Where next for business ethics?

As posted on Inside Investor Relations.

Study into US business ethics finds mix of improving and worsening factors

The ethical climate in business has never been better by some measures, according to a survey of more than 4,600 employees across organizations around the US.

But the same survey reports ‘ominous warning signs of a potentially significant ethics decline’, leaving careful readers of the 63-page report scratching their head.

On the one hand, misconduct has reached an historic low (45 percent) and around two thirds (65 percent) of those who observed wrongdoing reported those misdeeds, another all-time high, finds the Ethics Resource Center, an Arlington, Virginia-based non-profit, which authored the report.

But two headline-grabbing findings dominated much of the negative press coverage last week. The survey reports that 22 percent of employee whistleblowers felt some form of retaliation, up sharply from 15 percent two years ago.

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SEC targets social media scams

As originally posted on Inside Investor Relations.

 Commission charges investment adviser and issues two risk alert bulletins covering securities fraud and social media

The SEC has charged an Illinois-based registered investment adviser with fraudulently offering more than $500 bn in fictitious securities through various social media websites, signaling an aggressive stance by the regulator in monitoring online investment activity.

The charges against Anthony Fields, 54, allege that he used LinkedIn discussions, among other social media sites, to promote fictitious ‘bank guarantees’ and ‘medium-term notes’ resulting in interest from multiple purported potential buyers.

The fictitious securities were allegedly offered through Anthony Fields & Associates and Platinum Securities, both entities founded by Fields who serves as president, chief compliance officer and sole control person, according to the complaint.

The SEC called for a ‘cease and desist’ hearing within 60 days to look into the matter and demanded a response from Fields.

In an earlier letter to the SEC dated last July, Fields denied the allegations, stating that the charges are ‘an attempt to describe me and my character as a spin-off of Dr Jekyll and Mr Hyde, and…  a flagrant attempt to tarnish me and my firms’ reputation and a very opinionated statement.’

Efforts to reach Fields yesterday were unsuccessful.

Investor alerts

The SEC used the occasion of the charges to issue two risk alert bulletins aimed at investors and investment advisers.

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S&P tool calls earnings surprises

As originally posted on Inside Investor Relations.

Mathematical model ignores analyst track record to draw bead on unexpected results

In the earnings estimate fandango, IROs have long contended with factors beyond their control that can drive trading activity – analysts straying outside of stated guidance, outdated or sloppy estimates, whisper numbers.

Soon, IROs will also face a new mathematical model that promises to identify ‘significant’ – meaning 5 percent or greater – annual earnings surprises 62 percent of the time in the US and 58 percent of the time internationally.

Standard and Poor’s Capital IQ unit has introduced Intelligent Estimate, a new analytical tool that improves on the accuracy of naïve consensus numbers.

It does so by weighting some analysts’ estimates more heavily than others based on several factors, but not by looking at an individual analyst’s previous track record for accuracy.

S&P says its intelligent estimate tool reduces the median fiscal year forecast error by 14 percent in the US and 10 percent internationally.

‘Investment professionals will be provided with a quick snapshot of where earnings surprises are likely to occur so they can position themselves accordingly,’ explains the firm in a statement.

For subscribers only

The catch for IROs is that only companies that subscribe to the service will be able to see when their company is flagged for a potential earnings surprise that may be driving activity in their stock.

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Mutual funds up support for political disclosure

As orinially posted on Inside Investor Relations.

Push for greater transparency over political contributions and controls hits eight-year high in 2011, reports study

As the US presidential primary campaign shifts into high gear, a new study reports that mutual funds are increasing their support for greater disclosure and board oversight of corporate political contributions.

The Center for Political Accountability (CPA) reports that votes cast by 40 of the largest US mutual fund firms in 2011 reached an eight-year high of 34 percent in favor of shareholder resolutions focused on corporate political spending.


Source: CPA

That is up from only 8 percent support in 2004, the first year CPA studied the issue.

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ISS policy shift favors disclosure of political spending

As originally posted on Inside Investor Relations.

 Focus on corporate political donations grows as US enters presidential election year

Attention on corporate political spending promises to ratchet up from next month, and it’s not just because the US presidential campaign is swinging into full gear.

