By Dexter Roberts Businessweek
A nondescript Beijing suburb was recently the venue for an evening of radical politics. The New Labor Art Troupe, a performance group with a cast of laborers, ran a graphic photo of a Foxconn worker who had just killed himself. Poems were read commemorating the hard lives of migrant workers in electronics factories and on construction sites. A guitar and harmonica were hauled out and songs were sung with titles like Marginalized Life, Industrial Zone, Working Is Our Glory and Our Hell, Get Back Our Wages, and Fighting in Solidarity. Some of the hundred or so assembled migrant workers, many of them employed in small furniture factories around the capital, started crying. The evening ended with the crowd standing up for a Chinese rendition of the The Internationale, the old battle hymn of the worldwide socialist movement. "The atmosphere was militant, but there was no overt criticism of the government," says University of Hawaii political scientist Eric Harwit, who attended the two hour-plus evening performance on May 28. "They seemed really sincere that they were upset about migrant labor working conditions."
The recent Beijing performance is just one example of the rising labor activism now evident in China, activism that asserted itself in recent weeks at the factories of Foxconn and Honda Motor (NYSE:HMC - News). It includes groups like New Labor, yet it also encompasses legal aid and other support networks at scores of universities, law firms focused on promoting worker rights, and countless migrant worker aid associations. "Civil society organizations are growing more powerful. They will push China to change," says Li Fan, director of the Beijing-based nongovernmental organization World & China Institute. Li has worked closely with labor groups as well as those pushing grassroots democracy.
The question is whether these groups can spawn a workers' movement that has the organization and mass to challenge factory owners across the country. Until a few years ago the Chinese authorities broke up sporadic workers' protests with relative ease: Local officials arrested a few ringleaders, then quickly offered concessions to the rest of the strikers to stop the unrest. Above all else, the Chinese security apparatus made sure that the leaders of labor protests in Shenzhen, Harbin, and elsewhere didn't connect with each other to form a national movement.
Today's young workers may be harder to corral. China now has 787 million mobile-phone users and 348 million Internet users -- and migrant workers in their twenties are far more aware of world developments than their parents. The younger generation can follow labor actions as they unfold, whether in China's northeastern Rust Belt or southern Pearl River Delta. "They have access to information. They use their mobile phones for messaging, to send pictures and video, and to go online," says Chinese Academy of Social Sciences journalism professor Bu Wei, who is researching the use of media by migrant workers.
The more assertive workers have also benefited from a huge push by China's state-run media to popularize knowledge about the tough labor contract law promulgated in 2008. As a result, young workers know what's owed them, whether it be guarantees of double pay for overtime or safer working conditions. "Every worker is a labor lawyer by himself. They know their rights better than my HR officer," says Frank Jaeger, a German factory owner who produces cable connectors in Dongguan in Guangdong Province. Adds Harley Seyedin, president of the American Chamber of Commerce of South China: "There are Internet cafes everywhere, so the workers can get information. They are starting to ask for more. The days of cheap labor are gone."
The workers' ranks are now filled with self-starters like Xu Haitao. A 28-year-old technician in a small metal components factory in Shenzhen, Xu takes a class on labor law and worker rights every Sunday at a local migrant workers support center. "Of course, more and more workers understand their rights these days," says Xu, who surfs labor law sites regularly. "Last year I started using my own computer. Computers are not expensive anymore. I bought the pieces and constructed my own." Xu wants more workers to educate themselves. "Many capitalists and factory managers still abuse our rights," he says. "If all the workers knew the labor law -- all 600 million of us -- then many factory owners would go bankrupt."
These self-educated workers now have new allies in China's universities. A decade-long effort by Beijing to expand the number of students in China's universities has brought more and more of the rural population -- and those with relatives and friends who still work in the factories -- onto Chinese campuses. That has driven a wave of support at colleges for migrant workers, points out CASS professor Bu. Students studying law, political science, and social science are forming support groups and even provide legal aid for workers, to a degree not seen before. One of Bu's graduate students, for example, has a brother working for the Foxconn facility near Shanghai.
Many faculty members support their students' activism. "From the Foxconn tragedy, we hear screams coming from the lives of a new generation of migrant workers, warning the entire society to rethink this development model leveraged upon the sacrifice of people's basic dignity," warned an open letter dated May 19 and signed by nine sociologists from prominent schools, including Peking and Tsinghua Universities. "We call for national and local governments to implement practical measures that allow migrant workers to integrate and establish roots in the city...sharing the fruits of economic development they themselves created."
It may be a long summer for Chinese officials trying to contain this unrest. On June 3 more than 20 women workers were detained when police tried to shut down a two-week strike at a formerly state-owned cotton mill in Pingdingshan, Henan. Thousands of workers had stopped operating the looms to express their anger at their factory's privatization and to demand higher wages, reports the Hong Kong-based China Labour Bulletin. Although workers are back on the line at the Honda transmission plant that strikers had shut down, their language is anything but conciliatory. "We call all workers to maintain a high degree of unity and not to allow the capitalists to divide us," the Honda workers declared in a statement released on June 3. "We are not simply struggling for the rights of 1,800 workers, but for the rights of workers across the whole country." On June 7, another Honda plant in China went on strike.
The bottom line: A new, savvier, and more militant generation of workers may start to form a genuine labor movement in China.
marți, 15 iunie 2010
Lawmakers blast oil firms' drilling plans
By Tom Doggett and Matt Daily Reuters
U.S. lawmakers blasted major oil companies on Tuesday for "virtually worthless" and "cookie cutter" plans to handle a deepwater oil disaster, with one top executive conceding the industry was ill prepared to handle big offshore spills.
