Editors Desk

Eye on The Markets

by The Economist | 5.31.07

IS THIS, to use the words of Martin Lipton, a veteran Wall Street lawyer, the age of the imperial shareholder? Owners in America are putting executives under an increasingly harsh spotlight. “Activist” hedge funds have found that they can make a lot of money by amassing stakes in companies and pressing managers, sometimes by taking board seats themselves, to make changes that force the share price upwards.
More idealistic governance activists want to increase shareholders’ say on everything from executive pay to greenery. Even institutional investors, who have preferred discreet discussions with managers to public advocacy, are learning that a muscular approach can pay dividends, literally.

These groups hardly share a common interest. Some wolfish hedge funds are avowedly short-term capitalists; by contrast, idealistic social activists (such as the greens who failed to stop the re-election of an Exxon Mobil director this week) regard lucre as filthy. Stuck in between these two extremes are corporate governance types who worry about issues like pay and share options, though from a long-term point of view. But in combination, the effect of all these groups is loudly to assert the rights of the shareholders of American firms to exercise control over managers (see article).

Editors Desk

Eye on The Markets

by The Washington Post | 5.30.07

Many shareholders argued that taking steps to curb global warming was in the company’s long-term financial interests. Stephen Viederman, a shareholder from New York, compared Exxon Mobil’s current strategy to the big U.S. automakers’ policy of sticking to gas guzzlers while foreign competitors opted for more fuel-efficient cars.

Environmental concerns were also behind the targeting of Boskin, [Michael Boskin, a Stanford University economist who chaired the White House Council of Economic Advisers from 1989 to 1993] who chairs the Exxon board’s public issues committee. California Controller John Chiang, Connecticut Treasurer Denise L. Nappier, shareholder advocate Robert A.G. Monks and Sister Patricia Daly, executive director of the Tri-State Coalition for Responsible Investment, had complained that Boskin had refused to discuss Exxon’s potential financial exposure to climate change or what they called its “failure” to take short-term actions to pare emissions. They said Boskin refused five invitations over the past 18 months to meet two dozen institutional investment fund managers.

Editors Desk

Eye on The Markets

by The Wharton School | 5.30.07

Health Economics

In South Africa, Poor Health Can Kill Small Businesses
According to estimates, micro and small businesses contribute almost 50% of South Africa’s total employment and 30% of its gross domestic product.
Until recently, however, the impact of poor health, and in particular HIV/AIDS, on these enterprises — ranging in size from single owner-workers to companies with 100 employees — has been largely overlooked by researchers. A new study by Li-Wen Chao from the University of Pennsylvania’s Population Studies Center, Mark V. Pauly, Wharton professor of health care systems, and others examines how owner health determines the fate of small businesses in South Africa, and impacts the larger economy.

http://knowledge.wharton.upenn.edu/article/1747.cfm

Editors Desk

Eye on The Markets

by Institutional Shareholder Services | 5.23.07

Industry’s Most Comprehensive Database Draws on Over 400 Environmental, Social and Governance Indicators to Help Investors Manage Compliance and Portfolio Risk

Rockville, Maryland; May 23, 2007: Institutional Shareholder Services (ISS), the world’s leading provider of corporate governance and proxy voting services, today announced the availability of its global Sustainability Risk Reports database. Drawing on an extensive set of over 400 environmental, social and governance (ESG) factors, ISS’ in-depth company profiles offer rich qualitative analysis combined with a relative scoring system to help investors assess companies’ ESG performance and compare against industry peers.

Environmental and social issues such as climate change, energy use, labor and human rights are rapidly translating into mainstream investment issues. Their increasing importance is driving institutional investors to incorporate more extensive sustainability considerations into the investment process. Leveraging the analysis and scoring embedded in ISS’ Sustainability Risk Reports enables investors to analyze the potential sustainability-related risks and opportunities of portfolio companies.

Editors Desk

Eye on The Markets

By The Washington Post | 5.20.07

A massive expansion of the federal government, supported by big business, is on the way. Conservatives couldn’t be less prepared.

Years from now, historians will argue over the exact moment at which the Great Conservative Crack-up finally occurred, and they’ll have no shortage of candidates. Was it December 21, 2004, with the appearance of the first poll that showed a majority of Americans believed the Iraq War to be a mistake? Or September 2, 2005, when President Bush told Michael Brown he was doing a “heckuva job” while New Orleans drowned? Or a month later, when Travis County District Attorney Ronnie Earle indicted Tom DeLay?

But I’d take January 22, 2007. On that date, a who’s who of corporate America—CEOs from such industrial stalwarts as Alcoa, DuPont, Caterpillar, Pacific Gas and Electric, and General Electric—joined environmental leaders at a Washington press conference on global warming. Their surprising message for the president and Congress: Please, for the love of God, regulate us.It’s worth lingering for a moment over just how strange this was. Back in 1997, when the Clinton administration signed the Kyoto Protocol, businesses lobbied the Senate strenuously not to ratify the treaty. And yet here were industry leaders—some with miserable environmental records and decades of experience fighting off the long arm of the law—taking the lead in advocating for a comprehensive, economy-wide regulatory regime to address global warming. It’s a little like a thief who’s been running from the cops suddenly stopping, turning around, thrusting out his wrists, and saying, “Arrest me.”

