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Workers Capital News - July 30, 2010

In this issue:

  • Governance and Disclosure

    UK’s FRC publishes first Stewardship Code / Netherlands government, pension plans promote ESG / Reports indicate FTT not only feasible, but also beneficial

  • Shareholder Activism

    More companies opting for virtual-only shareholder meetings / GP Survey reveals over 94% of schemes do not intend to sue BP / Dutch PGGM divests from Vedanta Resources

  • Pensions and Investments

    Canadian OMERS to increase contribution rate over 3 years / Greek government passes pensions overhaul / Japan pension fund now net government bond seller / New GASB rules create pension pressure on U.S. states

  • Feature Section

    U.S. financial reform – The Dodd-Frank Bill

Governance and Disclosure

UK’s FRC publishes first Stewardship Code

On July 2, Britain’s Financial Reporting Council published its Stewardship Code, geared towards improving corporate governance. Initially proposed as part of the Walker report, the code includes principles on company monitoring, collective engagement, managing interest conflict, and public reporting.

In their consultative response to the Stewardship Code, the TUC reiterated their long-standing concern regarding the need to strengthen shareholder engagement in UK’s corporate sector.  While agreeing with the policy objectives of the Code, the TUC also provided a comprehensive review and various recommendations.

Netherlands government, pension plans promote ESG

Responsible Investor reports that Dutch government officials will join institutional investors and the private sector in Amsterdam on October 13th to discuss shareholder expectations related to environmental, social and governance issues (ESG) and corporate social reporting (CSR) initiatives. Meanwhile, according to Global Pensions, Dutch pension fund manager APG proposed the development of a tailored ESG policy for each of their 14 asset classes, citing the fact that incorporating ESG factors in portfolios can improve investment returns while promoting social welfare.

Reports indicate FTT not only feasible, but also beneficial

On the international level, both a European Economic and Social Committee (EESC) report and a paper by the Leading Group on Innovative Financing for Development assert that a financial transactions tax (FTT) is feasible, and will not only regulate the financial sector but also generate revenue.  Despite such findings the ITUC/TUAC evaluation of the G8/G20 Toronto summit noted that governments did not arrive at any consensus regarding the FTT. 

Shareholder Activism

More companies opting for virtual-only shareholder meetings

The CorporateCounsel.net blog reports that a growing number of corporations are choosing to hold their annual shareholder meetings in an exclusively virtual format instead of the more conventional ‘hybrid’ meeting. Virtual-only meetings save time and money for shareholders who would have to travel otherwise, but have the down-side of limiting face-to-face interaction. This may reduce the level of shareholder involvement in decision-making procedures during AGMs, and could impede shareholders’ ability to voice or have their concerns addressed by the board.

GP Survey reveals over 94% of schemes do not intend to sue BP

Only 5.6% of the respondents to a recent Global Pensions survey stated that they intended to take legal action against BP in light of their investment losses, following the Gulf of Mexico disaster and the subsequent 51% drop in BP’s share price. Despite the fact that over the past few months several pension funds, including the New York State Common Retirement Fund, announced highly-publicized plans to start law suits against BP, 94.4% of the surveyed said they had no plans to pursue legal action and recoup the sustained losses.

Dutch PGGM divests from Vedanta Resources

Global Pensions reports that the Dutch pension fund administrator PGGM placed Vedanta Resources on its exclusion list. PGGM explained this decision on the basis of its failed efforts topersuade Vedanta into giving greater attention to environmental and social impacts of the company’s controversial mining project in the Indian state of Orissa.  

GP also noted that other investors such as the Church of England and the Norwegian Government Pension Fund, have also divested from Vedanta on similar grounds.

Pensions and Investments

Canadian OMERS to increase contribution rate over 3 years

The Canada-based pension fund Ontario Municipal Employees Retirement System (OMERS) has approved an average increase of 1% in contribution rates in a bid to combat its growing pension deficit. This increase, approved by the OMERS’ Sponsor Corporation (SC), stemmed from the desire to rebalance finances in light of the 2008 market downturn and OMERS’ subsequent 2009 C$1.5 billion deficit.

Greek government passes pensions overhaul

Under Prime Minister George Papandreou, the Pasok party of Greece passed a proposal to overhaul the pension system on July the 8th. According to Global Pensions, Papandreou stated that if the current status quo persisted, spending on pensions in Greece would reach 24% of the GDP – twice the level of 2007. He is backed by the EU, which has expressed that the overhaul of the pension system will help shore up public finances in Greece. Nevertheless, the bill triggered the second national strike in the past few months.

Japan pension fund now net government bond seller

For the first time in nine years, Japan’s public pension fund reported that it is now a net government bond seller. This new development is underscored by worries that growing numbers of Japanese retirees tapping into their pensions will shrink the domestic pool of savings, creating long-term concerns for the younger demographic, reports Global Pensions. As a result Japan, whose bonds are predominantly held by domestic investors and therefore previously enjoyed very low borrowing costs, may have to increase its dependence abroad.

New GASB rules create pension pressure on U.S. states

The U.S. Government Accounting Standards Board (GASB) is proposing revisions to the pension system in states that are geared towards addressing the $500 billion to $3 trillion gap between U.S. public pension plan values and the finances needed for promised benefits.

Feature Section

U.S. financial reform – The Dodd-Frank Bill

On July the 15th, the U.S. Congress gave final approval to the Dodd-Frank bill, an ambitious proposal for a comprehensive overhaul of financial regulation.

Following the 2008 financial crisis, the bill found support from President Obama and from coalitions seeking corporate responsibility, environmental sustainability, and workers’ rights.

Key outcomes of The Dodd-Frank bill are:

  • The creation of a Consumer Financial Protection Bureau to aid consumers by providing them with the information needed to make sound financial decisions,
  • Forcing derivatives to be traded on open exchanges in order to create greater transparency in the market,
  • The legislating of shareholders to vote on executive pay arrangements,
  • Provisions for robust whistleblower protection, and
  • The creation of a council of regulators to monitor for systemic risks to prevent future bank bailouts by executives and insiders.

The bill also includes a provision that promotes revenue transparency in the extractive industry, both in the U.S. and abroad. This specific provision will require gas, oil, and mining companies to publicly disclose their payments to the governments of resource-rich locations (domestic and international) for extraction rights.

According to the Publish What You Pay US coalition, who actively advocated for the inclusion of this particular provision in the Dodd-Frank Bill, the legislation will make it more difficult for foreign and domestic governments to misuse resource wealth, and will ensure that taxpayers and shareholders are not unknowingly fueling conflict.

AFL-CIO President Richard Trumka acknowledged in his statement that the passage of the Dodd-Frank Bill is not the end for financial reform in the U.S., stating that the AFL-CIO “will continue to fight for reforms that will further address too big to fail financial institutions and make Wall Street pay its fair share to create the 8 million jobs it helped destroy.”

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