This Week in ESG and Impact Investing

On October 30, 2007, the Subcommittee on Oversight and Investigations of the House Committee on Financial Services held a hearing to review “the role of minority-owned financial institutions.” My organization has been researching women- and minority-owned banks and thrifts since 1989. We feel minority banks, specifically African-American banks, need one thing and one thing only: Capital. That regulators do not recognize this is indicative of their decidedly lax approach to the sector. It also suggests that they may not be meeting their responsibilities under the Financial Institutions Reform, Recovery and Enforcement Act, which requires regulators to take steps to preserve minority banks. Banking is a field that depends upon precise numerical data, but federal banking regulators do not have a valid estimate of the number of minority banks in the U.S. According to our data, by June, 2007, there were 225 minority owned banks and thrifts in the U.S., up from 190 at the end of 2005. ...

According to the SEC: "Securities and Exchange Commission Chairman Christopher Cox today launched the first-ever online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives. The new database highlights the power of interactive data to transform financial disclosure. The Executive Compensation Reader - available today on the SEC's Web site at http://www.sec.gov/xbrl - builds on the Commission's new requirements that went into effect earlier this year to dramatically enhance clarity and completeness of executive compensation disclosure."

We have been attempting to review the Bush Administration's plan to help stop foreclosures. We have not been able to find coherent, consistent documentation, thus we believe there is no plan. There is, however, a public relations effort designed to feign concern. According to the Jacksonville Business Journal , "Nationwide, nearly 1.1 million homes entered the foreclosure process so far this year, up 93 percent from the 559,750 foreclosures filed during the same period last year. About 526,936, or more than six out of every 1,000 households in the United States, were repossessed by banks or lenders during the first 11 months of the year, up 41 percent from the same time last year." HUD notes that the FHA Secure Plan " has helped 33,000 homeowners prevent foreclosure in three months; More than 50,000 to be helped by end of year. " Thus 33,0000/1,100,000 or three percent of homeowners in foreclosure have been helped. That is three out of one hundred. Even under ...

We note efforts by the SEC to "thread the needle" after approving what many had considered restrictive Proxy Access policies. (Our viewpoint is that things could have been worse, that Mr. Cox is still, by far, the most competent Bush appointee, and that there is still room for negotiation.) Consider the following: On December 5 th , the " SEC's Office of Interactive Disclosure Urges Public Comment as Interactive Data Moves Closer to Reality for Investors" This is tied to efforts to create electronic shareholder forums. In the run up to the Proxy Access vote, many missed the fact that the SEC created, in October, an "Office of Interactive Disclosure..to lead the transformation to interactive financial reporting by public companies. A free taxonomy review tool is publicly available on the Internet at http://usgaap.xbrl.us along with other information." On December 6 th , "The Securities and Exchange Commission announced a record $468 million settl...

We attended the SECs open meeting yesterday. Seated directly behind us were Mr. Thomas Lehner, a representative from the Business Roundtable and Ms. Amy Goodman, a former Chief of the SEC Task Force on Corporate Accountability and, currently, a Partner at Gibson, Dunn and Crutcher . (According to a press release issued when Mr Lehner testified at an SEC-sponsored Roundtable on Proxy Access, the Financial Times cited the Business Rountable as "the most influential chief executive lobbying group in the U.S.") The two were in good spirits, celebrating what they perceived to be an impending victory with respect to the vote on Shareholder Proposals relating to the Election of Directors. At one point in their conversation, we believe they discussed branding opponents to the Shareholder Proposal vote as "communists." They may have been referring to the AFL - CIO and related labor interests. We bring this up to note the type of unfair, unethical tactics used by oppo...

We note that none of the policy groups claiming to speak for African Americans have submitted comments concerning the SEC's controversial shareholders rights proposal. According to the Washington Post , "The leader of the Securities and Exchange Commission (Christopher Cox) told lawmakers yesterday that he is poised to move ahead with a controversial shareholders rights proposal, drawing sharp criticism from Democratic lawmakers and officials from unions and pension funds. In July, Cox voted to seek comment on two conflicting proposals. One would codify the way the SEC has typically done business in a manner that allows companies to exclude investor proposals from proxies sent to a company's shareholders. The second, broader plan would have allowed investors that hold at least 5 percent of a company's stock greater leeway in proposing board candidates in exchange for more disclosure about their operations." According to another source, the "SEC chief cites l...

On November 14th, the Senate Banking Committee held a hearing on Proxy Access. The hearing was chaired by Senator Jack Reed . In his testimony , SEC Chairman Christopher Cox noted: " Last autumn, the U.S. Court of Appeals for the Second Circuit invalidated the SEC’s interpretation of our existing proxy access rule that had been applied at least since 1990. Indeed, in the SEC’s view, that interpretation had been in effect since 1976. But the court found the SEC’s view since 1990 to be inconsistent with its prior interpretation. At the same time, the court said that it would “take no side in the policy debate regarding shareholder access to the corporate ballot,” noting that “such issues are appropriately the province of the SEC.” This decision applies only in one of the 12 judicial circuits in America. And it has created great uncertainty and danger for every stakeholder in our public markets. This uncertainty is compounded by a recent decision of the U.S. Supreme Court, which crea...