Summoned to Capitol Hill to testify along with the U.S. chief of BP, top executives from four major oil companies distanced themselves from BP and its massive Gulf of Mexico oil spill by defending their practices and explaining how they could have prevented the catastrophe.
Facing a hostile room, the oil company executives were hoping to head off potentially costly new regulations by detailing their drilling policies and criticizing BP for not following industry norms.
Democrat Edward Markey blasted the companies for mentioning walruses -- which have not been found in the Gulf of Mexico for millions of years -- in their plans and for including the name and phone number of a specialist who died in 2005.
The outcome of the charged hearing could affect BP, U.S. offshore drilling and legislative efforts to introduce a new climate bill, as lawmakers consider options to address the worst oil spill in U.S. history.
The hearing came ahead of a televised address to the nation on Tuesday evening by President Barack Obama, who could outline new efforts to contain the spill and make a new call for climate legislation. Polls show many Americans doubt his administration has done enough to clean up the mess.
'NOT WELL EQUIPPED'
Soon after the deadly BP well explosion that killed 11 people, the Obama administration imposed a six-month moratorium on drilling in waters more than 500 feet deep.
The executives from Exxon Mobil, Chevron, ConocoPhillips and Royal Dutch Shell, are trying to reassure lawmakers that drilling is safe, saying they would have done things differently with such a spill.
But when pressed on how to handle a worst-case scenario with hundreds of thousands of barrels of oil spilling into the ocean, Exxon's chief Rex Tillerson said, "When these things happen we are not well equipped to deal with them."
"We've never represented anything different than that. That's why emphasis is always on preventing these things from occurring, because when they happen we are not very well equipped to deal with them," Tillerson said.
Lawmakers seemed unconvinced that the four major oil companies had better contingency plans than BP, which is still struggling to contain the oil that has been gushing into the ocean from a ruptured well for nearly two months.
The hearing could lead to new legislation that would have wide impact in the U.S. Gulf, America's best hope for increasing its domestic oil supply. It's also one of the most promising exploration frontiers for companies including BP, Shell and Chevron.
One by one the lawmakers took turns heaping criticism on the oil executives who sat expressionless as they stared facing rows of their inquisitors.
"Lawmakers won, no question. As soon as the companies were asked why they were better, it ended up making them all look worse in the eyes of the lawmakers," said Kevin Book, analyst at ClearView Energy Partners in Washington.
Though all five men were seated at the same large table, it was clearly four against one with BP America's chief Lamar McKay looking solitary at the end of the table as he faced most of the verbal attacks.
While McKay silently listened to Republican Representative Cliff Stearns of Florida demand his resignation, the other executives had only to defend their policies and insist that they would have done it differently.
McKay, who appeared drawn but showed little emotion, did not offer much new ahead of Thursday's testimony by BP's chief executive, Tony Hayward, on Capitol Hill.
Though Wall Street investors shrugged off the hearing as political theater, it is a tradition in Washington and a conduit of public anger, especially ahead of November elections.
Representative Bart Stupak, a Democrat and one of the lawmakers heading a probe of the disaster, slammed the companies' response plans for offshore accidents. He singled out Exxon Mobil for having a 40-page media response strategy, including pre-written talking points.
"Exxon Mobil's plan appears more concerned about public perception than wildlife protection given the fact that their media plan is fives times longer than its plan for protecting wildlife," said Stupak, adding that all of the companies' plans were "virtually worthless when an actual spill occurs."
'COOKIE CUTTER'
Representative Henry Waxman, a Democrat, said the companies had submitted nearly identical "cookie cutter" strategies to deal with a major spill which all included techniques that had failed to stem the flow of oil from BP's well.
"We found that none of the five companies has an adequate plan," he said.
BP's McKay was emotionless when repeatedly asked by Markey to apologize for under-estimating how much oil was gushing into the ocean after the well ruptured.
"We are sorry for everything the Gulf Coast is going through, we are sorry for that and the spill," he said, adding that the company did not have the technology to measure the amount of spilled oil.
But though the four non-BP executives appeared to stick together, chatting apart from McKay when the hearing ended, they still had to face public anger.
As the hearing came to a close, a protester holding a soda bottle filled with a black liquid approached the executives shouting, "You all are just as corrupt as BP. You should all be ashamed of yourself."
Police presence was beefed up, with the building and hearing room entrances both inside and outside lined with police officers.
EU demands 'extra' 2011 deficit measures of Spain
Europe on Tuesday told Spain it must introduce "extra" measures in its 2011 budget if it is to restore its public deficit to the EU limit of three percent of GDP by a 2013 target.
"For 2011, Spain will need to specify concrete measures of about 1.75 percent of GDP to reach the deficit target of six percent in 2011," the EU's economic and monetary affairs commissioner Olli Rehn said in Strasbourg, France, at the European parliament.
So far Spain's deficit busting measures for next year only amount to 1.00 percent of output, according to Rehn's spokesman.
"Extra measures" need to be "specified in the 2011 budget," he stressed.
Spain was one of 12 countries, including Portugal, whose existing deficit reduction plans were considered, and broadly approved, by the EU Commission.
But while officials had already said they expected Spain to require additional measures in 2012 and 2013, Brussels now wants fresh action in Madrid when its budget is announced in mid-September.