Proxy adviser Institutional Shareholder Services (ISS) is changing its policy guidelines in favor of shareholder proposals that call for disclosure and board oversight of contributions to political committees and trade associations.

The new policy, which will go into effect for proxy votes after February 1, moves ISS from a ‘case by case’ approach to recommending that clients ‘generally vote for’ shareholder resolutions on political spending.

Pointing to the controversial landmark Supreme Court ruling that lifted prohibitions on corporate and union contributions to independent committees, ISS spokesperson Ted Allen says the issue has received increasing shareholder attention since the decision.

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Reclaiming Twin Cities money center legacy, with a twist

As originally posted on MinnPost.

“We’ve got a great list of public companies in Minnesota. Anything we can do as a state to publicize that, we should,” said Robert Buss, managing director at Disciplined Growth Investors, an independent investment adviser in Minneapolis with $2 billion under management.

Minnesota is home to more than 490 public companies and boasts more Fortune 500 companies per capita than any other state, according to the CFA Society of Minnesota, an organization representing 1,200 investment professionals across the Upper Midwest.

The Twin Cities metro is also home to 56 institutional asset managers, hedge funds and private equity firms managing an estimated $415 billion. In addition, more than 90 corporate, nonprofit and government pension plans and endowments around the state manage another $210 billion in assets.

So it seemed natural when as president of the Society, Buss and colleagues launched an effort to revive something the financial community hasn’t seen here in some time — a regional conference bringing local public companies together with local investors.

“We felt uniquely positioned to do this,” Buss said.

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How the money flows

As originally posted on Inside Investor Relations.

Brad Allen asks: what makes one meeting more valuable than another?

What exactly is a meeting with a management team worth to the corporate access team that’s taking you on the road?

Greenwich Associates’ spring 2010 US Equity Investors Study estimates that institutional investors paid about $900 mn for management access at conferences and $1.2 bn for non-deal roadshows between Q1 2009 and Q1 2010.

The Wall St Transcript, which provides software for corporate access programs, used those figures to put an average value of $4,500 on a meeting at an industry conference and $7,500-$10,000 per meeting for a non-deal roadshow.

While those estimates are obviously ballpark, conversations with corporate access providers reveal a broader range and several factors feeding into the actual numbers.

Those who are willing to discuss how the numbers work requested anonymity so as not to tip off the competition and alienate clients.

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SEC approves NASDAQ free services bundle

As originally posted on Inside Investor Relations.

Commission gives green light to NASDAQ free IR service bundle for new listings and those switching from NYSE

As expected, the SEC has given the go-ahead to NASDAQ’s proposed offering of complimentary IR services worth up to $169,000 a year to newly listed companies and those switching from the NYSE.

The ruling follows approval in August of a rule change at the NYSE allowing up to $100,000 worth of services for all Big Board-listed companies, not just new listings.

As with the NYSE decision, the SEC approved NASDAQ’s free services bundle in light of the ‘competitive environment’ for attracting listings.

‘We’re obviously very pleased,’ says Joe Christinat, spokesperson for NASDAQ. ‘The ruling gives us the chance to showcase our communications, governance and market intelligence offerings.’

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Focus on donations grows

As originally posted on Inside Investor Relations & IR Magazine

Scrutiny of political contributions is intensifying as the US enters the next presidential election year

When the US Supreme Court ruled in 2010 that corporate political contributions are protected by free speech, the five-four split-decision signaled deep divisions.

But the court was nearly unanimous in upholding the importance of disclosure to give voters the information necessary to ‘make informed choices in the political marketplace’.

The case – known as Citizens United – has made political contributions a red-hot issue. And the focus on this area is set to intensify in 2012, when the next US presidential election will be held.

Critics of the decision, including President Obama, predict a plague of unintended consequences as unlimited contributions wash unfettered into the electoral process.

There’s no doubt there have been unforeseen consequences. Just ask Minneapolis-based Target, whose $150,000 contribution to the campaign of a conservative Republican in Minnesota’s 2010 governor’s race sparked a national boycott by gay rights groups (see Target practice, below).