After hearing from a few people, let me clarify: 1. The purpose of the SEC may be to protect investors, but on April 28, 2003 , every major US investment bank was found to have aided and abetted efforts to defraud investors. Ethical problems have continued and grown worse: since late 2006, 182 major U.S. lending operations have "imploded" due to subprime lending issues. Most people losing their homes are low to moderate income people of color. This is no accident. Those with new ideas and solutions to the problem have been carefully excluded from the discussion, due to the same bigotry that gave rise to it. This, too, is no accident. We do not mean to sound cynical. We see what is, not what we would like to see. 2. The real issue is Hedge Funds, nothing else. In our comments to the SEC on the matter, we noted: "Any significant concern about proxy access rests with hedge funds, by their nature neither long term investors or sensitive to broader social concerns. The s...

In a November 1st letter to the Chairman of the SEC, Christopher Cox, 9 members of the Senate Banking Committee, or almost ten percent of the full U.S. Senate, wrote urging the SEC to maintain the current set of proxy rules and regulations. In the view of these members, "neither proposal should be adopted." (For our response, see: http://twisri.blogspot.com/2007/10/response-to-sec-shareholder-proposals.html ) Current federal law leaves regulation of the proxy process up to the SEC. Period. In a side conversation at a House Financial Services Committee hearing on Proxy Access held on 9/27, we warned Tim Smith, Chairman of the Social Investing Forum against believing that pushing to hold a hearing or getting letters written will block implementation of one of the two proposed rules. The issue is similar to what occurred in Florida (2000) and Ohio (2004:) what matters is the relevant vote, not the popular vote. In this case, the relevant vote is that of the Commission. Unless ...

In a November 2, 2007 article in the Tampa Bay Business Journal, Senior writer Margie Manning writes that " Urban Trust Bank expects to provide an alternative business lending option with its two new offices in the Tampa Bay area." We were quoted in the article stating that " Minority owned banks in general have struggled with business lending," Urban Trust "opened branches in the Wal-Mart SuperCenters in Gibsonton and Palmetto Oct. 29."

House Financial Services Committee Oversight and Investigations Subcommittee Hearing on Preserving Minority Banks On October 30, 2007, the House held a hearing on Minority Banks. While we did not testify, the ranking Republican member, Representative Gary Miller (CA), read extensive portions of our research into the record. We have called for the development of tools to get capital into the best of these institutions, those with solid financial performance and outstanding performance in helping to meet community credit needs.

On October 8th, we filed our response to the following SEC proposed rules: 1. Shareholder Proposals. Other Release No.: IC-27913. File No.: S7-16-07 and 2. Shareholder Proposals Relating to the Election of Directors. Other Release No.: IC-27914. File No.: S7-17-07. In our response, we note the following: Our position with respect to capital markets regulation recognizes the primacy of protecting investors. Investor interests, broadly speaking, are not served by growing levels of fraud and malfeasance. As is clear from recent events, securities laws have failed both to protect investors and to promote efficiency. “Facilitating the exercise of shareholders’ rights” will help prevent fraud from occurring. We recognize that the right to submit shareholder resolutions impacting corporate operations, governance and ownership has economic value, like any option. This option value was first uncovered by faith based investors, who found their ability to implement positive soci...

According to the Washington Post , "Legislation to promote diversity in the government's career executive ranks was introduced yesterday by the chairmen of the House and Senate federal workplace subcommittees. Rep. Danny K. Davis (D-Ill.) and Sen. Daniel K. Akaka (D-Hawaii) said their bill would address the lack of diversity in the Senior Executive Service, the group of about 6,300 career executives who manage the day-to-day operations of the government. The bill would establish a Senior Executive Service program office in the Office of Personnel Management . The proposed office would collect and maintain data on the race, ethnicity, gender and any disabilities of people who have been certified as qualified to serve in the SES. The bill also would require federal agencies to establish SES evaluation panels to review the qualifications of applicants for SES jobs. Each panel would have three members. One must be a woman and one other a member of a racial or ethnic minority grou...

