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Entrepreneur and Business Resources Integral Methods and Technology Governance and Investor Responsibility
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|
Product safety |
66% |
Corporate honesty |
60% |
Environmental safety |
59% |
Fairer wages for employees |
55% |
Reducing sweat shop labour |
52% |
Hiring and promotion of women and minorities |
51% |
United Nations Secretary-General Kofi Annan and the CEOs of some of the world’s largest investment institutions launched the “Principles for Responsible Investment”. The principles will provide a global framework for integrating environmental, social and governance criteria into investment analysis and ownership practices and will align international investment practices with the goals of the United Nations, including sustainable development. The principles, which are designed for large mainstream investors, were developed in a nearly year-long process convened by the UN Secretary-General and facilitated by the UN Environment Programme Finance Initiative and the UN Global Compact. They identify a range of steps investors can take to integrate ESG issues in several areas, including investment decision-making, active ownership, transparency, collaboration and gaining wider support for these practices from the whole financial-services industry.
ISO has chosen SIS, Swedish Standards Institute and ABNT, Brazilian Association of Technical Standards to provide the joint leadership of the ISO Working Group on Social Responsibility (WG SR). The WG SR has been given the task of drafting an International Standard for social responsibility that will be published in 2008 as ISO 26000.
The "Social Footprint" method conceived by the Center for Sustainable Innovation for quantifying corporate social and environmental impacts uses quotients to compare company action to sustainability goals. There is no dearth of metrics to measure corporate social and environmental performance--greenhouse gas emissions reductions, or percentage of women and people of colour in the workforce and on the board of directors, for example. What is lacking, however, is a means to assess the actual social and environmental impacts of corporate action--in other words, the degree to which corporate social responsibility initiatives actually advance toward true sustainability. "The Social Footprint is the first non-financial reporting method capable of mathematically calculating the true bottom-line impact of an organization on society," says Mark McElroy, executive director and chief sustainability officer of CSI, in a report on the protocol. "While other methods, like the Global Reporting Initiative, do an adequate job of expressing top-line impacts, only the Social Footprint makes it possible to compare top-line impacts with actual human conditions in society, and thereby compute the social bottom-line of an organization." The basic concept behind the Social Footprint hinges on comparisons, expressed quantitatively in fractions, or quotients. For example, if a certain geographical region produces 10 million gallons of freshwater yearly (denominator) and humans in the region use 15 million gallons per year (numerator), then the quotient is 15/10, or 1.5. For a real-world example of comparing a company’s performance to a specific sustainability target, look at how Wal-Mart contributes to the advancement of the UN Millennium Development Goals, a set of eight aspirations to reach by 2015. CSI calculates Wal-Mart's performance as 0.10 for 2002, 0.12 for 2003, and 0.17 for 2004, far below the goal of scores above 1.0 for social quotients. The approach has already fostered discussion - a criticism of the Social Footprint by Mallen Baker in their recent newsletter may be found here.
The IFC has launched a competition to promote emerging market equity research into social and environmental issues. IFC is offering grants of up to $500,000 to research houses, rating firms, index providers and similar organisations to "support the development of new information services geared to sustainable and responsible investment in developing country firms". The Capturing Value programme is intended to "facilitate an increase in high-quality, long-term investment in emerging markets from pension funds and other investors worldwide," the IFC says. It notes that while socially responsible investment - broadly defined - totals some $2.7 trillion worldwide, only 0.1% of this capital is invested directly in emerging market listed equities, according to research it commissioned in 2003. The deadline for technical and cost proposals is 30 June, and the IFC says the competition is "open to a wide range of organisations, from mainstream sell-side analysts who want to deepen their expertise and product offering to more specialised firms that cater to socially responsible and ethical investors in the market". More information can be found by clicking here.
McKinsey has published a paper, When Social Issues Become Strategic, noting that case for incorporating an awareness of social and political trends into corporate strategy has become overwhelming. They say that issues such as privacy, obesity, offshoring, and the safety of pharmaceutical products can alter an industry's ground rules, and the financial and reputational impact of mishandling these issues can be huge. But they also create new market opportunities that nimble companies can exploit. They advise that companies should look for signs of emerging hot topics, be ready to respond to them early, and place a series of small strategic bets that will create value if the social and political landscape shifts. They note that CEOs must be willing to ensure that different parts of their own organizations are united behind a coherent approach, to engage in external debate, and to consider collaboration with others. These traits, however, a far easier to put on to paper than in to practice!
