Volcker Rule: Responsible, Meaningful Regulation…Maybe

By Ken Cynar, executive vp, Governance & Accountability Institute  Spawned from the fiscal crisis of 2008 and subsequent legislation, the Volcker Rule was released this past week and was surprisingly a reasonable, well thought out regulation drafted by people who know the banking business. Rather than being an assault on Wall Street banking, it appears, so far, to address legitimate concerns if in a somewhat complex 70 page rule and an over 800 page explanation. According to Reuters, — “While the U.S. rule bans banks from making blatant bets on securities or other assets, it gives them leeway to make judgments, such as how many assets they should buy in anticipation of customer demand. Banks had worried they would have much less leeway that what is being allowed.” (U.S. Volcker rule may have less impact on bank revenues than expected)

As with any regulation, its impact and effectiveness will be determined by how it is enforced and the “interpretations of the rules.” But for now it appears Washington regulators did not draft a rule that had the potential for putting the financial system in chaos. That does not mean that the rule was well received by all. On point it is long…very long. It is longer that the Greek Version of the New Testament and does have complexity that would make even cause Moses some confusion.

Allan Sloan at Fortune writes, “Great sound bites often make for bad policy, because things that seem wonderful and simple in the abstract frequently turn out to be hideously complicated when you try to apply them in real life. That’s my takeaway from the Volcker Rule, which was unveiled in mid-December after five different federal financial regulatory agencies — another example of real-world complexity — finally signed off on it.” (The Volcker Rule: Complexity trumps common sense)

While Sloan is right, I expected something much worse and am surprised at the reasonableness of the approach, but the complexity is a real concern. Sloan puts its plainly “The Volcker Rule is better than nothing, but it’s just not worth the effort and expense expended on it or the problems it has caused and will cause.”

Did Wall Street dodge a bullet and did the people get more protection from speculative bankers taking high risks with other people’s money…on balance I think that’s what happened. The Volcker Rule reigns in high risk and at the same time does not stop the banks from balancing their investments. Not a perfect law; but most are not. Now the challenge is how it can and will be enforced. That’s how I see it.

 

New E, S & G And ESG Benchmarks – TRCRI – For Investors, Corporate Managers and Consultants from Thomson Reuters and S Network Indexes


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Interview by Hank Boerner – Chairman, G&A Institute

Thomson Reuters is a global media and information services company, and one of the largest providers of capital markets information.  In 2009, T-R acquired ASSET4, a longtime ESG performance information service for investors. The ASSET4 methodology is being used for a new family of ESG benchmarks for investors and companies – the Thomson Reuters TR CR indices (TRCRI).  The managers of the indices is S Network Global Indexes LC,  providers of indexes that measure the performance of discrete segments of the global economy.   We spoke with Herbert Blank,  at S Network Global Indexes regarding the new TRCRI

G&A Institute Question:  Tell us about the new TR CR Indexes and Ratings from Thomson Reuters in partnership with S-Network Global Indexes LLC.  What are the first products coming to market – and what need do they fill?

Answer – Herb Blank: The Thomson Reuters Corporate Responsibility Indices (TRCRI) are a suite of benchmarks designed to measure the performance of companies with superior ratings for Environmental, Social and Governance practices (ESG).  Historical data and constituents are available on a rolling basis beginning January 1, 2007.

The Thomson Reuters Corporate Responsibility Ratings (TRCRR) apply extensive quantitative modeling to more than 500 data elements to score more than 4600 companies from 0 to 100 on Environmental, Social, Corporate Governance, and ESG Performance.   The indices and ratings were launched in April 2013.  They democratize ESG Ratings and indices by creating transparent and publicly available methodological standards that can be used for comparisons between global regions and industry groups.

G&A Institute:  What are the key characteristics of the rating process?

Herb Blank: The characteristics of the ratings process are:

  • Baseline Simplicity — Just one number between 0 and 100 on an approximated normal distribution characterizes performance on each dimension.
  • Comparability and Consistency — Data framework is identical for all companies within each industry and region allowing for the generation of comparable statistics over time.  Scoring and benchmarking relative to disclosure practices in industry and by region makes every score comparable in “E”, “S”, “G”,  and “ESG.”
  • Deterministic — Ratings are completely formula-driven and derived from publicly-available data.
  • Emphasis on Materiality — Analytical frameworks emphasize criteria most material to ESG performance and risk in each industry by region.
  • Transparency — Methodology including weights, dynamic scaling, peer groups, and adjustments 100% disclosed and available on spreadsheets via website.

G&A Institute:  When will the indices and ratings be available for users?

Herb Blank: Four indices apiece for the US Large Cap stock market and global ex-US developed stock markets have been available since April 2013.   Four stock indices for Emerging Markets are under development with an expected release date of April 1, 2014.  We also expect to be releasing fixed-income indices for TRCRI sometime during the second half of 2014.