Last month, the Spanish parliament, by a single vote, approved plans to slash 15 billion euros of spending (18.5 billion dollars) in an extended austerity plan covering this year and next.
That came on top of 50 billion euros of radical cuts already announced in January, plus pension and job market reforms, the latter due to be approved by the Spanish government on Wednesday.
The commission's stance, however, will likely increase intense scrutiny on capital markets after Spain's public deficit soared to 11.2 percent of GDP in 2009, the third-highest level in the eurozone after Greece and Ireland.
Investors are demanding ever higher interest payments in return for providing fresh cash, and banks' funding is also drying up according to experts.
Group of Seven finance ministers fear that problems with Spain's economy in particular -- Europe's fifth largest, with its banks heavily involved in Latin America -- could undermine global recovery.
"We are all concerned ... with the need for certain vulnerable European economies to act quickly to fiscally consolidate," Canadian Finance Minister Jim Flaherty said on Monday.
A string of leading EU figures have had to deny persistent reports that Spain is preparing to tap an EU emergency fund of 500 billion euros of loans and guarantees.
Spain "is working to ensure that these rumours remain unfounded, as is currently the case," Spanish Economy and Budget Minister Carlos Ocana said.
German Chancellor Angela Merkel said in Berlin late on Monday that "Spain, or any country, knows that it can make use of this mechanism at any time, if necessary," subject to conditions being thrashed out as was the case with Greece in a separate bailout.
Ten countries were given the all-clear under existing austerity drives including France, Germany and Italy, which have all recently announced new cuts of their own, as well as Austria, Belgium, the Czech Republic, Ireland, the Netherlands, Slovakia and Slovenia.
Portugal, for its part, has pledged to cut its public deficit this year to 7.3 percent, rather than 8.3 percent as initially planned. However the commission said that "further corrective measures should be included," next year.
Britain should have been the 13th EU member state to come up for inspection but with the new government having slated an emergency budget for June 22, its review was put back.
Two days from a summit of EU leaders dominated by their response to Europe's debt crisis, the commission meanwhile recommended opening excessive deficit procedures on three additional countries -- Cyprus, Denmark and Finland -- in moves to be agreed formally by EU finance ministers on July 13. Bulgaria is likely to follow.
"For 2011, Spain will need to specify concrete measures of about 1.75 percent of GDP to reach the deficit target of six percent in 2011," the EU's economic and monetary affairs commissioner Olli Rehn said in Strasbourg, France, at the European parliament.
So far Spain's deficit busting measures for next year only amount to 1.00 percent of output, according to Rehn's spokesman.
"Extra measures" need to be "specified in the 2011 budget," he stressed.
Spain was one of 12 countries, including Portugal, whose existing deficit reduction plans were considered, and broadly approved, by the EU Commission.
But while officials had already said they expected Spain to require additional measures in 2012 and 2013, Brussels now wants fresh action in Madrid when its budget is announced in mid-September.
Last month, the Spanish parliament, by a single vote, approved plans to slash 15 billion euros of spending (18.5 billion dollars) in an extended austerity plan covering this year and next.
That came on top of 50 billion euros of radical cuts already announced in January, plus pension and job market reforms, the latter due to be approved by the Spanish government on Wednesday.
The commission's stance, however, will likely increase intense scrutiny on capital markets after Spain's public deficit soared to 11.2 percent of GDP in 2009, the third-highest level in the eurozone after Greece and Ireland.
Investors are demanding ever higher interest payments in return for providing fresh cash, and banks' funding is also drying up according to experts.
Group of Seven finance ministers fear that problems with Spain's economy in particular -- Europe's fifth largest, with its banks heavily involved in Latin America -- could undermine global recovery.
"We are all concerned ... with the need for certain vulnerable European economies to act quickly to fiscally consolidate," Canadian Finance Minister Jim Flaherty said on Monday.
A string of leading EU figures have had to deny persistent reports that Spain is preparing to tap an EU emergency fund of 500 billion euros of loans and guarantees.
Spain "is working to ensure that these rumours remain unfounded, as is currently the case," Spanish Economy and Budget Minister Carlos Ocana said.
German Chancellor Angela Merkel said in Berlin late on Monday that "Spain, or any country, knows that it can make use of this mechanism at any time, if necessary," subject to conditions being thrashed out as was the case with Greece in a separate bailout.
Ten countries were given the all-clear under existing austerity drives including France, Germany and Italy, which have all recently announced new cuts of their own, as well as Austria, Belgium, the Czech Republic, Ireland, the Netherlands, Slovakia and Slovenia.
Portugal, for its part, has pledged to cut its public deficit this year to 7.3 percent, rather than 8.3 percent as initially planned. However the commission said that "further corrective measures should be included," next year.
Britain should have been the 13th EU member state to come up for inspection but with the new government having slated an emergency budget for June 22, its review was put back.
Two days from a summit of EU leaders dominated by their response to Europe's debt crisis, the commission meanwhile recommended opening excessive deficit procedures on three additional countries -- Cyprus, Denmark and Finland -- in moves to be agreed formally by EU finance ministers on July 13. Bulgaria is likely to follow.
Tesla Motors to raise $185M in IPO, Toyota deal
By DAN STRUMPF Associated Press
Electric car maker Tesla Motors Inc. expects to raise $185 million from its highly anticipated initial public offering of stock and an investment from Toyota Motors Corp.
The company, which makes the $109,000 all-electric Roadster sports car, plans to begin selling stock the week of June 28, according to IPO research firm Renaissance Capital.
