Workers’ Capital News - Sept. 20

In this issue:

  • Governance and Disclosure

    UK Vickers Report Aims at Changing the Way Banks do Business / PRI Announces Initiative for Responsible Investment in Farmland / Corporate Disclosure of Political Spending Can Result in Higher Shareholder Value / CalPERS Enacting Governance Reforms

Governance and Disclosure

UK Vickers Report Aims at Changing the Way Banks do Business

According to the Telegraph and the First Post, The Independent Commission on Banking, headed by chairman Sir John Vickers, has proposed a series of final recommendations for reforming the UK’s banking sector in a report released on September 12th. The Vickers Report seeks to protect UK taxpayers from having to bail out banks in the case of a future financial crisis.

The report’s main focus is on urging banks to ‘ring-fence’ their retail operations to separate them from riskier investment banking operations. ‘Ring-fencing’ is meant to safeguard a bank’s retail arm, which includes individual deposits by account holders and small business loans, from being vulnerable to the failure of riskier activities, such as derivatives trading.

In addition, the report recommends higher capital requirements for UK retail banks, greater loss-absorbency for large UK banking groups, and the independent governance of ring-fenced banks belonging to a larger corporate group. The report calls on lenders to implement the reforms by 2019.

PRI Announces Initiative for Responsible Investment in Farmland

Social Funds’ News reports that on September 6, eight institutional investors, members of the Farmland Working Group, announced five Principles for Responsible Investment in Farmland, a commitment to ensure long-term sustainability and transparency in investment in farmland. The Principles promote an adherence to labor and human rights, land and resource rights, environmental sustainability, and high business and ethical standards.

This declaration follows new estimates by the UN Department of Economic and Social Affairs (DESA) of the global population passing ten billion by about 2080, highlighting the importance of sustainable agriculture to meet the needs of a rapidly growing world population.

The Farmland Working Group, that includes the US-based Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) and in total represents $1.3 trillion in assets under management, was established by the UN's Principles for Responsible Investment (PRI) to support the integration of ESG factors in investments in farmland.

Corporate Disclosure of Political Spending Can Result in Higher Shareholder Value

As stated in the Huffington Post, a report recently released by Harvard Law professor, John Coates, and watchdog organization, Public Citizen, finds that corporations can stand to benefit from disclosing political spending. The report’s findings suggest that S&P 500 companies that voluntarily disclose political contributions exhibit higher shareholder value compared to companies that choose not to disclose such spending.

The report asserts that companies disclosing political spending gain a higher market valuation and find it easier to raise capital as a result. The report cites the case of 80 S&P 500 companies with policies favoring political disclosure, that had a 7.5 percent higher industry-adjusted price/book ratio by the end of 2010 compared to firms without such policies.

In the wake of the Supreme Court’s 2010 ruling in Citizens United v. Federal Election Commission, that allowed corporate spending towards political elections, undisclosed election spending has hugely increased, as evident in the 2010 midterm elections. In light of a perceived trend towards undisclosed campaign financing, the report encourages greater corporate transparency by maintaining that the Securities and Exchange Commission (SEC) should require publicly-held companies to disclose political spending to shareholders and the general public.

 CalPERS Enacting Governance Reforms

According to Global Pensions, CalPERS has followed-up with the six month review of its governance policies conducted in the spring, by introducing reforms to further accountability, transparency and ethics. Rob Feckner, President of the CalPERS board, states that today the policy changes on governance are firmly in place at CalPERS.

"Principles for Effective Public Pension Fund Governance" adopted by the CalPERS board, include commitments by board members to be: effective fiduciaries; ethical leaders; transparent and accountable to CalPERS stakeholders; and dedicated to continuous learning, while being flexible to  environmental, political and economic dynamics.

In addition, governance reforms require: board members to acknowledge fiduciary responsibilities; an independent third party to assess board performance every two years; new roles for the board president, vice president, committee chairs and vice-chairs; a new "Powers Reserved" arrangement for the board and its committees that delineates responsible parties for approvals, standards of conduct, strategy, policy and performance; a "no undue influence" document to be signed by senior executives and investment officers; and the creation of a new confidentiality policy.

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