Or consider the record number of shareholder resolutions filed this proxy season – more than 75 according to Institutional Shareholder Services (ISS) – that relate to corporate political activity.

Then there is California state treasurer Bill Lockyer, who requested that the state’s pension funds develop governance policies that call for board oversight of corporate political spending.

Ten prominent law school professors took a different route, petitioning the SEC to consider rules requiring public reporting of political contributions.

And then there is Starbucks CEO Howard Schultz, joined by 100 fellow chief executives, pledging to refrain from donating to candidates from either party until Congress and the president address the US’ fiscal mess.

While no single thread links all these developments directly back to Citizens United, it’s clear corporate political activity will be front and center during the coming proxy season, competing with say on pay as a top issue on activists’ governance agendas.

‘Bumper crop’ of shareholder resolutions

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SEC delays IFRS rule making

As originally posted on Inside Investor Relations.

Commission says it will need a ‘few additional months’ to come up with a final report

‘Ready, set, wait!’ was the message the SEC delivered to US issuers this week concerning the long anticipated guidance on switching to International Financial Reporting Standards (IFRS).

Speaking before the American Institute of Certified Public Accountants (AICPA) meeting in Washington, DC, on Tuesday, the SEC’s chief accountant James Kroeker said commission staff ‘will need a measure of a few additional months time to produce a final report’.

Kroeker said he was open to considering whether to retain US GAAP as the basis for financial reporting in the States.

While he did not specifically mention it, the SEC had floated a hybrid approach at the AICPA conference a year ago called ‘condorsement’.

This approach would allow US companies to retain GAAP while bringing it into line with IFRS over a five to seven year period.

The SEC said it was concerned about the cost and complexity for US companies of adopting or ‘endorsing’ IFRS over GAAP.

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Stocks excite despite bond yields

As originally posted on Inside Investor Relations.

Bonds outperformed equities for the 30-year period ending last September for the first time in 150 years

The US financial markets passed two milestones this fall, one that caught headlines for a day and another that went virtually unnoticed, overshadowed by European debt woes and Washington’s political paralysis over the budget deficit.

But IROs may want to take note of how both play on investors’ attitudes toward equities.

The first incident, reported by Bloomberg at the end of October, followed a report from Chicago-based Bianco Research calculating that long-term government bonds have gained 11.5 percent annually for the 30-year period ending last September.

That beat the S&P 500, which averaged 10.8 percent over the same period. Jeremy Siegel, a finance professor at the Wharton School, calculates that fixed income had not outperformed equities over any 30-year period since 1861, reported the Bloomberg article.

The second milestone occurred in November, which saw the expiration date of 30-year and 29-year nine-month treasuries issued in 1981 that carried coupons of 14.1 percent and 14.56 percent, respectively – high watermarks for US long bonds.

With fixed income continuing to outpace stocks so far this year, is equity investing in danger of becoming passé?

Investing in bonds had a great run, but it will be impossible to make 6 percent in the future, believes financial adviser Simon Lack, a former JPMorgan fixed income trader.

The best an investor can hope for is 2 percent on treasuries and 4 percent in high-grade corporate debt, he tells Inside Investor Relations.

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Roche on the road

As originally posted on Inside Investor Relations.

The pharmaceutical giant mixes up institutional and retail targeting while on the road in the US

Nina Goworek, an IR officer for Roche, is on the road several days a month explaining the Swiss-based pharmaceutical giant to US institutional investors in money centers across North America. But, at the same time, the IR effort is not overlooking individual investors.

‘As times are getting tougher, a lot of companies are focusing on institutional investors,’ Goworek observes after a presentation to a CFA society luncheon in Minneapolis. ‘But we think it’s important’ to also reach out to retail investors, she adds.

Goworek joined Roche in 2008 specifically to become part of the US-based IR team, after four years as an IR analyst at Schering Plough.

With an undergraduate degree in finance from Rutgers University, she was brought on board specifically to take the message beyond the tier one institutions to financial advisors, smaller institutions, private wealth managers and high net worth individuals.

