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Workers Capital News - Jan 13

In this issue:

  • Governance and Disclosure

    White House probe commission targets bad management by BP, oil industry / UK FRC recommends greater investor involvement in company audits

  • Shareholder Activism

    APG calls for integration of safety indicators into BP pay system

  • Pensions and Investments

    Dutch government considers further increasing pension retirement age / Slovenian government faces referendum on pension overhaul legislation / OECD and IOPS collaborate to create risk-evaluation toolkit for pension regulators

Governance and Disclosure

White House probe commission targets bad management by BP, oil industry

The White House oil spill commission has released its final report on the Gulf of Mexico disaster, condemning not only BP, but also the entire oil industry, for an industry-wide systemic failure to properly assess relevant operational risks. According to CBC News, the commission found that BP, as well as its partners Halliburton and Transocean, had knowingly and willingly made “a sequence of poor decisions” that saved the companies time and money, but subsequently increased the risk of a disaster. The US panel pinned the failure of risk assessment onto management, identifying a system-wide cost-cutting approach as well as a lack of industry and government policy reform as the heart of the problem.

Given the commission’s identification of the root causes as systemic, the report stated that disasters in the extractives industry sector could occur again, if significant reform did not take place. In a later update by the CBC, the report goes on to recommend increased budgets and training for the federal offshore drilling regulator. The commission also suggests the creation of independent governmental bodies to evaluate the safety of oil drilling and the risks it presents to natural resources.

The Globe and Mail reports that in light of the panel’s recommendations, the Obama administration has implemented new regulations for better government oversight, and refurbished the federal regulator program in question.

UK FRC recommends greater investor involvement in company audits

Following the financial crisis, UK’s Financial Reporting Council (FRC) is suggesting greater investor involvement in audit company selection. As reported by Responsible Investor, although shareholders hold a role in confirming auditor selection, the actual appointment (or reappointment) and remuneration of auditors is decided by management. In their new report, the FRC warns that auditor independence is compromised by such arrangements, and proposes greater shareholder involvement in auditor appointment in order to improve corporate reporting.

The FRC recommends two methods of investor involvement. The first requires company audit committees to give reasonable explanation as to why they chose to appoint that particular auditor. The second approach suggests the committee discuss the appointment with a group of principal investors, and then report on that consultation to the general shareholder population.

Shareholder Activism

APG calls for integration of safety indicators into BP pay system

Responsible Investor reports that APG has called for BP to overhaul its remuneration system to include safety performance indicators for 2011. Such indicators would include more top-down supervision into operations, as well as check-and-balance measures such as the real-time monitoring of measurement data on oil platforms. In reponse to investor pressure, the company has already taken measures to integrate safety procedures in light of the Deepwater Horizon disaster, including a new safety department and safety performance-based fourth-quarter bonuses. However, APG and other responsible investment entities state that those are only “first steps” in becoming more ESG-conscious.

Pensions and Investments

Dutch government considers further increasing pension retirement age

According to Global Pensions, in light of growing life expectancy, the national government may consider initiatives to increase the pension retirement age to 67 by 2025, and 68 by 2030. Increasing the pension age has been in political discussion since 2009 in the Netherlands, and a decision to increase the age to 66 by 2020 was made last year. Under this current legislation, workers in the Netherlands can still choose to retire at 65, but will receive 6.5% (increasing to a 13% cut after 2020) less in pension payments per year. However, should the longevity trend continue, it is projected that the government will further alter fiscal legislation accordingly with initiatives such as greater pension age increases.

Slovenian government faces referendum on pension overhaul legislation

The Slovenian government is appealing to the Constitutional Court to reject a public referendum on the issue of increasing pension retirement age in Slovenia. Global Pensions reports that the largest trade union in Slovenia (Zveza Svobodnih Sindikatov Slovenije) is currently collecting the 40,000 signatures required for a referendum on the government’s latest pension overhaul. The overhaul, which was put into place in an effort to address Slovenia’s graying population and budget deficit, increases of the retirement age from 57 for women and 58 for men to 65. The Slovenian government will not be able to pass similar legislation for a full year, should the overhaul be overturned by the public referendum.

OECD and IOPS collaborate to create risk-evaluation toolkit for pension regulators

Global Pension reports that the Organization for Economic Co-operation and Development (OECD) and the International Organization for Pension Supervisors (IOPS) issued in conjunction their newest report: “Good Practices for Pension Funds’ Risk Management Systems”. The 20-page report identifies general “good practices” in areas such as management oversight, investment and operational risk controls, monitoring mechanisms, and supervisory oversight. The toolkit will serve as a guideline for pension supervisors and regulators who want to monitor the investment risks of their schemes. 

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