The Palo Alto, Calif. company currently sells just the Roadster, a high-end car powered by lithium-ion batteries with a design based on the Lotus Elise two-seater sports car. It has sold just 1,063 Roadsters since 2008 and has lost $290.2 million since the company was founded in 2003. Revenue has totaled $147.6 million.
However, the company plans to start selling a mass-market luxury sedan starting in 2012 that is expected to cost $49,900 after a $7,500 federal tax credit. The company has said it expects continuing quarterly losses until the sedan, the Model S, hits the market. Tesla said it has already taken 2,200 reservations for the five-passenger sedan.
After the release of the Model S, Tesla plans to continue expanding its lineup of electric cars with increasingly cheaper models.
Tesla said in a Tuesday filing with the Securities and Exchange Commission that the company and its stockholders plan to sell 11.1 million shares when it goes public. Shares will be priced between $14 and $16.
Toyota Motor Corp. will buy an additional $50 million in Tesla stock immediately after the close of Tesla's public offering.
As part of the partnership with Toyota, Tesla will pay the Japanese automaker $42 million for a shuttered auto plant in Fremont, Calif. The plant, called New United Motor Manufacturing Inc., is a former joint venture between Toyota and General Motors Co., but GM withdrew from the joint venture when it filed for bankruptcy protection last year, leaving Toyota saddled with the idled facility.
Tesla said it plans to use the sprawling, 207-acre facility — most recently used to build the Pontiac Vibe and the Toyota Corolla and Tacoma — to build the Model S. In addition, the two companies have loose plans to work together later on another electric car.
Tesla also has another source of funding: the U.S. government. In January, the company received approval for a $465 million loan from the Energy Department under a program established by Congress to foster development of electric vehicles. Ford Motor Co. and Nissan Motor Co., among other automakers, have also received funding from the program.
Tesla said it has drawn down $45.4 million of its government loan as of Monday. The company has also received $31 million in tax incentives from the state of California.
Electric car maker Tesla Motors Inc. expects to raise $185 million from its highly anticipated initial public offering of stock and an investment from Toyota Motors Corp.
The company, which makes the $109,000 all-electric Roadster sports car, plans to begin selling stock the week of June 28, according to IPO research firm Renaissance Capital.
The Palo Alto, Calif. company currently sells just the Roadster, a high-end car powered by lithium-ion batteries with a design based on the Lotus Elise two-seater sports car. It has sold just 1,063 Roadsters since 2008 and has lost $290.2 million since the company was founded in 2003. Revenue has totaled $147.6 million.
However, the company plans to start selling a mass-market luxury sedan starting in 2012 that is expected to cost $49,900 after a $7,500 federal tax credit. The company has said it expects continuing quarterly losses until the sedan, the Model S, hits the market. Tesla said it has already taken 2,200 reservations for the five-passenger sedan.
After the release of the Model S, Tesla plans to continue expanding its lineup of electric cars with increasingly cheaper models.
Tesla said in a Tuesday filing with the Securities and Exchange Commission that the company and its stockholders plan to sell 11.1 million shares when it goes public. Shares will be priced between $14 and $16.
Toyota Motor Corp. will buy an additional $50 million in Tesla stock immediately after the close of Tesla's public offering.
As part of the partnership with Toyota, Tesla will pay the Japanese automaker $42 million for a shuttered auto plant in Fremont, Calif. The plant, called New United Motor Manufacturing Inc., is a former joint venture between Toyota and General Motors Co., but GM withdrew from the joint venture when it filed for bankruptcy protection last year, leaving Toyota saddled with the idled facility.
Tesla said it plans to use the sprawling, 207-acre facility — most recently used to build the Pontiac Vibe and the Toyota Corolla and Tacoma — to build the Model S. In addition, the two companies have loose plans to work together later on another electric car.
Tesla also has another source of funding: the U.S. government. In January, the company received approval for a $465 million loan from the Energy Department under a program established by Congress to foster development of electric vehicles. Ford Motor Co. and Nissan Motor Co., among other automakers, have also received funding from the program.
Tesla said it has drawn down $45.4 million of its government loan as of Monday. The company has also received $31 million in tax incentives from the state of California.
luni, 14 iunie 2010
Shareholder Activists Set to Drill Oil Companies
By David Bogoslaw Business
BP's Gulf disaster pressures energy companies to disclose more about environmental and safety compliance. How to account for catastrophic risk?
(This story has been updated in the fifteenth paragraph to include comment from BP.)
It may seem unthinkable that a company with so formidable a public image and financial track record as BP (BP) is fighting to save its reputation—and potentially, its very existence—less than two years after the oil industry logged its biggest-ever growth in profits. Reversals of fortune of this magnitude aren't as rare as we sometimes think. Recall how the tobacco giants wound up ceding enormous, profit-generating power to the U.S. government and how asbestos lawsuits forced such major industrial outfits as Johns-Manville into bankruptcy.
The common denominator linking BP with these companies is growing clear: They all failed to anticipate risks that could threaten their business foundations.
Now the tide has shifted with respect to how much thought mainstream investors are giving to environmental, social, and corporate governance (ESG) issues. Michael Passoff, senior program director for the Corporate Social Responsibility Program at As You Sow, a shareholder advocacy organization in San Francisco, has reviewed as far back as 1999 resolutions focused on corporate environmental issues that were being filed for the first time. "Nothing comes close to the support we're getting now," says Passoff.