These weren’t the only CEOs asking government to step in and solve a pressing social problem. Two and a half weeks later, Wal-Mart CEO Lee Scott joined Andy Stern, the president of the Service Employees International Union, to announce his company’s support for some form of universal health care. When it comes to business’s united front against regulation, as Leo Hindery, former CEO of the YES Network and author of the book It Takes a CEO, puts it, “[These guys are] looking and saying, ‘Look, if we don’t play this global-warming thing right, heck with politics, our company’s going to get hurt. If we don’t reform health care, I don’t care if I’m a Republican, my company will fail.’ ”

Full article By Christopher Hayes:
http://www2.washingtonmonthly.com/features/2007/0706.hayes.html

Editors Desk

Eye on The Markets

by The Washington Post | 5.20.07

Lead or Step Aside, EPA

States Can’t Wait on Global Warming

By Arnold Schwarzenegger and Jodi Rell

It’s bad enough that the federal government has yet to take the threat of global warming seriously, but it borders on malfeasance for it to block the efforts of states such as California and Connecticut that are trying to protect the public’s health and welfare.
California, Connecticut and 10 other states are poised to enact tailpipe emissions standards — tougher than existing federal requirements — that would cut greenhouse gas emissions from cars, light trucks and sport-utility vehicles by 392 million metric tons by the year 2020, the equivalent to taking 74 million of today’s cars off the road for an entire year.

Editors Desk

Eye on The Markets

by Citigroup | Environment USA | Financial Times | 5.08.07

Citigroup has announced that will increase its spending on global climate change to US$50 billion over the next 10 years. Citigroup, the world’s largest company, will make the US$50 billion commitment through investments, financing and related activities to support the commercialisation and growth of alternative energy and clean technology among the clients and markets it serves, as well as within its own businesses and operations. Charles Prince, the CEO and Chairman, said that “the comprehensive program we are announcing today is not a wish-list, but a realistic, achievable plan that serves a critical global need and responds to an emerging investment opportunity.”
The commitment includes: spending US$10 billion to reduce its own GHG emissions by 10 percent by 2011, advising borrowers about the environmental risk associated with projects and helping to finance more than US$30bn in clean energy and alternative technology. The announcement by Citigroup comes as increasing numbers of financial institutions recognise and seek to capitalise on the financial opportunities associated with alternative energy, energy efficiency and carbon emissions trading while reducing the risk associated with future environmental regulations. The other bank that has made an announcement recently is the Bank of America, which said that it will commit US$20 billion to support growth of environmentally sustainable business activity. Citigroup has long shown a commitment to sustainable development. It was one of the banks that led development of the Equator Principles and, along with HSBC, Credit Suisse, UBS, Westpac Banking, ANZ Banking, ABN Amro Holding, Barclays, Fortis, HBOS and ING, Citigroup is a member of the Climate Leadership Index of the Carbon Disclosure Project.

http://www.ft.com

Editors Desk

Eye on The Markets

by Bloomberg | IHT | SRI USA | Financial Times | 5.05.07

Lack of direct Darfur connection convinces shareholders to keep stake in PetroChina

Concerned shareholders asked Warren Buffett to include an item in the agenda for Berkshire Hathaway’s annual general meeting of shareholders to discuss divestment of the company’s stake in PetroChina. The request reflected concern over a recent report by the Sudan Divestment Task Force alleging that PetroChina had an “intimate, opaque and symbiotic relationship” with its parent, China National Petroleum Corporation (CNPC). The report also noted that Sudan, which imports most of its arms from China, also exports 50 to 80 percent of its oil to China, primarily through CNPC. Although CNPC is the largest oil company operating in Sudan, PetroChina has no operations at all there.However, 90 percent of the shares in PetroChina are owned by CNPC – only 1.3 percent are owned by Berkshire Hathaway. In response to the shareholders’ request to discuss the topic, Buffet acknowledged that conditions in Darfur were “deplorable” and empathised with those who wanted change. He added that the Chinese subsidiary was not the same as, or responsible for, the actions of its parent company. Buffett also remarked that if CNPC did quit the country, Sudan’s government would be more likely to benefit by gaining a larger stake in the country’s oil profits. Buffet welcomed the dialogue and set aside time at the AGM to discuss the issue. On 5 May, the shareholders discussed the issued extensively before voting 830,598 to 15,740 to keep the company’s US$3.3 billion stake in PetroChina. Critics say that the vote reflects the opinion of large shareholders, including Buffett, who owns a third of Berkshire shares.

Meanwhile FierceFinance asks: Why did Fidelity sell its PetroChina ADRs?

A movement to force big mutual funds and institutions to divest from companies that activists feel are not worthy of U.S. investment dollars has had limited success as of late. But Fidelity Investments has disclosed that it has sold more than 90 percent of its PetroChina ADRs. PetroChina is controversial because of its parent’s oil operations in Sudan. Fidelity, the mutual fund giant, did not disclose why it sold. But it has been noted, and some feel it might embolden activists to step up pressure on other shareholders, according to the Financial Times. Berkshire Hathaway is the largest foreign investor in PetroChina. Fidelity still owns a lot of PetroChina shares listed in Hong Kong. It’s unclear whether it will sell those as well.