Her company benefits from targeting individuals because they tend to be longer-term investors, and it also helps to diversify the shareholder base, she explains.

As part of the outreach effort, Goworek reaches out to retail investor groups such as the American Association of Individual Investors, regional retail investor conferences such as The Money Show, and some advertising in investment magazines such as Better Investing, Kiplinger and Research Magazine.

Brand advocate

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Independent research on the wane

As originally posted on Inside Investor Relations.

Start-ups at lowest level in two decades

Only 44 new independent research houses started in 2010, the lowest level of start-ups since the early 1990s, according to Integrity Research, a firm that follows research industry trends on behalf of buy-side clients.

‘We are in a new era,’ writes Sanford Bragg, CEO of Integrity Research, in a note to clients issued this morning. ‘A decade ago, being independent from investment banks was a positive in the eyes of regulators and investors. Now independents are viewed as unregulated entities that generate risk.’

Singling out the taint caused by Primary Global, the expert network provider caught up in recent insider trading scandals, is too simplistic an explanation for the fading luster of independent research, Bragg says: ‘The causes are much deeper and they aren’t going away.’

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Companies rethink corporate political donations

As originally posted on Inside Investor Relations.

Disclosure of political expenditure becoming mainstream practice, according to new study

Less than two years after a landmark US Supreme Court ruling removed barriers to ‘electioneering activity’ by corporations and unions, a handful of the largest US companies seem to be saying No, thanks.

A survey of practices at the S&P 100 reveals that two dozen of the largest US corporations have publicly opted out of political spending funneled through independent committees, as allowed by the Supreme Court Citizens United decision.

Independent committees are also known as 527 organizations, named after the Internal Revenue Code section that defines them.

In addition, 57 out of 100 companies surveyed voluntarily report their political expenditures and have instituted policies including board oversight over those expenditures, while 43 provide information about their political spending channeled through independent committees and trade associations.

These are among the key findings released recently by the Washington, DC-based non-profit Center for Political Accountability (CPA) and the Carol and Lawrence Zicklin Center for Business Ethics Research at the Wharton School of Business.

The CPA-Zicklin Index of Corporate Political Disclosure and Accountability indicates that ‘disclosure is becoming a mainstream practice,’ says CPA founder and president Bruce Freed.

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Investors fret over EU and China

As originally posted on Inside Investor Relations.

 Cash levels rise as investors see risk in European sovereign debt and a cooling Chinese real estate market

Investors remain in a cautious mood as European sovereign debt and Chinese growth expectations weigh on their minds, according to a new survey by Bank of America Merrill Lynch (BofAML).

Fully 85 percent of fund managers surveyed by the bank expect Greece to default on its debt, with the majority expecting default to occur by the first half of next year.

The largest source of anxiety for an abnormally large negative event – or ‘tail risk’ – comes from European sovereign debt funding, with 60 percent of respondents expressing concern.

The next biggest risks, according to investors, come from a cooling Chinese real estate market (15 percent)

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What does institutional sales bring to the buy side?

As originally posted on Inside Investor Relations.

New survey highlights additional services and information from sales that can be harvested by IR

Experienced IROs know the best institutional sales reps can be a valuable source of information and a conduit to key shareholders and prospects.

Now a new survey from Institutional Investor ranks the sell-side sales teams for the first time, piggybacking on the magazine’s well-known survey that ranks sell-side research analysts.

The inaugural All-America Sales Team ranking lifts a curtain on some key issues for IROs: how important is the sell-side institutional sales force, and how can you leverage those covering your key shareholders and targets?

A quick read of the survey highlights three takeaways for IROs:

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Out of commission

As originally appeared in IR Magazine and posted on Inside Investor Relations.

Brad Allen ponders the future of the sell side after a further drop in commission payments

It’s just not the same, being on the sell side. Over the past decade experienced analysts have retired, struck out on their own to launch independent research boutiques, started hedge funds and become IROs. There’s a familiar litany of events that changed the landscape of sell-side research forever: Reg FD leveled the playing field; decimalization accelerated the commission squeeze; Eliot Spitzer’s post-tech bubble Global Research Analyst Settlement slammed shut the pay door between research and investment banking; the internet, social media and increased compliance scrutiny narrowed the scope of the analyst’s role.

