about how best to approach this daunting prospect continues to rage. Lord Skidelsky and Michael Kennedy, writing in the Financial Times recently, invoked Keynes' argument that “the boom, not the slump, is the right time for austerity at the Treasury”, and concluded that "austerity in the capital budget is the worst possible remedy for a slump".
But, as P-Solve CIO, Glyn Jones, pointed out in this week's Financial News, the snag with this argument is that austerity measures weren't applied during the boom years. Furthermore, are we really looking at meaningful austerity measures anyway? The outgoing Labour administration's final forecast was that the value of all UK gilts in issuance over the next five years would rise by another £567 billion, whereas the new coalition government forecasts this figure will now be "a mere £454 billion. And we are told this is austerity." In fact, he continues, it's unlikely that any government will have the nerve to impose anything resembling real austerity, because of the harmful impact on the electorate. More likely, inflation will come to be seen as the best way to write off colossal debt levels. As Mr Jones concludes, "outright default is unlikely for most countries, but inflation is not. It is simply the easiest way to share the pain of removing excessive debt."
AF
Tuesday, August 17, 2010
Financing the Frontiers
The recent news that China has become the second biggest economy by GDP may be unsurprising, but to dismiss this jump as nothing more than a nominal milestone would be remiss. Whilst changes to GDP league tables may have little or no impact on China's foreign policy towards the West, its growing economic clout will likely lead to increased efforts to court emerging economies.
China's investment in Africa is growing at an unprecedented rate (at present there are an estimated 800 Chinese companies working in at least 12 African nations) and criticisms around China's approach abound. China is widely accused of giving with one hand and taking with the other; building stadia, mines, roads and refineries and in return bleeding the continent dry of its natural resources. To dismiss China's intentions as little more than a grab for Africa's mineral wealth however, overlooks the complexity of the relationship and more importantly underestimates the contribution China makes to shaping young nations.
The World Bank and the IMF may offer financing but China also provides labourers to do the work. True China has a nasty habit of awarding contracts for infrastructure projects to Chinese firms (all four new world cup stadia were built by Chinese companies) who ship in Chinese workforces wholesale, but this is no different from the way American and British companies operated in the past. Furthermore, many of the projects China funds run at a loss, effectively making such initiatives a form of aid.
Critically, China provides insight into building new states that the West simply cannot. To many frontier market economies China represents an ally and guide that can help them mature through their industrial age, providing a road map to an economic independence that has long eluded them.
NS
China's investment in Africa is growing at an unprecedented rate (at present there are an estimated 800 Chinese companies working in at least 12 African nations) and criticisms around China's approach abound. China is widely accused of giving with one hand and taking with the other; building stadia, mines, roads and refineries and in return bleeding the continent dry of its natural resources. To dismiss China's intentions as little more than a grab for Africa's mineral wealth however, overlooks the complexity of the relationship and more importantly underestimates the contribution China makes to shaping young nations.
The World Bank and the IMF may offer financing but China also provides labourers to do the work. True China has a nasty habit of awarding contracts for infrastructure projects to Chinese firms (all four new world cup stadia were built by Chinese companies) who ship in Chinese workforces wholesale, but this is no different from the way American and British companies operated in the past. Furthermore, many of the projects China funds run at a loss, effectively making such initiatives a form of aid.
Critically, China provides insight into building new states that the West simply cannot. To many frontier market economies China represents an ally and guide that can help them mature through their industrial age, providing a road map to an economic independence that has long eluded them.
NS
Wednesday, August 4, 2010
Quality brands banking on success
Within the next 12 months, the retail banking sector is set to become increasingly competitive. With Tesco, Virgin Money and the Post Office expected to launch into the current account arena, current providers are getting jittery. And so they should.
Not only are these companies known for being easy on a thrifty consumer's purse, they also seem to have a vague understanding of customer service. As a customer of my (unnamed) bank, I can honestly say that I sometimes wish my bank manager would greet me with the middle finger before dispatching me with a swift kick in the rear. Anything would be better than the surly unhelpfulness and general confusion caused by its myriad of call centres. At least by taking the former approach, I would know exactly where I stood and could take appropriate action. Instead, I am treated to a theatrical display of West End proportions whereby the bank and its dastardly minions of doom go through the pretence of caring.
What they need is more competition. It's a sign of a healthy market place and hopefully the newcomers will focus their attention more on actually viewing customers as a help as opposed to a hindrance.
