Tag Archives: United States

10.02.13
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Greed unfettered by conscience reigns again

Five years ago, the US government and regulators allowed investment bank Lehman Brothers to collapse.  The bank was to be the example to the industry of what happens when greed and the pursuit of profit at all costs prevails.

Sadly, it appears they didn’t learn a thing. Greed unfettered by conscience remains the order of the day.

Investment banks exist to grease the wheels of the economic machine, bringing investors and businesses together. These servants of company development and economic growth, however, appear to have transformed themselves into the masters of the corporate universe.

Investment banks’ role is to arrange companies’ borrowing, issues of shares and conduct a lot of the share trading and broker merger and takeover activity. They put people with money together with people who want that money to invest in their business. This means they have a vested interest in promoting lots of activity, which is what generates their revenue. So it doesn’t matter whether a deal creates long-term social and economic problems or not, their only interest is deals being created. How else will they hit the targets that pay their gigantic bonuses?

Now the UK Chancellor of the Exchequer is going into bat for the financial services sector to protect their ‘right’ to receive uncapped bonuses. There is grave concern that the bonus cap may led to an increase in base pay and that top ‘talent’ may go to non-European competitors who don’t have to comply with the cap. To be clear, the bonus cap will only apply to those who earn more than €500,000 (~$AUD720,000) a year….so they are hardly on struggle street. But a pay packet of this size is not about being paid what someone is worth, it is a way of gaining status through a comparison with peers.

Perhaps a walk along struggle street might help the investment bankers reassess their views about the reward they need to carry on their work. It may also give them some perspective about the devastating impact of their sector’s behaviour and how long it takes to recover. Right now, More than 46 million Americans are living in poverty and the median household slipped, all thanks the hangover created by the global financial crisis. While job growth may by recovering in the richest country in the world, the jobs are in low paying sectors of retail and restaurants. Meanwhile, the stock markets are recovering and the bankers are getting their bonuses again.

Earlier this year, the investment banking industry was asked to explain why they charge institutional investors for access to the chief executives of their client companies, often without the companies even knowing. The investment banks don’t provide the money for anything, institutional investors on our behalf do. Institutional investors need to exercise their financial muscles to wrestle the investment bankers back into their role as servants.

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09.18.13
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Fat profits from empty calories

Is a rapid rise in obesity levels in poor countries an acceptable side effect of multi-national companies and their investors pushing hard into these markets to create new profits?

In June this year, the World Health Organisation (WHO) said the increasing number of people in low and middle income countries being overweight and obese was creating major long-term public health problems. WHO identified that more than 75% of the world’s overweight children lived in those countries that also suffered issues associated with under-nutrition.

One of the key problems was the rising availability of cheap, highly calorific, or energy dense, foods and drinks that had little nutritional value. Driving this increase of consumption was intensive marketing, by multinational food and drink companies, particularly to children, according to another WHO study. Marketing about unprocessed foods in these countries did not exist.

There is so much money to be made in these low and middle income countries from selling soft drinks and the junk food that companies are targeting these markets as their future. Indeed, Coca Cola was very excited about the profit-making potential of the poor. In a presentation to a Barclays Capital conference in September this year, Coca Cola’s  senior executive Ahmet Bozer talked about ‘seizing the moment’ in sub-Saharan Africa with their ‘sparkling drinks’ (read the calorific Coke and the like) leading their charge into the market.

Bozer identified that there was a target consumer base of 6.1 billion people in Coca Cola’s International business and 37% of these were under 21. A core strategy was to drive sales growth through the flagship ‘sparkling’ market. Coca Cola was in the market for young drinkers to become loyal buyers of their product throughout their life, not as an occasional treat drink but as an everyday choice.

Some of the biggest American institutional investors in the world have major stake in Coca Cola. As at 30 June 2013, Berkshire Hathaway held 9% of the company, followed by Vanguard at 4.8%, State Street at 3.8%, Fidelity at 3.4% and BlackRock at 2.6%. Vanguard, State Street and BlackRock also have large stakes in PepsiCo.

Imagine if these institutional giants, who manage the money of the citizens of the US and others, actually told Coca Cola to revise their strategy.

What would happen if these investors told Coca Cola they would not sell their stock if Coca Cola took responsibility for the impact of their products on the health of their consumers (many of them without the benefit of the same level of health education as those of us in high income countries)? What would happen if Coca Cola focused on pushing their bottled water and healthier choice drinks into these markets instead? What impact would that have on this impending major health issue?

It doesn’t mean Coca Cola can’t make money, but rather make money out of products that don’t leave a trail of long-term health issues for its customers, the very people that will keep the company in business.

It doesn’t mean that investors can’t make returns on their investment in Coca Cola, but if nothing changes, what it does mean is that we, as the people that ultimately provide the money for institutional investors, value wealth over our health and the health of others less fortunate than us.

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