As it scrambled for a new and sustainable business model, Wall Street took a dose of the medicine it often prescribed for the companies it analyzes – outsourcing – as it pushed labor-intensive number crunching to low-cost locales such as India, Malaysia and the Philippines.

Then, just as things seemed to be settling into a new normal, the market meltdown of 2008 once again sent the Street scrambling for solid footing. With trading volume off, new rounds of downsizings hit research departments. So the recent Greenwich Associates client survey reporting an ‘unexpected’ 12 percent drop in commissions paid on US equity trades instead of an anticipated 15 percent gain in the first quarter of 2011 seemed to be just one more hit to an already beaten-down sell side.

It also kept alive the question: is the sell side headed for, if not extinction, then irrelevance?

Old dogs, new tricks

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Leaked memo leads to Groupon PR head exit

As originally posted on Inside Investor Relations.

CEO of discount voucher firm used memo to attack critics and defend Groupon’s accounting methods

The ongoing Groupon IPO saga is starting to create its own spin-offs – of the dramatic variety.

Over the past week, CEO Andrew Mason’s attack on critics of the planned IPO via an employee memo was leaked to veteran tech blogger Kara Swisher, sparking a public spat between her and rival tech blogger (and Groupon critic) Henry Blodgett.

Some observers note the leaked memo may violate SEC quiet period rules, creating further problems for the company’s plan to raise up to $750 mn.

The coda to this mini-drama came Wednesday with the revelation that tech PR veteran Bradford Williams (Yahoo!, VeriSign, eBay and Gateway) resigned earlier in the week after just two months on the job at Groupon, with Blodgett speculating that the departure was due to disagreement with Williams’ boss about the internal memo leak.

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News job in the new economy

What it's like for a college grad to find a job in today's new economy

(As published in MinnPost.com)

After Marlana Wenzel graduated with a degree in history and political science from Vanguard University in southern California in 2006, she returned to Minnesota figuring she'd work in a corporate job for a few years "to make some money" before starting on her desired career in teaching.

It hasn't worked out the way she'd planned it.

Her first layoff came in 2008 "when everything started" as the economy slid into the Great Recession, she recalled recently.

Since graduating, she's held several full- and part-time jobs in sales and customer service, the longest a part-time job at T-Mobile that lasted a year and a half. 

Courtesy of Comcast Corp.Comcast executives and local and state government officials celebrated the opening Wednesday of a new Comcast call center in Minnetonka.

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Video sheds light on high-frequency trading

(As originally published in Reuters.)


Wall Street’s computer-powered, high-frequency traders are getting renewed scrutiny in the current volatile market with some media reports suggesting they are not just profiting from the wild market swings, but making them worse. There’s a new report that the U.S. Securities regulator has subpoenaed high-frequency trading firms in relation to last year’s “flash crash” probe.


This lightening fast micro-second trading buys and sells a few shares of stock thousands of times a second, generating huge profits by capturing just a couple of pennies on each trade – over and over again.
Despite the criticisms, nobody can accuse high-frequency traders of not making every second count.  And to illustrate the point, an investor in Portland, Oregon stretched the thousands of trades occurring in one second out over a one-minute video.

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Minneapolis Fed’s Kocherlakota explains dissenting vote

(As originally published in MinnPost.com) 

The president of the Minneapolis Federal Reserve Bank today issued his first public comments (PDF) explaining his highly publicized dissenting vote at this week’s Federal Open Market Committee  meeting.

Narayana Kocherlakota — along with two other FOMC members, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser — dissented from their seven colleagues, who decided to signal that Fed rates will remain low through mid-2013.

 The dissenters preferred instead to keep the previous, more-vague guidance of keeping rates low “for the foreseeable future” – that means for the next two or three months in Fed-speak.

In his statement this morning, Kocherlakota said that rising inflation and declining unemployment since the Fed put its current policy in place last November argues against making Fed monetary policy “more accommodative” – that is, committing to an extended period of a low Fed funds rate.