SI
Not only are these companies known for being easy on a thrifty consumer's purse, they also seem to have a vague understanding of customer service. As a customer of my (unnamed) bank, I can honestly say that I sometimes wish my bank manager would greet me with the middle finger before dispatching me with a swift kick in the rear. Anything would be better than the surly unhelpfulness and general confusion caused by its myriad of call centres. At least by taking the former approach, I would know exactly where I stood and could take appropriate action. Instead, I am treated to a theatrical display of West End proportions whereby the bank and its dastardly minions of doom go through the pretence of caring.
What they need is more competition. It's a sign of a healthy market place and hopefully the newcomers will focus their attention more on actually viewing customers as a help as opposed to a hindrance.
SI
Wednesday, July 28, 2010
Testing times
Last Friday the Committee of European Banking regulators (CEBS) published the long awaited results of its stress tests into the region's leading financial institutions. The tests revealed that seven of the 91 European banks had failed to meet the capital requirements.
Even before the test results were published, many market commentators had concluded that the tests were pointless and unlikely to achieve very much. The whole endeavour was not exactly helped by CEBS' website failing its own stress test and crashing just as the results were published. Who said the Europeans can't do irony?
Many critics have pointed to the low capital ratio required to pass the tests and the fact that all the tests relied on data supplied by the banks and verified by their local regulator. Grave uncertainty has also arisen surrounding the consistency of the methodology - with implementation of the scenarios depending to some degree on the local regulatory authorities. It has also been hard for analysts to ignore the fact that the criteria were not only less onerous than testing already conducted by some regulators, but also than some of the banks' internal worst-case forecasts. So, the 'adverse' scenario is not really all that adverse: it assumes only a slight output contraction and market losses on government debt, but no actual sovereign default scenario.
However, the fact that investors still seemingly mistrust capital adequacy rules and that these tests have been branded by many as neither uniform, transparent nor stressful enough, may ultimately not matter that much. The clearest sign that the tests have set the European banking industry on the path to recovery will be seen in interbank lending and the capital markets – if these do not improve then Europe will have to think again.
SS
Even before the test results were published, many market commentators had concluded that the tests were pointless and unlikely to achieve very much. The whole endeavour was not exactly helped by CEBS' website failing its own stress test and crashing just as the results were published. Who said the Europeans can't do irony?
Many critics have pointed to the low capital ratio required to pass the tests and the fact that all the tests relied on data supplied by the banks and verified by their local regulator. Grave uncertainty has also arisen surrounding the consistency of the methodology - with implementation of the scenarios depending to some degree on the local regulatory authorities. It has also been hard for analysts to ignore the fact that the criteria were not only less onerous than testing already conducted by some regulators, but also than some of the banks' internal worst-case forecasts. So, the 'adverse' scenario is not really all that adverse: it assumes only a slight output contraction and market losses on government debt, but no actual sovereign default scenario.
However, the fact that investors still seemingly mistrust capital adequacy rules and that these tests have been branded by many as neither uniform, transparent nor stressful enough, may ultimately not matter that much. The clearest sign that the tests have set the European banking industry on the path to recovery will be seen in interbank lending and the capital markets – if these do not improve then Europe will have to think again.
SS
Monday, July 26, 2010
Three barrels full – BP
The latest furore which has spouted forth from the well that is the BP PR machine is going to take just as long to clean up as the black mucky mess which continues to wash up onto the shores of the Gulf of Mexico. The three doctored images which were uploaded onto BP's Gulf of Mexico response homepage this week have arguably caused more damage than some of the many other gaffes that have dogged BP's PR efforts since the first announcement of the oil spill in May.
In fact, BP has single handedly violated almost every rule of successful public relations, starting with the first one, which is to 'tell it all and tell it first', they then quickly broke the second which is to 'allow only the well trained and polished spokespeople speak to the media and public'. The problem is not that there are mistakes and crises (there always will be and there is no way around this – especially with something as hazardous as deep-water drilling). However, not all crises have to mean job losses, careers ruined, staff illness, environments destroyed and international condemnation. The problem in BP's case is the challenges came from the poor handling of communications from the start, which are in essence, self inflicted wounds which have continued to cause injury long after they've been made. PR in this instance seems to have been used as a band-aid rather than a tool for getting the right messages out to the right audiences in a clear and simple manner. Public relations isn't about exaggeration and manipulation, it's about communicating the public what is going on within a company in a controlled manner.
