Cross Border blogs

Try again

The Corporate Library’s Paul Hodgson may just be celebrating lawmakers’ rejection of the proposed Emergency Economic Stabilization Act of 2008 since it will give executive pay critics like himself another bite at the apple.

A promising early draft included provisions for proxy access and shareholder advisory votes on pay, but they didn’t make the final cut. Instead the reforms mostly took the shape of temporary clawbacks and prohibitions on severance that could be relied on only while the government retains an equity stake in a company, he explains in a commentary out today.

Hodgson, a senior research associate possibly more fluent in compensation disclosure and analysis than anyone, says he wants to see ‘teeth,’ not ‘ill-fitting dentures,’ noting ‘it is far harder to drop a shareholder vote on pay than it is to lift a pay cap,’ among other things.

COMMENT: The US government could do with some lessons in investor communication

I can't help feeling that yesterday's shock rebuttal of the bailout proposals could have been avoided.

A skeptical citizenry might have been more readily won over had the communications team at the White House taken more time to spell out the reasons behind its decision to bailout the banks to the country's mom and pop investors – the American public.

If it was a listed company making such a mammoth investment, they'd have to have put together a clear, comprehensive and accessible business case for doing so. Instead, too many senior legislators refused to stray from the rhetoric of Wall Street. Consequently, they alienated their investor audience and failed miserably to drum up the necessary support.

As many commentators noted, it was the rage of the average person at having to pick up the tab for the recklessness of some of the nation's biggest earners that was a bitter pill to swallow for many Americans.

Perhaps they would have done well to have spelled out the fact that the situation is going to get even hairier for the average person if the whole banking system collapses. As Martin Wolf in the FT points out, it is 'absurd' to believe one can punish Wall Street without hurting Main Street. 'The two streets meet. That is what streets do.'

I'm sure the irony of footage showing people declaring that the bailout was somehow 'socialist' is not lost on anyone. The bailout is so obviously a last ditch effort to save the West's beleaguered capitalist model.

Clare Harrison
IR magazine

Lawsuits pile up as investors hit back over crisis

Federal lawsuits against companies in 2008 are set to beat historical averages as investors look to recoup losses stemming from the global financial crisis. RiskMetrics, the proxy advisory firm, reveals in a blog today that during September, investors in 26 companies filed new lawsuits, compared to 20 in the same month last year.

It says the pace picked up after US authorities nationalized Fannie Mae and Freddie Mac on September 7. 'The next day, investors sued Fannie Mae and its officers, alleging that they made materially false and misleading statements about the firm’s business and prospects and misrepresented the company’s financial statements,' reports the blog. September filings also stem from the collapse of Lehman Brothers two weeks ago, it adds.    

Another weekend of upheaval for banks

It’s been another tumultuous weekend for banking IROs and business hacks alike. Reuters reports the UK government has announced Bradford & Bingley’s high street branches will be sold to Spain’s Santander and its mortgage book nationalized. While late last night on the continent, the Benelux governments rescued Belgian financial services firm Fortis by injecting a total of €11.2 bn ($16.3 bn), according to Bloomberg.   

Meanwhile, US politicians edged closer to agreement over the highly contentious (and emotive) $700 bn bailout of the country’s toxic mortgage assets. A bill has now been published, which needs approval by both houses of Congress, says the BBC.

Masters of the universe vs God

IROs hoping for a permanent ban on short selling could soon have their prayers answered. The latest public figures to round on those evil-doers in the City hail from the Church of England.

Writing in an upcoming edition of the Spectator, Rowan Williams, the Archbishop of Canterbury, urges that short selling be banned and demands greater regulation of financial institutions, reports the BBC. He also attacks traders who buy and sell debt solely for profit.

The attack comes days after John Sentamu, the Archbishop of York, chided bankers for their role in the sale of UK mortgage lender HBOS, adds the BBC. Delivering a speech at the annual dinner of the Worshipful Company of International Bankers, Sentamu called those who profited from HBOS’ fall: ‘bank robbers and asset strippers’. Amen to that.

