Category Archives: 3 The World of Money

SRI reduced sub-prime exposure

An interesting review of the run-up to the sub-prime mortgage meltdown shows that SR investors started considering the implications of sub-prime business exposure back in 1999 and a number of institutional SR investors adjusted portfolio exposure accordingly.  It shows that investors who take a broader view of business (social and environment as well as economic) have a built in capacity to screen for off-screen risks.  While they may not know who will be the next Enron or Countrywide Financial or Northern Rock, they are more likely to have lower exposure to sectors or companies with unrecognised dangerous risk profiles.

See the analysis by Social Funds here.

CSR is growing up

The recent launch of Supercapitalism by Robert Reich which criticises CSR has stimulated debate about its role in private enterprise.  You can see The Economist’s take here and an interview with the author by BusinessWeek here.

It is naive, even primitive, to argue that corporations have no ethical dimension, rather it is increasingly their role to reflect the values of their shareholders.  It is simplistic to reduce the objective of a company to “making profits”.  While businesses must be profitable to survive, their organisation has never been the objective of making profits but to provide an understood system for cooperation between people who would like to create something greater than they can individually.  (If the objective was only profits there would be no rationale for being in any particular business and criminal activity, with its very high return on investment would be the most attractive option.)  Company organisation offers a substitute for feudal hierarchy and as we insist on ethics in government so we demand ethics in business.

For most businesses the discussion has moved beyond “is it appropriate for companies to pursue social responsibility?”, the answer to that is “of course”.  The challenge is now how to build ethics in to everything we do and reflect the values of our stakeholders; how to make the organisation more human.

CSR increases profitability

According to a survey of more than 500 business executives by Grant Thornton, executives believe that corporate responsibility programs can positively impact their business and help achieve strategic goals. While commentary by traditionalists might suggest that CSR will be a cost, without benefit, only a quarter of survey respondents agreed that profits need be sacrificed, while three quarters believed corporate responsibility could enhance profitability – 77% said they expected corporate responsibility initiatives to have a major impact on their business strategies over the next several years.

The press release with summary analysis is here and Social Funds’ analysis is here.

World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk

The Columbia Program on International Investment and the Economist Intelligence Unit published World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk. The report contains the first authoritative data on FDI flows for 2006 and forecasts flows until 2011, with 2007 set for a new record. It pays special attention to the rise of FDI protectionism and regulatory risk.  Download pdf of the World Investment Prospects to 2011 report.

Integrity for success

I came across a recent compilation of presentations from various events entitled Integrity: A Positive Model that Incorporates the Normative Phenomena of Morality, Ethics, and Legality (page down to find link to full study). The authors present a positive model of integrity that provides powerful access to increased performance for individuals, groups, organizations, and societies. They note that integrity is thus a factor of production as important as knowledge and technology, however its role in productivity has been largely ignored by economists and others. Their model reveals the causal link between integrity and increased performance and value-creation, and provides access to that causal link.  The point: honesty is good business.

Carlyle’s seedy connections …

Carlyle, the large successful private equity firm, has always been a cause for concern because its claim to excellence at its inception a decade ago was the raft of politicians on its board. The New York Post revealed recently that it paid $12.3 million in fees to a company tied to former state Comptroller Alan Hevesi’s top political consultant. Carlyle, which invests $1.3 billion for the state pension fund, paid the fees to Searle & Co., of Greenwich, Connecticut, from 2003 through 2006, when Hevesi served as comptroller. Apparently the fees were “in connection with Hank Morris’ work as a placement agent related to [state pension-fund] investments”. Searle, is not the medical company which was run by Rumsfeld which “lobbied” for approval of aspartame, but a small financial-service firm headed by Robert Searle, a longtime personal friend of Morris. Morris has been employed by Searle since 2003. Connections and behaviour like this do not depreciate the value of Carlyle, which is expected to launch an IPO soon. Investors prefer conflicted connections to integrity.

Disclosure and transparency in private equity

Here is a link to the consultation report by Sir David Walker on the UK private equity industry: Disclosure and Transparency in Private Equity.  It offers a profile of the current industry and recommends guidelines for improving transparency.  It does not focus on tax treatment, though there are implications for this.

Ethical Corp magazine reviews it here.

The consultation response period ends 9 October.