A June 3 proxy vote that called on Layne Christensen (LAYN), a mining and production company, to produce a sustainability report drew support from over 60 percent of shareholders. Earlier resolutions regarding disclosures about coal ash at power producers CMS Energy (CMS) and MDU Resources Group (MDU) were supported by over 40 percent of each company's shareholders. Resolutions demanding greater disclosure by natural gas producers about their hydraulic fracturing practices have drawn supportive votes ranging from 26 percent to 41 percent of shareholders, five to six times what they've received in prior years, says Passoff.
He believes environmental sustainability issues had already begun to attract broader support before the Apr. 20 explosion of BP's Deepwater Horizon rig sent an estimated millions of barrels of oil gushing into the Gulf of Mexico. Passoff credits the change in consciousness to growing awareness of climate change issues. "Investors are seeing that environmental practices affect their bottom line. It's starting to become more commonly accepted," he says.
Environmental resolutions are drawing affirmative votes from pension funds such as the California Public Employees Retirement System (CalPERS) and from RiskMetrics, a proxy service that historically has tended to support management on ESG resolutions, says Passoff.
Other oil companies face same risks
On June 11, MSCI, a provider of stock indices and portfolio risk analytics, announced plans to include nonfinancial factors such as ESG in its investment products. MSCI acquired RiskMetrics Group on June 1.
There's undeniable risk that BP could declare bankruptcy as a result of the Gulf oil disaster, says Nell Minow, editor and co-founder of the Corporate Library, an independent research group. That BP is on the spot doesn't mean other oil companies are doing any better at planning for environmental debacles, she adds.
"If large fiduciary institutional investors who are going to own a piece of every company for a long time don't understand that they need to do a better job of monitoring risk and getting boards of directors to monitor risk," investors are better off "putting [all their money] in T-bills," says Minow.
he Securities & Exchange Commission's greater receptivity toward requiring disclosures on various matters concerning climate change points to a push for more disclosure, not less, says Robert Graham, founder and head of the environmental law practice at Chicago-based Jenner & Block. He thinks this should motivate shareholders to require companies to disclose more thorough information in their public filings.
In the past, demands for risk disclosure tended to be viewed as hypothetical. In light of the Gulf disaster, Graham predicts that requests for such information will become more mainstream. "These issues are real and this disaster dramatically demonstrates how they impact a company's balance sheet," he says.
$20 billion liability for marshlands?
Skeptics need look no further than the toll taken on BP's shares since Apr. 20, he says. (The stock has declined 44 percent.) It's also clear—from the thousands of lawsuits BP is facing as a result of the spill's health and safety effects, plus damages claims by many businesses operating in the Gulf—that the company is likely to be held accountable, Graham adds.
The plunge in BP's stock price over the past six weeks amounts to roughly $83 billion in market capitalization erased, no small loss for shareholders. If BP bows to pressure from U.S. politicians to suspend its $3.36 per ADR annual dividend, the pain will be compounded for BP investors. While the company has reportedly said it won't seek to limit payouts on legal claims to the $75 million cap set by the Oil Pollution Act of 1990, the liability cap is likely to be thrown out if plaintiffs' attorneys can prove that the company's reckless behavior and lack of proper safety measures contributed to the disaster.
BP could be on the hook for as much as $20 billion if a major public works project needs to be undertaken to save marshland around the Gulf, Douglas Brinkley, fellow in history at the Baker Institute at Rice University in Houston, told CNN (TWX) last week.
As of June 10, the company had received roughly 42,000 claims and paid over 20,000 claims totaling $53 million, a spokesman in BP's Houston office told Bloomberg Businessweek.
It is inevitable, Graham says, that companies will be pressed by shareholders to disclose more information about safety practices, the kinds of fail-safe mechanisms they have in place for high-risk operations, and their plans and prospects. Companies will have to reconsider the insurance they've arranged to better gauge how much and what kinds of coverage they need to cover potential risks. They'll also need to figure out how much cash to set aside in reserve to cover unforeseen incidents that may cause environmental damage, he says. Shareholders will also start to insist on viewing companies' safety records, including any sanctions received from federal or state agencies regarding their operations.
Do short-term investors care?
There will also likely be a bigger push for disclosure on what companies are doing to develop alternative energy sources and how much money they're investing in that area, relative to investments in fossil fuels, says Graham, which he notes would fit in well with disclosures on climate-related risks that the SEC began to require in February. In the long run, it may well encourage energy producers to put further research and money into developing less risky, climate-friendlier alternative energy sources such as solar and wind, he adds.
From one perspective, growing awareness among shareholders of environmental, social, and governance-related risks could be seen as a corrective to the general trend toward a relatively short-sighted view as investors' time horizons have shrunk. "If you're renting the stock, you don't care what happens next year," says Lloyd Kurtz, manager of the Wells Fargo Advantage Social Sustainability Fund (WSRAX). "You don't care if the company has a litigation problem in two years because you'll be gone by then."
The prevailing short-sighted view of risk creates an opportunity for investors with longer time horizons, who are more inclined to look for problems that may crop up, he says.
Kurtz would prefer that the damages companies are required to pay for litigation and environmental destruction continue to come out of shareholder equity rather than out of cash reserves earmarked to cover such events. That's the only way to get investors to make it common practice to weigh environmental risks, along with other risk factors, when deciding whether or not to invest in a company, he says. He suspects that any attempt to assign a monetary value to such risks before they manifest would only enable companies to manage the reserves to help bolster or reduce their profits.