“I believe that in November, the Committee judiciously chose a level of accommodation that was well calibrated for the prevailing economic conditions,” he said. “Since November, inflation has risen and unemployment has fallen. I do not believe that providing more accommodation—easing monetary policy — is the appropriate response to these changes in the economy.”

As I reported Thursday, the dissents generated considerable interest in the financial press, with Bloomberg describing the vote as “the most opposition to a FOMC decision in almost 19 years.”

Both the Wall Street Journal and Bloomberg speculated about the impact on Fed Chairman Ben Bernanke’s leadership. In response to a query from the Journal, Kocherlakota issued a statement supportive of Bernanke’s leadership.

FOMC members, however, are prohibited from immediate public comment on monetary policy, committee decisions and economic conditions. As a result, Kocherlakota was prevented from publicly explaining his vote until this morning, according to Fed spokesperson Patti Lorenzen.

Neither the Dallas nor Philadelphia Fed has issued statements explaining their executives' dissenting votes, according to their press offices.

Minneapolis Fed President Kocherlakota makes waves with his dissent

(As published in MinnPost.com)

Minneapolis Federal Reserve Bank President Narayana Kocherlakota — a new voting member of the Federal Reserve’s policy-setting Open Market Committee — is making headlines in the financial press for his dissenting vote on the Fed’s recent policy statement on interest rates.
But a read of his recent essay on monetary policy casts light on the reasons for his dissent and makes it less surprising.

First, a little background.

Narayana Kocherlakota

 

Kocherlakota — along with Dallas Fed President Richard Fisher and Philadelphia Fed President  Charles Plosser — formally dissented from their seven collegues on the Federal Open Market Committee  (FOMC) in pledging to hold interest rates near zero through mid-2013.

That policy statement, issued Tuesday following an FOMC meeting, was viewed as the Fed’s attempt to soothe panicky traders and investors on Wall Street — and temporarily it seemed to work. It was an unusual move in laying out a specific timeframe for keeping interest rates low.

The three dissenting votes, however, sent the financial press atwitter.  As reported by Bloomberg News, this represented “the most opposition to a FOMC decision in almost 19 years.”
It’s not that the three Fed presidents wanted to see interest rates pushed up.

Instead of putting a specific time-frame on the low interest rates, they “would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period,” according to the Fed statement on the meeting.

So, they were not urging a change in course, but suggesting that the Fed say little about longer-term interest rates.

Both Kocherlakota and Fisher, responding to press queries, praised Chairman Ben Bernanke's leadership after casting their dissenting votes.

"On this occasion, I dissented from the committee's decision," Kocherlakota said in a prepared statement. "Regardless, I have nothing but the highest regard for the acumen, integrity and ability of all other FOMC meeting participants, including the chairman."

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Company settlements with SEC near record pace

Encouraging news for IROs as settlements for financial misstatements and insider trading fall

A total of 114 companies accused of violations by the SEC reached settlements with the government in the first six months of 2011, setting a pace that could make this the second-highest year for corporate settlements since the passage of SOX nine years ago.

The number of company settlements jumped 43 percent in the first half of 2011 from the previous year, while settlements with individuals declined 12 percent to 230, according to NERA Economic Consulting’s biannual SEC Settlements Trends report.

While the make-up has shifted between companies and individuals, the total number of settlements is on track to slightly exceed the 681 reached in 2010.

(As published in InsideInvestorRelations.)

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Court ruling points to new reality in public pension plans

Thinking about public pension funding usually makes people’s teeth hurt, but like sports stadiums and light rail, it’s an issue that won’t go away.

So it’s not surprising that, in the midst of the Great State Budget Impasse, little notice was paid last week  to a Ramsey County District Court ruling upholding the constitutionality of changes the Legislature made to the state’s three major public employee pension systems last year as part of a comprehensive “pension sustainability” reform package.

 (As originally published in MinnPost.com.)

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How investors can use Twitter: Reuters Money

(As originally posted on Reuters.com.) 

 Twitter is not just for staying in touch with friends and colleagues. It’s becoming a great way for keeping up with the stocks you care about as well. And companies themselves are increasingly using the social media tool to communicate directly with investors.