As a result, BP is now fighting a PR firestorm on all fronts, from peeved shareholders, to the outraged local community who have had their livelihoods put on hold and in danger, to the US government, to vocal national and international environmental groups and to employees and health and safety unions. They are also fighting fires from the inside, trying to manage and keep a lid on its internal communication channels (including the management of some of its renegade spokespeople). This includes its (current) Chief Executive, Tony Hayward, who bemoaned recently, 'I want my life back' – hardly the positive PR message that BP is trying to communicate to the world audience who is watching the disaster with the grim fascination of a car wreck they can't tear their eyes away from. In fact, it must feel like a touch of déjà vu for BP's head of communications Andrew Gowers, former editor of the FT and also the man who incidentally manned the PR at Lehmans Brothers during their collapse.
The images, which have sparked the increase in criticism, include the cut and paste doctoring of two images of the Houston control room where BP staff are monitoring the leak and one from inside a helicopter over the Gulf. It's called into question one of the consistent messages BP has been trying to drum home – transparency. Many are now jumping on BP's alleged lack of transparency as an attempt to continue to manipulate versions of the truth months on from the initial disaster. BP has since now gone on the front foot to post both original and fake versions of the photos on flickr which hasn't appeared to lessen the condemnation any further.
Perhaps the lesson or message that is most important to members of the UK financial services industry is that no one is immune. But regardless of the type of incident, if PR is used well and effectively, the damage can be limited. For as long as most can remember BP has always been viewed as an untouchable financial giant with most of the media coverage largely centring on its share prices and presence as a an international conglomerate. It has now suddenly and spectacularly spiralled into a reputational death spin which could only be described as a PR director's worst nightmare and has seen nearly every aspect of its business criticised on the back of a protracted and seriously damaging oil leak at one of its facilities in American waters.
BP is to up their neck in this mess and there's no telling where the next gaffe or possible reprieve will come from. The only part which is clear is that somewhere along the way PR policy got put at the bottom of the to-do list.
JH
In fact, BP has single handedly violated almost every rule of successful public relations, starting with the first one, which is to 'tell it all and tell it first', they then quickly broke the second which is to 'allow only the well trained and polished spokespeople speak to the media and public'. The problem is not that there are mistakes and crises (there always will be and there is no way around this – especially with something as hazardous as deep-water drilling). However, not all crises have to mean job losses, careers ruined, staff illness, environments destroyed and international condemnation. The problem in BP's case is the challenges came from the poor handling of communications from the start, which are in essence, self inflicted wounds which have continued to cause injury long after they've been made. PR in this instance seems to have been used as a band-aid rather than a tool for getting the right messages out to the right audiences in a clear and simple manner. Public relations isn't about exaggeration and manipulation, it's about communicating the public what is going on within a company in a controlled manner.
As a result, BP is now fighting a PR firestorm on all fronts, from peeved shareholders, to the outraged local community who have had their livelihoods put on hold and in danger, to the US government, to vocal national and international environmental groups and to employees and health and safety unions. They are also fighting fires from the inside, trying to manage and keep a lid on its internal communication channels (including the management of some of its renegade spokespeople). This includes its (current) Chief Executive, Tony Hayward, who bemoaned recently, 'I want my life back' – hardly the positive PR message that BP is trying to communicate to the world audience who is watching the disaster with the grim fascination of a car wreck they can't tear their eyes away from. In fact, it must feel like a touch of déjà vu for BP's head of communications Andrew Gowers, former editor of the FT and also the man who incidentally manned the PR at Lehmans Brothers during their collapse.
The images, which have sparked the increase in criticism, include the cut and paste doctoring of two images of the Houston control room where BP staff are monitoring the leak and one from inside a helicopter over the Gulf. It's called into question one of the consistent messages BP has been trying to drum home – transparency. Many are now jumping on BP's alleged lack of transparency as an attempt to continue to manipulate versions of the truth months on from the initial disaster. BP has since now gone on the front foot to post both original and fake versions of the photos on flickr which hasn't appeared to lessen the condemnation any further.
Perhaps the lesson or message that is most important to members of the UK financial services industry is that no one is immune. But regardless of the type of incident, if PR is used well and effectively, the damage can be limited. For as long as most can remember BP has always been viewed as an untouchable financial giant with most of the media coverage largely centring on its share prices and presence as a an international conglomerate. It has now suddenly and spectacularly spiralled into a reputational death spin which could only be described as a PR director's worst nightmare and has seen nearly every aspect of its business criticised on the back of a protracted and seriously damaging oil leak at one of its facilities in American waters.
BP is to up their neck in this mess and there's no telling where the next gaffe or possible reprieve will come from. The only part which is clear is that somewhere along the way PR policy got put at the bottom of the to-do list.