Two conferences on Diversity highlight the growing recognition of market opportunities in this sector. The first is the 3rd Annual Mortgage Industry Emerging Markets and Diversity Conference . This is being billed as an opportunity to compete for origination opportunities and to preserve communities. It will be interesting to see if they mention recent reports noting racial bias in subprime mortgage lending. The second is the 14th Annual Ethnic and Multicultural Marketing Omnibus . November 1 - 2, 2007 in Chicago. We (Creative Investment Research, Inc.) are a media sponsor for this event, billed as an opportunity to "join a star team of Fortune 1000 clients and trail-blazers in multicultural marketing on the most successful ways of engaging the still growing and booming Multicultural Economy in the United States. One fifth of the nearly $10 Trillion in total U.S. buying power will come from the diverse multicultural segments. Learn how your brands can get a lion’s share of...

Full Committee Hearing SEC Proxy Access Proposals: Implications for Investors Thursday, September 27, 2007, 10:00 a.m., 2128 Rayburn House Office Building

From: American Banker Newspaper Wednesday, September 19, 2007 By Katie Kuehner-Hebert Banks that target minority groups, particularly Hispanics and Asian-Americans, are reporting asset growth well above the industry average, largely because of an influx of immigrants. However, on average these banks are less profitable and less efficient than mainstream ones, according to a report published last week by Creative Investment Research Inc. , a Washington consulting firm that focuses on minority banking. Assets at minority-owned banks are on pace to increase by an average of 17.43% this year, compared with the overall industry average of 6.38%, according to the report, which cited data from the Federal Deposit Insurance Corp. and other sources. William Michael Cunningham , the consulting firm's president and chief executive, said the trend reflects both the increased number of start-ups targeting Hispanics — about a dozen have opened since the end of 2005 — and the continued ...

As we noted on August 10th, turmoil at the SEC means that paths to an optimized shareholder access and proxy policy, while then still present, are fewer in number. We continue to believe the SEC will limit shareholder rights. A 9/12/07 article in the Washington Post supports this belief. Thus, we are now almost certain that the restrictive shareholder access proposal we discussed on July 20th will be adopted. According to Portfolio.com, "The Social Investment Forum, the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental groups and others, unveiled a new web site to attract 500 institutions and financial professionals to sign a joint statement against proposed S.E.C. changes." For a number of reasons, these efforts will probably be ineffective.

Social Investors Launch Campaign to Halt Proposed Changes to Proxy Access Rules According to Portfolio.com , "Socially concerned investors groups say they won't stand by and see Securities and Exchange Commission chairman Christopher Cox crimp their right to demand company accountability on important issues like the business risks of climate change. The Social Investment Forum, the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental groups and others, unveiled a new web site to attract 500 institutions and financial professionals to sign a joint statement against proposed S.E.C. changes." As we noted earlier, "Those most directly impacted by the policy change are large in number but divided and unorganized. These include shareholder groups like the Interfaith Center on Corporate Responsibility, labor-related funds, fai...

SEC News and Enforcement Actions On August 9, 2007, the Securities and Exchange Commission "filed a civil injunctive action against former senior officials of Nicor, Inc., a major Chicago-area natural gas distributor, alleging financial fraud lasting from 1999 to 2002. The SEC's complaint alleges that former Chairman, CEO and President Thomas Fisher, former CFO and Executive Vice-President Kathleen Halloran, and former Treasurer and Vice-President George Behrens engaged in or approved improper transactions, and misrepresented Nicor's gas inventory in order to meet earnings targets and increase the company's revenues under a performance-based utility rate plan." On August 13, 2007, the Securities and Exchange Commission announced " the distribution of approximately $55.6 million in Fair Funds to more than 200,000 investors who were harmed by fraudulent market timing in certain Banc One mutual funds (One Group Funds). The Fair Fund resulted from a settled enfor...

In an August 3rd article titled "Do Gooders Do Well" on the Motley Fool website, Selena Maranjian noted our concerns about the GS Sustain Index and methodology, Goldman Sach's list of “companies from established industries, which have been selected by incorporating our proprietary Environmental, Social and Governance ( ESG ) framework into long-run industry drivers and returns-based analysis and valuation in order to pinpoint structural improvement and sustainable competitive positioning.” The article went on to say that " Of course, not every socially responsible investing advocate is anti-Goldman -- the Calvert Large Cap Growth Fund ( CLCIX ) recently had nearly 2% of its value invested in the company." (The stock is down 12.9% from 12/29/06 to 8/20/07. The S&P 500 is up 1.92% over the same period.) For the record, we are not anti-Goldman. We correctly listed factual data concerning ethical and diversity lapses at the firm, and tied these to their ...

According to the Winston-Salem Journal , "M and F Bancorp Inc. said yesterday (August 10, 2007) that it has agreed to buy Mutual Community Savings Bank Inc. and merge it with M and F’s bank subsidiary, Mechanics and Farmers Bank. The banks, both based in Durham, are two of the nation’s oldest black-owned financial institutions." We believe the merger is a positive development, and will insure that black banks remain a factor in North Carolina. We also note that this is the third transaction in the Black banking sector over the last 60 days.