The ratings are available and being utilized now through Thomson Reuters Enterprise Solutions.  The big change in the early part of 2014 is that Registered Investment Advisers (RIA’s), Corporate Users, and individuals will have the ability to purchase to ratings data directly from www.trcri.com via all major credit cards at surprisingly affordable prices.

G&A Institute:  How do you see asset managers, owners, and consultants using the products?

Herb Blank: The fact that the ratings have normal distribution curve properties facilitate their usage by asset managers as screening tools or as additional variables for existing portfolio universe scoring systems.   Since 500 data elements are engineered to create just four ratings per company, pricing is substantially less that the norm for existing ESG database products.  The news is even better for asset owners and their consultants who use the data for benchmarking, universe screening, and research; those who qualify will receive complimentary subscriptions to the ratings and the indices.

Asset managers and financial markets consultants can compare companies and portfolios against peer groups in these areas of corporate responsibility. Companies that are highly-rated in ESG metrics have been intuitively characterized as top performing companies. Now the TR ratings and indices present quantitative evidence to verify this assumption.

G&A  Institute:  How will corporate managers be able to use the products?

Herb Blank: Corporate managers will find it easy to compare themselves with their peers, both domestic and foreign.   Beyond that, the transparency of the ratings facilitates the ability of expert consultants such as G & A Institute to coach such clients on what things they could do to improve their ratings relative to their peers.  Also, corporate executives and financial leaders can highlight their company’s progress in ESG issues in quantitative terms that financial analysts must consider to be material. Strong performance in the ratings will give investors an inspective look into the companies.

G&A Question:  Can you fill us in on the background of the partnership with Thomson Reuters?

Herb Blank: Prior to launching the TRCRI and TRCRR, Thomson Reuters and S-Network have collaborated on the CRB Equity Indexes and have explored other joint ventures. S-Network Global Indexes’ historic expertise is as an architect, developer, and provider of specialty indices that can easily be attached to investment management products such as exchange-traded funds (ETFs) and separately managed accounts.  A key impetus for the TRCRI venture was to create investible ESG indices utilizing the vast corporate responsibility data collected and analyzed by Thomson Reuters Asset4.  In terms of the partnership, the TRCRI are compiled and published by S-Network Global Indexes and calculated using T-R data.

 

Remembering Nelson Mandela from John Taylor CEO of National Community Reinvestment Coalition

John Taylor PhotoOur friend John Taylor shared this remembrance of Nelson Mandela.  John is the CEO of the National Community Reinvestment Coalition in Washington DC.  He is an effective advocate for social justice and fair lending practices.

I would be remiss not to share with you a brief story of when I met Nelson Mandela. It was six months after he was released from prison.  As many of you know the Kennedys, particularly Robert, were very engaged in speaking out against apartheid in South Africa.

Robert Kennedy went to visit Mr. Mandela while in prison and upon leaving South Africa had his plane fly low over Robben Island, where Mandela was imprisoned.  Back home the Kennedys were very vocal in calling for a free South Africa, supporting Rep. Ron Dellums (D-CA) and others who passed legislation in 1986 (it actually had bipartisan support) imposing economic, military another sanctions against the nationalist South African government. Of course that legislation was vetoed by Ronald Reagan.  Fortunately, Republicans and Democrats in the Congress came together and procured the needed votes to override the veto.

In any case, when Mandela came to the U.S. after finally getting out of prison, his first stop in our country was to Boston to thank the Kennedys and the City of Boston (the first U.S. city to take a stand against apartheid by imposing sanctions on companies and banks that conducted business with the South African government).

Robert’s son, Rep. Joe Kennedy II (D-MA), invited me and one other person, to a small gathering of people who would be meeting Mr. Mandela at the JFK Presidential Library in Boston, not too far from where I grew up in Boston.  What an honor.

Of the 50 or so people there, it seemed that everyone was a celebrity, I was half expecting someone to ask for my ID and then be escorted out of the building.  Fortunately, that didn’t happen, and as we stood around waiting for Mr. Mandela’s arrival I was having one-on-one conversations with people like Stevie Wonder, Paul Simon, Danny Glover and several others.

My congressman, and friend, Joe Kennedy II then introduced me to Jacqueline Kennedy Onassis.  He said, “John have you met Mrs. Onassis?” I replied I had not; she smiled and began to talk, when behind her a door opened and out walked Nelson Mandela, Winnie Mandela and Senator Ted Kennedy to the thunderous applause of the gathered celebrities.  Like a starstruck fan at a rock concert, I immediately moved towards the star of the show to give him my best and thanks.  To this day I regret not being able to show Mrs. Onassis more deference and to talk with her – what an incredible human being she was.