Minow at the Corporate Library agrees that investors need to consider such risks when researching companies to invest in. She would also like to see these risks accounted for on companies' balance sheets. Apart from what she says is BP's environmental negligence, the company embarked on a project "without any idea of how to handle it if things went wrong," something Minow calls "utterly indefensible." The fact that BP didn't have a backup plan in place speaks to sustainability issues, she adds.
She sees a clear parallel with the fate of Texaco, which—while still an independent company—was forced to file for bankruptcy in 1987 so it could continue operating while it figured out how to recover from a huge civil verdict stemming from its attempted acquisition of Getty Oil.
shareholders might write in directors
The financial industry reform legislation that's now in conference committee between the U.S. Senate and the House of Representatives includes provisions for shareholders to propose their own board candidates on companies' proxy cards, which will put unprecedented pressure on individual directors, says Minow. She believes this—more than resolutions, which aren't binding—will be the focus of shareholder activism.
"[Primary attention] is going to be on replacing boards of directors and if the board of directors at BP didn't do a good-enough job of responding to problems, they'll be out," she predicts. If BP lacks directors with environmental credentials, some will have to be found and added, she says.
Coming as it did toward the end of proxy season, the timing of the Gulf disaster may seem unfortunate for activists, but Minow believes time will confer an advantage. By the time the 2011 proxy season comes around, she predicts that the financial reform legislation will have passed, opening fresh opportunities for activists to exert pressure on companies.
"There's a reason shareholders' resolutions have to be in by fall for meetings in the spring. It gives corporations a really good opportunity to get their acts together before shareholders start proposing resolutions," she says. "Partly for that reason, I suspect [BP chief executive officer Tony] Hayward will be out by the end of the summer."
BP's Gulf disaster pressures energy companies to disclose more about environmental and safety compliance. How to account for catastrophic risk?
(This story has been updated in the fifteenth paragraph to include comment from BP.)
It may seem unthinkable that a company with so formidable a public image and financial track record as BP (BP) is fighting to save its reputation—and potentially, its very existence—less than two years after the oil industry logged its biggest-ever growth in profits. Reversals of fortune of this magnitude aren't as rare as we sometimes think. Recall how the tobacco giants wound up ceding enormous, profit-generating power to the U.S. government and how asbestos lawsuits forced such major industrial outfits as Johns-Manville into bankruptcy.
The common denominator linking BP with these companies is growing clear: They all failed to anticipate risks that could threaten their business foundations.
Now the tide has shifted with respect to how much thought mainstream investors are giving to environmental, social, and corporate governance (ESG) issues. Michael Passoff, senior program director for the Corporate Social Responsibility Program at As You Sow, a shareholder advocacy organization in San Francisco, has reviewed as far back as 1999 resolutions focused on corporate environmental issues that were being filed for the first time. "Nothing comes close to the support we're getting now," says Passoff.
A June 3 proxy vote that called on Layne Christensen (LAYN), a mining and production company, to produce a sustainability report drew support from over 60 percent of shareholders. Earlier resolutions regarding disclosures about coal ash at power producers CMS Energy (CMS) and MDU Resources Group (MDU) were supported by over 40 percent of each company's shareholders. Resolutions demanding greater disclosure by natural gas producers about their hydraulic fracturing practices have drawn supportive votes ranging from 26 percent to 41 percent of shareholders, five to six times what they've received in prior years, says Passoff.
He believes environmental sustainability issues had already begun to attract broader support before the Apr. 20 explosion of BP's Deepwater Horizon rig sent an estimated millions of barrels of oil gushing into the Gulf of Mexico. Passoff credits the change in consciousness to growing awareness of climate change issues. "Investors are seeing that environmental practices affect their bottom line. It's starting to become more commonly accepted," he says.
Environmental resolutions are drawing affirmative votes from pension funds such as the California Public Employees Retirement System (CalPERS) and from RiskMetrics, a proxy service that historically has tended to support management on ESG resolutions, says Passoff.
Other oil companies face same risks
On June 11, MSCI, a provider of stock indices and portfolio risk analytics, announced plans to include nonfinancial factors such as ESG in its investment products. MSCI acquired RiskMetrics Group on June 1.
There's undeniable risk that BP could declare bankruptcy as a result of the Gulf oil disaster, says Nell Minow, editor and co-founder of the Corporate Library, an independent research group. That BP is on the spot doesn't mean other oil companies are doing any better at planning for environmental debacles, she adds.
"If large fiduciary institutional investors who are going to own a piece of every company for a long time don't understand that they need to do a better job of monitoring risk and getting boards of directors to monitor risk," investors are better off "putting [all their money] in T-bills," says Minow.
he Securities & Exchange Commission's greater receptivity toward requiring disclosures on various matters concerning climate change points to a push for more disclosure, not less, says Robert Graham, founder and head of the environmental law practice at Chicago-based Jenner & Block. He thinks this should motivate shareholders to require companies to disclose more thorough information in their public filings.
In the past, demands for risk disclosure tended to be viewed as hypothetical. In light of the Gulf disaster, Graham predicts that requests for such information will become more mainstream. "These issues are real and this disaster dramatically demonstrates how they impact a company's balance sheet," he says.
$20 billion liability for marshlands?
Skeptics need look no further than the toll taken on BP's shares since Apr. 20, he says. (The stock has declined 44 percent.) It's also clear—from the thousands of lawsuits BP is facing as a result of the spill's health and safety effects, plus damages claims by many businesses operating in the Gulf—that the company is likely to be held accountable, Graham adds.