According to the SEC, "Commissioner Roel C. Campos..announced that he intends to leave the Commission in a month's time and plans to return to the private sector. Currently serving his second term, Mr. Campos was first appointed by President George W. Bush and confirmed by the U.S. Senate as a Commissioner in August 2002." This follows the August 6, 2007 announcement that "Martin P. Dunn, Deputy Director of the Division of Corporation Finance, will leave the agency at the end of August to join O'Melveny & Myers LLP as a partner in its Washington D.C. office." We believe Mr. Campos and Mr. Dunn may have been implicated in, or administratively responsible for, the leak of a draft proxy access proposal ( SEC Proxy-Access Proposal Draws Fire from Investors. The Wall Street Journal. By JUDITH BURNS. July 11, 2007; Page D2 ). This leak led to concerns about the early and selective distribution of proposed public policies only to moneyed interest groups. We ...

Presbyterian Foundation cited for socially responsible investing According to The Presbyterian News Service, "The Social Investment Forum Foundation listed the Presbyterian Foundation as one of the leading United States foundations using social or environmental screening along with traditional financial analysis as criteria for their investment strategy. Other foundation leaders in social and environmental screening recognized include the United Methodist Foundation and the United Church Foundation." SEC News and Enforcement Actions On August 7, 2007, the Securities and Exchange Commission "filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving "non-conforming" residential mortgages. Non-conforming mortgages have income verification and credit history standards that are generally more f...

The Washington Post reported yesterday that "government-chartered mortgage funding companies Fannie Mae and Freddie Mac .. shares rose on speculation that regulators may relax restrictions on their investments to allow them to pick up slack in the troubled market for home loans." We believe equity markets will trend to the downside until the end of 2007, but believe an increase in lending limits will be good, over the long run, for both mortgage and stock markets. We believe troubles at Fannie and Freddie allowed predatory lenders to enter the mortgage market in full force. While there is no question that Fannie and Freddie were hurt by their own fraudulent practices, large and small predatory lenders, using groups like FM Policy Focus as a shield and a proxy, were able to obtain a greater share of the profits being generated by an overheated home mortgage market. Significant profit increases depended, however, on an ability to engage in predatory practices. Given distrac...

On July 27th, the SEC posted two Shareholder Access proposals. Commenters have 60 days to reply: Shareholder Proposals Relating to the Election of Directors. No.: IC-27914. File No.: S7-17-07. Comments Due: Comments should be received 60 days after Federal Register publication.--> Submit comments on S7-17-07 Shareholder Proposals. Release No.: IC-27913. File No.: S7-16-07. Comments Due: Comments should be received 60 days after Federal Register publication.--> Submit comments on S7-16-07

As we indicated they would, the SEC put forward a proposal that would eliminate or severely restrict shareholder access to the corporate proxy statement. The Agency also put forward a proposal to expand shareholder access to the proxy. We believe trepidation about the leak of the restrictive proxy access proposal ( SEC Proxy-Access Proposal Draws Fire from Investors. The Wall Street Journal. By JUDITH BURNS. July 11, 2007; Page D2 ) led to concerns about a possible due process lawsuit. In an inspired move, the Agency decided to simultaneously release a second, less restrictive proposal. This action negates concerns about the early and selective distribution of proposed public policies only to moneyed interest groups and simultaneously provides a way to optimize shareholder access and proxy policy.

On July 20, 2007 , " SEC Chairman Christopher Cox issued the following statement concerning disclosures filed with the Commission concerning public company activities in countries that the U.S. Secretary of State has determined to have repeatedly supported terrorism: Since the SEC added to our Internet site a web tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated 'State Sponsors of Terrorism,' the site has experienced exceptional traffic. Between June 25, when the web tool was unveiled, through July 16, visitors have 'hit' material posted on the site well over 150,000 times. Iran was the country most frequently clicked on, followed by Cuba, Sudan, North Korea, and Syria. Those who went to a country list most often clicked through to the text of companies' own disclosure (in the case of Iran, they did so overwhelmingly), indicating...

The SEC has announced it will soon issue revised rules governing the conditions under which shareholders have the right to file resolutions. This follows a recent set of discussions, including a Roundtable on Proposals of Shareholders held at SEC HQ on May 25 th . We believe the SEC will limit shareholder rights. We do not believe they will eliminate shareholder access to the proxy outright. Rather, we expect the Commission to impose a number of rules that virtually eliminate shareholders’ ability to file resolutions. These may include a 5% ownership rule or unreasonably restrictive time limits governing the filing of resolutions. We believe the SEC will offer shareholders improved communications and access to corporate management via on-line tools, like bulletin boards or “chat rooms.” Having done so, they will claim to have improved shareholder access. Unless , as we suggested earlier , these boards or chat rooms reside on SEC servers, they will be wrong. We base our opinion on se...