A new PricewaterhouseCoopers' report says companies will be driven by sustainable development in the next ten years. It identifies six trends that will encourage businesses to be more socially and environmentally responsible in the future. The PwC report "Corporate Responsibility: Strategy, Management and Value" recognises that environmental and social leadership will be essential to business success in the 21st century. The authors of the report see six major trends that will lead to greater commitment of industry and business to sustainability:
global markets will play a much bigger part than government policy in the decision-making process of companies, especially in the form of shrinking supply and growing demand for natural resources; labour and distributions costs or environmental and health legacies;
the financial model of current decision-making (in governments and business) will be revised to include new scenarios, new data and new risks; it will incorporate a growing number of intangibles and non-financial issues;
innovation will be key, but will be more than technological: changes in our behaviour, geopolitical structures and product design and development;
globalisation will diminish the role of the state; this will not be easy and sometimes driven by disruptions such as increasing pressure on scarce resources, changing patterns of global demand or growing awareness that we are a global community;
progress towards sustainability will be incremental , not revolutionary but specific catalysts may cause sudden disruptions and spurts of great change
the global media will play a big role in awareness-building.
Business Ethics magazine's annual list of the "100 Best Corporate Citizens" in America.KLD has provided research for Business Ethics since the inception of its '100 Best Corporate Citizens' list. Details about the 100 Best Corporate Citizens is available at: www.business-ethics.com/whats_new/100best.html.
Korea is tightening its grip on foreign businesses, particularly successful ones. Government auditors in Korea announced that they are “shocked, shocked” to find out that there were alleged “irregularities” in the sale of the Korean Exchange Bank to Lone Star Funds in 2003. The Korean government fails to recognise that it sold the once-failing banking system to Lone Star to save it from collapse. Lone Star had completed a $6.7 billion sale of the bank to Korea's Kookmin Bank, just weeks before the Korean legislature was to enact legislation that would have allowed the tax-free deal to be taxed. That sale is apparently still on track, but Lone Star's ability to expatriate funds from the sale may be in question. Separately, Korean government prosecutors not only raided the offices of Lone Star in Seoul, but the homes of executives of the firm, as well as the offices and homes of Lone Star's affiliated advisors in Korea.
The activities of Korea's various prosecutions of U.S. private equity firms also extends as prosecutions and investigations of Warburg Pincus, Newbridge and other firms are now coming to fruition. And Korea's Financial Supervisory Service (FSS) has promulgated a new regulation that will allow it to “gather information” and monitor foreign-based investors in Korea more closely beginning in June. Specifically, the new rules allow regulators access to information about investments made by foreigners in Korea. The regulations also allow for information sharing with financial regulators in the United States, Hong Kong, Singapore and other countries. The new rules will allow access to “personal” information on investors or “anyone related to … deals” made in Korea.
Several important changes are taking place in China at the moment, including a significant reorganization of the Ministry of Finance and Commerce, an enhancement of the role of the State Authority for Foreign Exchange (SAFE) in private equity, and several other upcoming policy changes relating to private equity investments in China. Also,China's Ministry of Finance said this week that it will reduce minimum investments by individuals and businesses in private equity funds later this month. www.english.mofcom.gov.cn
We read the following comment on business in China on the Evian Group OWI forum and quote it here because of the realistic picture it paints of the risks of doing business in China. It is in relation to visa applications but illustrates the ingenuity of people with little to lose who want to improve their livelihoods but have no open opportunity to do so.
"One (long) anecdote. 1995-97, I served in China with the US State Department. Our neck of China "sponsored" upwards of 200,000 illegal Chinese migrants to the U.S. each year. With respect to students I have seen everything from fraudulent transcripts to fake bank accounts, to fake hukous, to fake diplomas. With respect to business, the fraud gets much more complex. After wading through piles of documents purporting to represent companies with legitimate business in the United States -- letters of credit, bills of lading, company ledgers, invitation letters, US "offices", tax returns, etc., we found the best way to combat this trafficking was to go barnstorming through southern China to personally locate the parent/sponsoring companies and interview personnel. Again, we found fraud at many levels: people who had embezzled from parent companies, had access to documents and computers, and created front companies to effect their migration to the United States; front companies set up entirely by snakehead smuggling rings; front companies set up by units of the PLA engaged in illegal business and needing an outlet for their revenues in the U.S.; "employees" who were actually brothers/cousins/uncles/sisters of legitimate employees who prevailed upon family to help them get to the states as an intracompany transferee; front companies for North Korean intelligence that found a lucrative side business in human trafficking; and front companies for Chinese triads engaged in other illicit business but needing a channel for people to move between southern China and the western United States."
