Showing posts with label Disclosure initiative. Show all posts
Showing posts with label Disclosure initiative. Show all posts

Monday, October 26, 2009

Fund to Invest in Companies That Promote Women Board Members

According to the New York Times, "A Swiss investment company plans to raise awareness about the shortage of women on corporate boards around the world, and generate returns for its investors in the process.

Naissance Capital, based in Zurich, is to start the Women’s Leadership Fund in January, which will invest exclusively in companies whose boards include women, or take minority stakes in companies that do not 'understand the need for greater female representation' and use it as leverage to push through changes.

R. James Breiding, a co-founder of Naissance Capital and a former director of Rothschild Corporate Finance, said the fund was created after several studies showed a correlation between the number of female directors and a company’s performance.

'We feel companies that select and recruit people on merit should do better,' Mr. Breiding said. 'Having greater diversity and independence of opinions helps.'

The fund’s board includes Kim Campbell, the former prime minister of Canada; Cherie Blair, a lawyer and the wife of Tony Blair, the former British prime minister; and Jenny Shipley, the former prime minister of New Zealand. Naissance has lined up $200 million from institutional investors and individuals to invest in 30 to 40 companies around the world, and plans to increase the size of the fund eventually to about $2 billion.

Naissance, which was founded in 1999 and specializes in what it calls 'niche investment opportunities,' is one of a handful of firms that have created funds over the past three years to invest in companies with female senior executives.

Stargate Capital in Britain is in the process of raising a second venture capital fund, worth about £10 million, or $16 million, to help women entrepreneurs, while Amazone Euro, a fund run in Geneva, has invested in companies with female board members.

Two separate studies in 2007 by McKinsey and Catalyst, the business research firms, showed that companies in Europe and the United States with the most women on their boards were more profitable than others. But the studies did not point to specific causes for any such correlation.

In 2003, Norway became the first country to adopt a law that said 40 percent of board members at large companies must be women, but there is not yet any research that analyzes how the changes have affected the companies’ performance.

The banking crisis and the collapse of Lehman Brothers have ignited a debate about whether more women in senior roles would help improve corporate governance. In Britain, the minister for women and equality, Harriet Harman, caused a stir over the summer when she partly blamed the lack of women in senior roles in the financial industry for the crisis, saying if it would have been 'Lehman Sisters' rather than Lehman Brothers, the company might have survived.

A review sponsored by the British government on an overhaul of corporate governance, to be published next month, could add to pressures on companies to promote equality of the sexes among their directors."

This looks a lot like the Diversity Fund we started in 2003.

Thursday, October 9, 2008

SEC Disclosure Initiatives (E.M. Chang)

Modernizing the Securities and Exchange Commission’s Disclosure System

Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR.

In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements.

A summary of panelist comments would be:

"Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. However, XBRL technology might help improve the usefulness of the new disclosure system by providing a more efficient information distribution. However, one member pointed out that the nature the information is much more important than the way we distribute it. We still lack much important information under the current filling system, like the off-balance sheet transactions, unregulated financial products, especially the credit default swap transactions. We still need to force the companies to disclose this material information to help investor to understand the risk they are facing and further to make their investing decisions."

In addition, some members suggested that the SEC should consult with an top level information provider, like Bloomberg or Morningstar, to figure out what kind of information format and summary most investors need, how to present the data, how to create useful graphs and summary tables.

One panel member stated that: “the information in the EDGAR system is a national treasure, but we need to present it in a more attractive way to our audience, or we might not have people to appreciate it and take a look at the treasures."

In the second panel, panelists provide suggestions for a future disclosure system. The goal of the system is to reduce filing cost and to provide more timely information to investors.

One panelist stated that the goal of the new system is “not to find a way to make the candle burn longer but to create a light bulb to replace the candle.” “The SEC should control the technology to do the job, instead letting the technology bind them.”

There are several challenges to developing this system. Some outlined were:

How to make sure all material information is disclosed in this system?
How to transfer some important footnote information or qualitative information into this new system?
How to disclose the information about unregulated products, like credit default swap?
How to broaden the scope of the information without increasing the burden for companies?

These issues were raised during the panel as was the need for further discussion to find solutions.

We see that the nature of the information is still the most important issue in this new disclosure system.

One member argued that “we want a real time disclosure system, but that is a little bit unrealistic.”

“We still need periodic report filing system to force companies to disclosure their information to increase transparency. But the goal is to force these companies to think about where they are and where they should go in the future,” said by one member in this panel.

In sum, we need to find a way to make the new disclosure system more useful to both institutional investors as well as individual investors. As one panelist noted: “We should not only make it work for the Wall Street, but also make it work for the Main Street.”

The 21st Century Disclosure Initiative seeks not only to creating a more sophisticated system for investors, but also to prevent future financial market turmoil.

As SEC Chairman Christopher Cox mentioned in his opening remarks: “The investors have a right to know the truth — and the risks — about the securities that trade in our public markets.”

Communicating these truths to investors and forcing companies to disclose these truths via this new system will be the main consideration for this new disclosure initiative.

E.M. Chang
MA, Economics (2009)
George Washington University