The plunge in BP's stock price over the past six weeks amounts to roughly $83 billion in market capitalization erased, no small loss for shareholders. If BP bows to pressure from U.S. politicians to suspend its $3.36 per ADR annual dividend, the pain will be compounded for BP investors. While the company has reportedly said it won't seek to limit payouts on legal claims to the $75 million cap set by the Oil Pollution Act of 1990, the liability cap is likely to be thrown out if plaintiffs' attorneys can prove that the company's reckless behavior and lack of proper safety measures contributed to the disaster.
BP could be on the hook for as much as $20 billion if a major public works project needs to be undertaken to save marshland around the Gulf, Douglas Brinkley, fellow in history at the Baker Institute at Rice University in Houston, told CNN (TWX) last week.
As of June 10, the company had received roughly 42,000 claims and paid over 20,000 claims totaling $53 million, a spokesman in BP's Houston office told Bloomberg Businessweek.
It is inevitable, Graham says, that companies will be pressed by shareholders to disclose more information about safety practices, the kinds of fail-safe mechanisms they have in place for high-risk operations, and their plans and prospects. Companies will have to reconsider the insurance they've arranged to better gauge how much and what kinds of coverage they need to cover potential risks. They'll also need to figure out how much cash to set aside in reserve to cover unforeseen incidents that may cause environmental damage, he says. Shareholders will also start to insist on viewing companies' safety records, including any sanctions received from federal or state agencies regarding their operations.
Do short-term investors care?
There will also likely be a bigger push for disclosure on what companies are doing to develop alternative energy sources and how much money they're investing in that area, relative to investments in fossil fuels, says Graham, which he notes would fit in well with disclosures on climate-related risks that the SEC began to require in February. In the long run, it may well encourage energy producers to put further research and money into developing less risky, climate-friendlier alternative energy sources such as solar and wind, he adds.
From one perspective, growing awareness among shareholders of environmental, social, and governance-related risks could be seen as a corrective to the general trend toward a relatively short-sighted view as investors' time horizons have shrunk. "If you're renting the stock, you don't care what happens next year," says Lloyd Kurtz, manager of the Wells Fargo Advantage Social Sustainability Fund (WSRAX). "You don't care if the company has a litigation problem in two years because you'll be gone by then."
The prevailing short-sighted view of risk creates an opportunity for investors with longer time horizons, who are more inclined to look for problems that may crop up, he says.
Kurtz would prefer that the damages companies are required to pay for litigation and environmental destruction continue to come out of shareholder equity rather than out of cash reserves earmarked to cover such events. That's the only way to get investors to make it common practice to weigh environmental risks, along with other risk factors, when deciding whether or not to invest in a company, he says. He suspects that any attempt to assign a monetary value to such risks before they manifest would only enable companies to manage the reserves to help bolster or reduce their profits.
Minow at the Corporate Library agrees that investors need to consider such risks when researching companies to invest in. She would also like to see these risks accounted for on companies' balance sheets. Apart from what she says is BP's environmental negligence, the company embarked on a project "without any idea of how to handle it if things went wrong," something Minow calls "utterly indefensible." The fact that BP didn't have a backup plan in place speaks to sustainability issues, she adds.
She sees a clear parallel with the fate of Texaco, which—while still an independent company—was forced to file for bankruptcy in 1987 so it could continue operating while it figured out how to recover from a huge civil verdict stemming from its attempted acquisition of Getty Oil.
shareholders might write in directors
The financial industry reform legislation that's now in conference committee between the U.S. Senate and the House of Representatives includes provisions for shareholders to propose their own board candidates on companies' proxy cards, which will put unprecedented pressure on individual directors, says Minow. She believes this—more than resolutions, which aren't binding—will be the focus of shareholder activism.
"[Primary attention] is going to be on replacing boards of directors and if the board of directors at BP didn't do a good-enough job of responding to problems, they'll be out," she predicts. If BP lacks directors with environmental credentials, some will have to be found and added, she says.
Coming as it did toward the end of proxy season, the timing of the Gulf disaster may seem unfortunate for activists, but Minow believes time will confer an advantage. By the time the 2011 proxy season comes around, she predicts that the financial reform legislation will have passed, opening fresh opportunities for activists to exert pressure on companies.
"There's a reason shareholders' resolutions have to be in by fall for meetings in the spring. It gives corporations a really good opportunity to get their acts together before shareholders start proposing resolutions," she says. "Partly for that reason, I suspect [BP chief executive officer Tony] Hayward will be out by the end of the summer."
ATHENS, Greece – Moody's Investors Service slashed Greece's credit rating to junk status on Monday in a new blow to the debt-ridden country that is un
Battery maker Valence Technology Inc. said Monday that its fiscal fourth-quarter loss widened on lower sales of large battery systems as well as higher expenses.
The company reported a loss of $5.1 million, or 4 cents per share, in the quarter ending March 31. Valence recorded a loss of $4.4 million, or 4 cents per share, in the year-ago quarter, when the company had fewer shares outstanding.
Revenue dropped to $3.9 million from $4.7 million.
Analysts surveyed by Thomson Reuters expected a loss of 4 cents per share on revenue of $4.3 million.
Operating expenses increased to $4.6 million from $3.7 million.
For the full fiscal year, Valence lost $23.2 million, or 18 cents per share, compared with a loss of $21.4 million, or 18 cents per share, in the 2009 fiscal year.
Shares of Valence finished regular trading unchanged at about 91 cents.