US VC Q1 fundraising and investment activity seemed to be as buoyant as economic data. Q1 2006 VC fundraising was the strongest since 2001 or 2002 depending on whether you take the VentureOne/E&Y or MoneyTree figures by PwC/NVCA/Thomson VE. V1/E&Y reported nearly $6.02 billion 7% higher than the Q4 2005 total of $5.62 billion. MoneyTree, on the other hand, reported around $5.63 for Q1 2006. D iffering methodologies and timing of editorial accounted for discrepancies. We will tend to use MoneyTree since we usually report these.
Private equity fundraising had another very strong showing in the first quarter of the year with 93 funds raising a combined $31.4 billion, according to Thomson Venture Economics and the NVCA. 51 venture funds accounted for $6.5 billion of the total while 42 buyout vehicles raised $24.9 billion. While these figures show a decline from the fourth quarter, they are a significant increase over the first quarter of 2005. “For the venture capital community, this year will be the last in the typical three year fundraising cycle,” said Mark Heesen, president of the NVCA. “If venture firms continue along the current path of reason, we would expect to see a gradual levelling off of commitments in early 2007. First quarter fundraising was again robust but still within a prudent range. We have exhibited tremendous discipline in this cycle and that will serve our limited partners well.”
Venture dollars raised in the first quarter declined by 13.1% over the fourth quarter when 63 funds attracted $7.5 billion, but gained by 21.2% over the first quarter of last year when 59 funds took in $5.4 billion. On the buyout side the respective differences were more pronounced. This quarter’s $24.9 billion represents a 22.1% fall off from last quarter’s $31.9 billion, the largest amount of money ever raised by buyout funds in a quarter. However, this quarter outpaced by 76.8% the first quarter of 2005 when 49 funds raised $14 billion.
Fundraising by Venture and Buyout/Mezzanine Funds, 2002-2006
|
Venture Capital |
Buyout & Mezzanine |
||
Year/Quarter |
Number of Funds |
Venture Capital ($M) |
Number of Funds |
Buyout & Mezzanine ($M) |
2002 |
173 |
3,931.9 |
88 |
26,153.5 |
2003 |
144 |
10,771.4 |
91 |
29,506.7 |
2004 |
195 |
17,900.6 |
135 |
51,784.6 |
2005 |
194 |
26,061.3 |
169 |
94,191.7 |
2006YTD |
51 |
6,531.9 |
42 |
24,875.1 |
1Q'05 |
59 |
5,387.9 |
49 |
14,064.8 |
2Q'05 |
57 |
7,684.2 |
60 |
26,369.5 |
3Q'05 |
58 |
5,454.0 |
59 |
21,824.2 |
4Q'05 |
63 |
7,535.2 |
46 |
31,933.2 |
1Q'06 |
51 |
6,531.9 |
42 |
24,875.1 |
Source: Thomson Venture Economics & National Venture Capital
Venture capitalists remained on a steady pace in Q1 2006, investing $5.6 billion in 761 deals, according to the MoneyTree Report. The quarter's dollar value matches the investment level from Q4 2005 and represents a 12% increase over the same time last year. Investments in Biotechnology overall declined 24% from Q4 2005 to $808 million, consistent with historical patterns of lower first quarter investing in the sector. The Media and Entertainment sector reached a four-year high, rising 80% over the prior quarter to $396 million going into 57 deals. Post-money valuations of Later Stage companies soared to a four-year high, with the average reaching $92.02 million for the full-year 2005 compared to $71.22 million in the 12 months ending Q3 2005.
Fewer companies received funding for the first-time in Q1 2006 than the previous quarter. A total $1.3 billion went into 219 companies, an 18% decline in the number of companies from the prior quarter. The decline echoes the rise in follow-on investing over the past several quarters as venture capitalists continued to nurture their existing portfolio companies to prepare them for a successful exit. Nonetheless, Startup/Early Stage deals continued to represent the bulk of first-time deals and dollars with 63% and 49% of the total, respectively, which is in line with historical norms.
Testifying before Congress Fed chairman Bernanke suggested that the Fed would soon pause its policy of steadily raising its benchmark short-term interest rate to weigh the impact of its two-year money-tightening. While he is counting on growth to slow to a more moderate rate, Mr. Bernanke said, "The economy has been performing well and the near-term prospects look good." However, building contractors and real estate agencies have been hiring more workers, a sign that higher interest rates are not yet really hurting the construction industry.
Although the Fed has signalled that a change in policy may occur , it is not clear when. We expect the base rate to be increased again in May and probably June but data on economic growth, consumer spending, inflation and housing in particular must be watched closely to gauge change in behaviour. Our estimate of continued rises to 5.75% by year end, with a pause in summer still seems appropriate.
On the currency front, the US dollar may come under further pressure to depreciate. While technically this ought to have been happening, intervention by central banks has slowed this down. However, in April a G7 meeting resulted in statements indicating that the support of the US$ is not such a priority. It also signalled further encouragement for the appreciation of the Chinese Yuan. We can therefore expect depreciation of the US$ over the coming quarters.