JH
Friday, July 16, 2010
AIFM – a ticking time bomb?
For some in the investment industry the Alternative Investment Fund Managers (AIFM) directive is just another layer of unnecessary legislation clogging up the headlines. However, for a large portion of fund managers and investors this directive could have destructive effects on the way they conduct their business.
The directive effectively aims to establish a regulatory framework for managers of collective investment undertakings which will facilitate monitoring and supervision of systemic risk, increase disclosure and transparency and enhance investor protection. The proposal was introduced on the 29th of April 2009 by the European Commission and came to life through a disturbingly short consultation period. Viewing it as rushed and ill-prepared, the chairwoman elect of the European Private Equity & Venture Capital Association commented that it "will crush venture and other sources of innovation capital". Sadly, venture capital is not the only victim of this directive; increased costs and a reduction in choice and scope of investments will have a far reaching impact. The IMA's Jarkko Syyrila said that "Anyone who has savings, anyone who has invested in a fund, an investment trust, a real-estate fund, everyone who has a pension in Europe – a Greek or German pension fund – will be negatively impacted by this directive."
Commission figures suggest that in the EU alone around 30% of hedge fund managers, managing almost 90% of assets of EU-domiciled hedge funds, will be affected by the directive. However, repercussions are not limited to the EU. Tim Geithner, US Treasury Secretary, stated that the directive could cause "a transatlantic rift" by discriminating against US firms and denying them access to the European market. The US wrote the book on reactionary and protectionist policy, so perhaps the rift that's already well oiled at the moment, will have a direct impact. If Europe legislates first then some feel the US will not exactly be backward in coming forward with their own legislation. Tit for tat.
The directive's progress has been anything but smooth with a litany of delays, postponements, criticisms and antagonism from major influencing parties and institutions along the way. With over 1000 amendments at one point, the directive was eventually passed in May and will be put to a final vote by the European Parliament in the coming months – providing no further postponements.
Jean-Paul Gauzes, the French MEP and AIFM champion, recently replied to the exhaustive criticisms: "I know that most of private equity and hedge funds are perfectly respectable, but there have been some problems, such as in Germany where companies were bought and broken up, which have been very traumatic". I have to admit I'm not entirely convinced by his argument to potentially destroy an industry that last year, in the UK alone, generated over £60bn in tax revenues – perhaps events will turn out to be a little more than traumatic this time.
LB & AVD
The directive effectively aims to establish a regulatory framework for managers of collective investment undertakings which will facilitate monitoring and supervision of systemic risk, increase disclosure and transparency and enhance investor protection. The proposal was introduced on the 29th of April 2009 by the European Commission and came to life through a disturbingly short consultation period. Viewing it as rushed and ill-prepared, the chairwoman elect of the European Private Equity & Venture Capital Association commented that it "will crush venture and other sources of innovation capital". Sadly, venture capital is not the only victim of this directive; increased costs and a reduction in choice and scope of investments will have a far reaching impact. The IMA's Jarkko Syyrila said that "Anyone who has savings, anyone who has invested in a fund, an investment trust, a real-estate fund, everyone who has a pension in Europe – a Greek or German pension fund – will be negatively impacted by this directive."
Commission figures suggest that in the EU alone around 30% of hedge fund managers, managing almost 90% of assets of EU-domiciled hedge funds, will be affected by the directive. However, repercussions are not limited to the EU. Tim Geithner, US Treasury Secretary, stated that the directive could cause "a transatlantic rift" by discriminating against US firms and denying them access to the European market. The US wrote the book on reactionary and protectionist policy, so perhaps the rift that's already well oiled at the moment, will have a direct impact. If Europe legislates first then some feel the US will not exactly be backward in coming forward with their own legislation. Tit for tat.
The directive's progress has been anything but smooth with a litany of delays, postponements, criticisms and antagonism from major influencing parties and institutions along the way. With over 1000 amendments at one point, the directive was eventually passed in May and will be put to a final vote by the European Parliament in the coming months – providing no further postponements.
Jean-Paul Gauzes, the French MEP and AIFM champion, recently replied to the exhaustive criticisms: "I know that most of private equity and hedge funds are perfectly respectable, but there have been some problems, such as in Germany where companies were bought and broken up, which have been very traumatic". I have to admit I'm not entirely convinced by his argument to potentially destroy an industry that last year, in the UK alone, generated over £60bn in tax revenues – perhaps events will turn out to be a little more than traumatic this time.
LB & AVD
Subscribe to:
Posts (Atom)
Posts