The company reported a loss of $5.1 million, or 4 cents per share, in the quarter ending March 31. Valence recorded a loss of $4.4 million, or 4 cents per share, in the year-ago quarter, when the company had fewer shares outstanding.
Revenue dropped to $3.9 million from $4.7 million.
Analysts surveyed by Thomson Reuters expected a loss of 4 cents per share on revenue of $4.3 million.
Operating expenses increased to $4.6 million from $3.7 million.
For the full fiscal year, Valence lost $23.2 million, or 18 cents per share, compared with a loss of $21.4 million, or 18 cents per share, in the 2009 fiscal year.
Shares of Valence finished regular trading unchanged at about 91 cents.
Moody's downgrades Greece's debt to junk status
By NICHOLAS PAPHITIS, Associated Press Writer
ATHENS, Greece – Moody's Investors Service slashed Greece's credit rating to junk status on Monday in a new blow to the debt-ridden country that is under intense international scrutiny after narrowly avoiding default last month.
A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status. Standard & Poor's did the same in late April.
The downgrades reflect concern that the country could fail to meet its obligations to cut its deficit and pay down its debt — which the Greek government says is out of the question.
Finance Ministry officials in Athens had no immediate reaction to the rating cut, which came as a delegation from the International Monetary Fund and the European Union started an interim review of the country's efforts to pull itself out of a major debt crisis.
After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro110 billion bailout. It is to receive the second in September, pending implementation of a major austerity program that has sparked strong union reaction and a series of damaging strikes.
"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.
"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels."
"Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."
Despite the downgrade, the gap, technically known as a spread, between Greek 10-year bond yields and their benchmark German equivalents dipped only slightly late Monday. The difference was at 5.91 percent, down from 6.12 percent earlier in the day.
That means that Greece would have to pay a rate of around 9 percent were it to raise cash through bond issues. However, bolstered by the rescue loans, Athens says it has no plans to try selling its bonds to the markets soon — except for short-term treasury bill issues in July.
In return for the bailout, Prime Minister George Papandreou's center-left government announced painful austerity measures, slashing pensions and salaries while increasing indirect taxes, seeking to gradually bring the deficit down to 2.6 percent in 2014. The continued flow of EU and IMF funds is conditional on Greece meeting its targets, which will remain under constant scrutiny.
Athens says it has exceeded deficit-cutting targets in the first five months of 2010, as a lower-than-expected increase in revenues was offset by higher spending cuts.
The finance ministry says the January-May deficit stood at euro8.97 billion ($10.77 billion), compared to euro14.65 billion in the first five months of 2009. The drop translates into a 38.8 percent reduction, more than the planned 35.1 percent cut.
Papandreou said late last week that Greece was back on track to "a normal financial and fiscal situation, having left the major dangers behind."
Monday's Moody's statement said the austerity package was "very ambitious."
"There is considerable uncertainty surrounding the timing and impact of these measures on the country's economic growth, particularly in a less supportive global economic environment," Carlson said.
The EU/IMF delegation, which will stay in Athens for the week, was holding meetings at the finance ministry and was expected to also meet with officials at the labor ministry in coming days to review reforms to the social security system.
ATHENS, Greece – Moody's Investors Service slashed Greece's credit rating to junk status on Monday in a new blow to the debt-ridden country that is under intense international scrutiny after narrowly avoiding default last month.
A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status. Standard & Poor's did the same in late April.
The downgrades reflect concern that the country could fail to meet its obligations to cut its deficit and pay down its debt — which the Greek government says is out of the question.
Finance Ministry officials in Athens had no immediate reaction to the rating cut, which came as a delegation from the International Monetary Fund and the European Union started an interim review of the country's efforts to pull itself out of a major debt crisis.
After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro110 billion bailout. It is to receive the second in September, pending implementation of a major austerity program that has sparked strong union reaction and a series of damaging strikes.
"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.
"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels."
"Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."
Despite the downgrade, the gap, technically known as a spread, between Greek 10-year bond yields and their benchmark German equivalents dipped only slightly late Monday. The difference was at 5.91 percent, down from 6.12 percent earlier in the day.
That means that Greece would have to pay a rate of around 9 percent were it to raise cash through bond issues. However, bolstered by the rescue loans, Athens says it has no plans to try selling its bonds to the markets soon — except for short-term treasury bill issues in July.
In return for the bailout, Prime Minister George Papandreou's center-left government announced painful austerity measures, slashing pensions and salaries while increasing indirect taxes, seeking to gradually bring the deficit down to 2.6 percent in 2014. The continued flow of EU and IMF funds is conditional on Greece meeting its targets, which will remain under constant scrutiny.
Athens says it has exceeded deficit-cutting targets in the first five months of 2010, as a lower-than-expected increase in revenues was offset by higher spending cuts.
The finance ministry says the January-May deficit stood at euro8.97 billion ($10.77 billion), compared to euro14.65 billion in the first five months of 2009. The drop translates into a 38.8 percent reduction, more than the planned 35.1 percent cut.
Papandreou said late last week that Greece was back on track to "a normal financial and fiscal situation, having left the major dangers behind."
Monday's Moody's statement said the austerity package was "very ambitious."
"There is considerable uncertainty surrounding the timing and impact of these measures on the country's economic growth, particularly in a less supportive global economic environment," Carlson said.
The EU/IMF delegation, which will stay in Athens for the week, was holding meetings at the finance ministry and was expected to also meet with officials at the labor ministry in coming days to review reforms to the social security system.
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