Brought to you by XBRL

Microsoft investors may not know it, but they are using XBRL if they navigate the IR website of the company. As one of the early participants in the SEC’s voluntary filing program, Microsoft had already done the work to gets its official documents converted to XBRL, the tagging language that makes it easier to share financial data. The IR team looked for other applications for that effort, and added a tool to the Investor Central section of its website that lets investors pull data more easily than ever from financial reports.

XBRL, for example, connects financial statement line items right into the appropriate footnotes and MD&A. This new feature adds up to ‘a rich data experience’ for investors, explains Microsoft’s senior manager of external financial reporting in a new podcast available from XBRL US, the consortium of agencies and companies working to promote the technology.

COMMENT: Keep forecasts in check

In business, no one likes surprises, least of all fund managers, who tend to think they know everything already. Some advice from Mark Niznik, who runs a portfolio for investment house Artemis: when it comes to forecasts, under promise and over deliver.

Speaking today at an IR conference at the London Stock Exchange, Niznik said: 'If you think you're going to deliver 15 percent growth, predict 12 percent, and get your broker to predict 10 percent. Profit warnings do damage and it is an uphill struggle to rebuild trust.'

Niznik adds that research done by a company's broker should align closely with management thinking. If not, what are you paying them for?

Tim Human
International Correspondent
IR magazine

Thank God for the QCA

Guests at the 14th annual dinner of the Quoted Companies Alliance (QCA), held at the London Hilton last week, unexpectedly found themselves praying for the wellbeing of the organization devoted to the success of small caps. After listening to EU markets commissioner Charlie McCreevy speak of the importance of small caps and before tucking into a sumptuous meal, diners were invited to rise to their feet. Grace ensued, thanking the Lord for the food and also for the work of the QCA. Amen.

It's a prayer McCreevy might not have agreed with: he confessed to feeling like he was on venture capitalist television series Dragons’ Den, where budding entrepreneurs face the wrath of hardened business experts, whom he jokingly compared to the small caps.

In short

Given the current state of the world’s financial markets (crisis, meltdown, apocalypse, whatever you want to call it), it’s fairly surprising it's taken governments and financial authorities so long to get their act together on short selling. The SEC had a good stab at it, when it strove to cut out naked short selling in July, but why did it single out certain financial stock? Why didn't it go the whole hog at the time and embrace all sectors?

And then last Tuesday UK chancellor Alistair Darling revealed something of the FSA’s stance on shorting. Speaking on BBC Radio 4’s Today program, he declared the FSA had not only identified the problem of hedge funds shorting, but that it was looking at the problem with a view to taking action.

Mysteriously, however, a member of the FSA’s market policy team denied any new measures to counter shorting was being addressed in the UK market. He claimed the only policy under review was the disclosure rules introduced in June to target investors in companies undergoing rights issues, which was reportedly being reviewed by Darling himself.

All things considered, it's pretty amazing the FSA and the SEC took so long to take the matter seriously enough, when the total ban on short selling suddenly slipped into first the UK and then the US markets at the end of last week.

Fay Sanders
International editor
IR magazine

Exchange consolidation back on track

As we are continually told, stock markets are going through a period of consolidation, and soon just a few big players will be left in the game. But despite the many alliances and frameworks agreed between various parties around the world, the market for listing and trading shares feels as fragmented as ever.

Change is afoot, however. Today's FT reports that NASDAQ OMX is planning to launch a 'global listings center', a single body handling the paperwork for listings in any jurisdiction covered by the group.   

NASDAQ's rivals will be watching closely. Right now, the London Stock Exchange has the most reasons to worry. The FT also quotes Bob Greifeld, NASDAQ's CEO, as saying his group will apply 'within weeks' for permission to run IPOs out of London.