Mr. Mandela did not disappoint.  He spoke of his appreciation for those who stood up against apartheid, and along with his message he exuded a warmth, graciousness and deep humility that touched me like no one before.  It struck me then, what kind of human being spends 27 years in prison and rises from it with such gentleness and forgiveness as this special man possessed.

I would love to say how much of his intimate speech I remembered, but it was a bit of a blur at this point. The man, his love for mankind, for South Africa, for all things ‘justice,’ just floated out over the audience like a misty and intoxicating perfume. What an honor to have met this very special being.

I am eternally grateful to Joe Kennedy for including me in this special event . As I left the John F Kennedy Library I do remember how peaceful the ride was in my little red Volkswagen bug as I reflected on my own life and work in the field of economic justice.

How trivial my challenges seemed but at the same time how critically important the work we were doing locally in economic justice was.  I was inspired by this slight man from a rural area at the very bottom of this vast continent of Africa.

He showed me that we can endure a great deal, but at the end of the day, the goodness and righteousness of people will prevail.  Like others, I mourn the loss of President Mandela, but at the same time I join billions of people who now celebrate his greatness and commitment to a better society and kinder world.  We are all blessed to have known him, better off as human beings because of his love for mankind, and this is as true whether we witnessed him from afar or up close and personal.

John Taylor

President and CEO, National Community Reinvestment Coalition/NCRC

President Nelson Mandela – Tributes on Passing – His Influence Reached to SRI Community in USA

by Hank Boerner, Chairman, G&A Institute

Today the world mourns the passing of one of the 20th Century’s most distinguished statesmen – President Nelson Mandela of South Africa. Among his greatest accomplishments was the lifelong struggle to end the system of Apartheid and oppression of the majority black citizenry, which led to establishment of a “rainbow democracy” with all elements of the country’s society included and having a voice and vote.

Apartheid seems so long ago now but the struggle was very present in the United State of America. The issue was debated on college campuses – President Barack Obama said that his very first “political” issue involvement was about Apartheid. Over time as the issue gained greater public visibility, pressure was applied to the U.S. and European companies operating in South Africa. U.S. companies withdrew — among them giants like Eastman Kodak and General Motors, The US Congress in 1986 passed the “Anti-Apartheid Act” which finally banned trade and investment in South Africa — and banned most S.A. exports to the USA. (This was a Republican-controlled Senate, we would note. President Ronald Reagan vetoed the measure but the Senate overrode the veto – imagine that happening today!) Military sales were stopped. I remember SAA — South African Airways — ceasing operations on their busy NY-Johannesburg route when I was in the airline business.

Speaking of GM, one of the largest US industrial powers — a board member, Reverend Leon Sullivan, suggested a process for dealing with the issue and the resulting “Sullivan Principles” were widely adopted by US companies (a shout out to the GM board of that time for their courage).

A familiar force in sustainable & responsible investment and in encouraging good corporate governance began operations around the issue: today’s ICCR (Interfaith Center on Corporate Responsibility). ICCR members manage US$100 billion AUM and influence the actions of other asset managers and stakeholders with their activism on key ESG issues.

The trade association for the SRI community — US SIF — commented today on President Mandela’s passing: “US SIF honors the life and action of Nelson Mondela. The roots of today’s sustainable investment field can be found in the efforts of investors, often undertaken with civil society partners in South Africa and around the world, to help eradicate Apartheid by putting pressure on companies doing business in S.A. Sustainable and responsible investors have continued effort to support human rights and address inequality in the decades since. The life of Mandela will continue to influence…”

Many of the public and private sector veterans of the 1960s-1980s divestment campaigns targeting U.S. companies doing business in/with South Africa are today recalling their own individual and collective efforts to bring attention to the campaign for equality and fair treatment of South Africa’s majority population.

General Colin Powell today added his remembrances of Mandela and wondered to his CNN interviewer…what might our own country have looked like if President Abraham Lincoln was not assassinated…what in the Reconstruction Era following the Civil War would have been different…avoiding Jim Crow laws, segregation, outright discrimination against our own African-American citizens? Interesting to think about as we remember Nelson Mandela and his struggle a century later…and his comments about President Lincoln’s inspiring example.

Soon after the changes in South Africa I attended a lecture in Washington DC by the former leader (under Apartheid), F.W. DeKlerk, who came to discuss the changes taking place in his country. At one point he said he wished that the system that he ruled would have ended much earlier. Mandela was right.  He touched my heart, the former leader of the white majority government said.  Mandela in his 95 years touched many hearts.

And that suggests the immense power of an idea whose time has come — concepts of freedom, equality, democracy for all, fairness, protection of human rights, the responsibility to society of large corporations  — that armed forces, security thugs, bans, institutional blocks, and other means cannot stop.

We have before us today the example of President Mandela, who was jailed for 27 years in the prime of his life to look to for what can be possible. He forgave his jailors (another powerful idea) and brought his rainbow nation together. We are all in his debt. I will remember these things as I mourn his loss.