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There is a sea change happening in the way in which pension funds are re-examining fiduciary duty. I wrote about the changes on the IPO front here. http://thevaluealliance.com/Blog/?p=60

But there are larger changes happening that provide hope as well.

Over the course of 2012, it’s become evident that social policies are receiving increasing attention by boards and by investors who care about responsible investing.

Tragedies seem to be driving some of the change. Newtown represents the most recent in this scrutiny of corporate social issues but the momentum this year was already growing. Think Apple/Foxconn, Hershey — and more recently, the Wal-Mart supply chain disaster responsible for the deaths of 112 people trapped in a Bangledesh factory fire last month.

In the wake of the Newtown massacre, CalSTRS received some press for its Cerebus’ investments in a gun manufacturer.

Chief Investment Officer, Chris Ailman, through his press office wrote me that “CalSTRS has been screening investments through its ESG [environmental social governance]standards and the 21 Risk Factors since their passage in 2008. CalSTRS has also developed an ESG committee with representatives from all the asset classes. They vet all our investments for compliance with CalSTRS’ ESG standards.  Since 1978, CalSTRS has used a written policy, the Statement of Investment Responsibility (SIR), to navigate the complex landscape of ESG issues. The long history of this document is testimony to the national leadership of CalSTRS among pension funds in addressing ESG matters through a written policy.”

Many pension funds, like CalSTRS, are still in the race in clearly defining what the S means (as well as the E and G in some cases) and in establishing strong monitoring systems. But today there are many more pension funds working toward that goal than in the past.  (See also http://thevaluealliance.com/Blog/?p=56) Members of ICCR are among those leading the pack.

In 2010, Geoffrey Mazullo, Principal at Emerging Markets ESG, and I attempted to conduct research on pension fund monitoring of socially responsible investing for the Journal of Environmental Investing. We came away with the distinct impression that there was more emphasis and discipline needed.

Both boards and investors of other peoples’ money need to recognize the standards to which they should be holding companies.

The second pillar of the UN guidance on human rights addresses “corporate responsibility to respect human rights, which means that business enterprises should act with due diligence to avoid infringing on the rights of others and to address adverse impacts with which they are involved.”

How many boards and investors make a standard practice of holding companies accountable to addressing the adverse impacts with which they are involved? For example, layoffs in a town or pollution in a corner of it?  Or other adverse effects that they haven’t caused but are involved with?

More on what is being done is here: http://management.fortune.cnn.com/2012/12/19/newtown-business-leadership/?section=magazines_fortune

I welcome your comments at ebloxham@thevaluealliance.com

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Copyright 2012 The Value Alliance Company. All rights reserved.

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Board members should be combing through their books for insider trades — and re-examining their stock and option awards programs — after the Columbus Dispatch’s reports on the Big Lots case and the WSJ report on that case and four other companies where executives are under investigation for insider trading.  The WSJ report that at least 4,185 executives may have engaged in suspicious trades since 2004 should be giving board members and shareholders pause.

The use and spread of insider information damages our capital markets – and hurts the reputations of firms that do not comply with rules to keep our markets fair. Morgan Stanley paid $5 million for the part they played in providing information to favored analysts in the Facebook IPO. Netflix has also come under scrutiny for potential leaking of material information to a select group.

Regulation FD (fair disclosure) has been important to our capital markets and was designed to stop insider trading in its tracks so that there is a (more) level playing field for all investors. It’s important that companies comply.

Please read the article here.  (I welcome your comments at ebloxham@thevaluealliance.com)

http://management.fortune.cnn.com/2012/12/17/why-netflix-got-into-hot-water/

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Copyright 2012 The Value Alliance Company. All rights reserved.

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Over a dozen large banks have been implicated in the Libor scandal. And the harm created by the manipulations has impacted communities across the US in the billions of dollars.

Boards at the companies involved in Libor manipulation have already paid out bonuses based on inflated earnings. Will these bonuses be clawed back?

At the same time, there are those who continue to advocate the use of bonds or interest rate swaps as a way to pay bankers. It doesn’t make sense.  The prices of those instruments can be altered by manipulating interest rates. Should we provide additional incentive for manipulations given the Libor mess?

Clearly, large banks are not fully disclosing the risks in their compensation schemes.

It’s also difficult to see how paying for fraud and harm comports with reasonable business judgment.

Here’s the article. 

http://management.fortune.cnn.com/2012/12/13/libor-and-banker-pay-an-unfortunate-marriage/

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Copyright 2012 The Value Alliance Company. All rights reserved.

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Some good things are happening.

Initiatives led by Anne Simpson (CalPERS) and Ann Yerger (Council of Institutional Investors) are blazing a path to address stocks that should not be in investment management portfolios – and that as a fiduciary, investment managers should not purchase with other people’s money.

The first stop on this journey is addressing IPOs.

Some issuers too are recognizing that a race to the bottom governance-wise will not serve them.

This article represents an update on these initiatives and the current landscape. I welcome your thoughts: ebloxham@thevaluealliance.com

http://management.fortune.cnn.com/2012/12/06/2013-a-year-of-investor-class-warfare/

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Copyright 2012 The Value Alliance Company. All rights reserved.

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Who heads the Treasury and SEC going forward will matter. The decisions on “who” will impact not only our economy and the capital markets but also public perception of government’s value.

Here is an article with my criteria and some possible picks. I would welcome your thoughts at ebloxham@thevaluealliance.com

http://management.fortune.cnn.com/2012/12/04/treasury-sec-leadership-choices/

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Copyright 2012 The Value Alliance Company. All rights reserved.