Efforts to liberalise world trade have suffered a setback, after large trading powers admitted that a self-imposed deadline of April 30th for preparing a deal on farm and industrial goods will be missed. Ministerial talks planned for the end of April were called off. Although more negotiations are expected in May and June, and there will be renewed efforts to get a deal by the end of July, there is every reason to be gloomy about the Doha round.
The deadlines were imposed because of the impasse in negotiations. But the deadline has slipped from December 2005 to April 2006 and now summer - there is no further room for them to slide and there is no progress. The American government’s Trade Promotion Authority, which forces Congress to accept or reject a trade bill without introducing amendments, is thought to be essential if America is to take part in talks. That authority expires in 2007 and few expect it to be renewed. Too many American politicians are once again turning protectionist. Congress only barely passed the Bush administration’s Central America Free Trade Agreement, even though its impact on the American economy will be tiny compared to the ambitions contemplated for Doha. And as it will take roughly a year to work out the finer details of any world trade agreement, the outstanding issues must be resolved early enough so the Bush administration can get a deal through Congress.Some observers suspect that Mr Bush’s team is worried, given already low poll ratings, that talk of removing agricultural protection could prove unpopular in some states ahead of mid-term elections this year. The chance for a significant deal on agriculture seems to have been lost.
The US administration has nominated Susan Schwab, who was Rob Portman’s deputy, to take over as head of Trade as a consequence of top level reshuffling by Bush. An experienced trade specialist, she says the American government still considers Doha and other trade negotiations matter greatly. Schwab is a competent technocrat. She spent some time in academia, and was on the staff of John Danforth when he was a Missouri senator. She joined the Bush administration last year as a deputy at the trade office. She doesn't have Portman's Congressional credentials, or Kantor's access to the president. Nor does she have Barshefsky's trade reputation or Zoellick's international clout.She takes the job at a time when global trade talks to reduce agricultural subsidies are floundering. However, she had extensive and highly successful career in financial services and this may help her catalyse movement.
If Doha does die, the focus of attention may switch to regional trade talks instead. But these are a poor substitute for global deals reached through the WTO; they may distort markets in much the same way as national protectionism. The EU has struggled to absorb its ten new members, for example seeing its services directive - which was supposed to free up trade in services the way the EU has already done with goods - considerably weakened. The prospects for regional co-operation in the Americas are limited. Several Latin American governments, like Venezuela and Bolivia, are now promoting a form of leftist nationalism that would not sit easily with wider liberalisation.
It is unfortunate that another major occurrence of greed has obscured science. India is cosying up to Monsanto despite the atrocious record of GMO in that country. The science and technology minister said that biologically engineered crops and pharmaceuticals are critical to the long-term economic and agricultural security of India a few weeks after he met with Monsanto and convinced the agricultural product giant to cut its royalty fees by 30 percent on genetically modified cotton seeds. There is no doubt corruption at work here - perhaps just a way of doing business in India, but not behaviour of which American companies should be proud.
April afforded us some breathing room which was sorely needed to work in the garden as rising temperatures in the garden are bringing up the weeds as well as the seedlings. We also were able to make good progress on rejuvenating the long lost Victorian aqueduct in the garden. Our listed portfolios seem to be performing well, like many, which also afforded some peace of mind. The opportunity to reflect has raised the options of change which we'll consider more closely in May. There may be the opportunity to take on a partner so if you have a friend who demonstrates big picture thinking, professional skills and discipline and has high energy, please refer them to us - it is a good time to grow our activities.
Dipping in to Child Development by John Santrock reminded me what an excellent reference it is. It is very readable and offering practical understanding when you're not sure how to manage your children. Our copy is a 1994 edition, the issue coincident with arrival of our first-born, but remains timely and relevant. What's more, I find that it offers insights into my own behaviour! A highly recommended addition to a family library.
Carpe Jugulum by Dr Pratchett was on the bedside table this month. For most of the story I just enjoyed the colour and passion and then at the climax the big lesson for me came out. Don't try to beat your enemy, become part of your enemy to deflate its influence over you and then let it live to remind you of the dangers of evil. That might be common understanding for some of you, but I think it will be quite hard to do.
P3 Capital has arranged an investor's circle like gathering in early May in London which brings together ethically run businesses and investors. It promises to be an excellent forum and we encourage people to be in touch with Charlie O'Malley if they are either seeking to invest or raise capital because there are likely to be future events.
BeTheChange will
take place in the second week of May and we are looking forward to sharing
perspectives in science, business, art and spirituality at that forum.
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