Archive for the ‘Ethics’ Category

The not so ethical investments

Wednesday, August 5th, 2009

By Charles Wanguhu

Financial institutions offering Ethical investment in practice exclude companies with interests in armaments, oppressive regimes, nuclear power, tobacco, vivisection, gambling, alcohol and pornography. Environmental (and ethical) investments also aim to invest in companies with positive effects on the environment. Characteristics of such companies include but are not limited to: socially responsible, environmentally conscious companies, and equal opportunity employers.

With the above in mind what recourse would an ethical investor have on discovery that their funds were being deposited in a manner that did not conform to their moral expectations.

 A roman Catholic Bank in Germany was forced to offer an apology after a newspaper discovered that it had acquired stocks in defense, tobacco and birth control companies.

Der Spiegel newspaper discovered the bank had invested 580,000 euros in British arms company BAE Systems.   The bank also invested 160,000 euros in American birth control pill maker Wyeth. The Catholic Church abhors contraception and the Pope has been vocal in re-emphasising this stance. The anti-contraception stance has been present since 1968 and the current Pope Benedict XVI has not faltered on this stance.

What remedies would an investor have: Sue for breach of contract? Report for false advertising? And in light of the latter in the event the investments were actually profitable what would the investor do with the unethical returns?

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August 1: A Day Of Remembrance

Saturday, August 1st, 2009

By: Ainsley Brown

This is part of the Middle Passage Law Series on Law is Cool.

Why am I wearing all black today?

Am I in mourning? No, not exactly. Then why?

Well it is August 1: Emancipation Day. Remember

I am wearing black today not to so much mourn but to remember. To remember that it was today 175 years ago that the British set my ancestors free – well in a manner, they still had six years of apprenticeship to look forward to. Why? Because being free people made them some how forget all the skills acquired during a lifetime of toil.

The Slavery Abolition Act 1833 took effect one year after passage this day 1834 and outlawed slavery in the British empire – including British North America aka Canada – with the exception of all but a hand fully of territories.

So I remember – let’s remember together.

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The Cozy Bank-Law Firm Relationship May Not Be So Cozy After All…These days Anyway, Part II.

Wednesday, June 17th, 2009

By: Ainsley Brown

McKenna v. Gammon Gold Inc.

This is case that has the potential to redefine the very cozy relationship law firms have with their banker clients. No longer will bankers be given blanket coverage under conflict of interest rules to prevent law firms from being representatives in claims brought against them.

The operative word here being potential, as you shall will see.

The relevant facts of the case in brief are as follows:  the defendants in the case included the underwriting syndicate of Gammon Gold´s public share offering. Two member of the syndicate included BMO Nesbitt Burns Inc. and TD Securities Inc., both subsidiaries of BMO and TD respectively. It just so happens that Siskinds, who represented the representative plaintiff, McKenna, in the class action, was concurrently retained by BMO and TD to undertake debt enforcement and personal bankruptcy matters. As a result the defendants raised the issue of conflict of interest, seeking to get Siskinds removed from the case.

The judge in the case, Madame Justice Lax, was having none of it; holding that there was no conflict. In her ruling Justice Lax made it clear that ¨the underwriters and banks are separate and sophisticated business and legal entities that are individually governed and autonomous. She went on to say further that ¨the banks had no reasonable expectation that their subsidiaries would be treated as clients.¨

And rightly so.  While I fully agree with the judgment, it still remains unclear how it will be received by banks but more importantly, law firms.  This is why I said it has the potential to redefine the bank-law firm relationship. It will all depends on how it is read.  If the case is read very narrowly and confined to the particular facts of the case, that is where there is a parent and subsidiary relationship and they are separate, sophisticated business and legal entities, individually governed and autonomous, then there is no conflict.  This is the extreme and I don’t believe that it will be this narrowly read.  However, I do believe that there is the strong potential for it to be read narrowly enough as to preserve largely if not totally the existing regime. It will all depend on the mood (i.e. economic conditions) of the law firms I guess.

On the other hand, if the decision is read more globally, it could usher in a new era of freedom to act o the part of law firms. I hope it is the latter; however, I would not be surprised if it is some form of the former.

In a passing note in Part I of this post I referred to lawyers as attack dogs, this was meant as no offence – I even referred to myself as an attack dog in training. However it was said to provoke some self examination and self evaluation on the part of myself and those more senior in the profession. All too often clients see us in that role and we sometimes do little or nothing to disprove this perception.  While I know that I have a long way to go in the profession, I am after all only an articling student, for me; a lawyer is an advocate, a professional that aggressively safeguards the interest s of their clients, however, this duty must be balance against other professional and personal considerations.

Am I wrong or just being naive?

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THE GROWING NEED FOR EXPANDED CORPORATE REPORTING

Tuesday, June 2nd, 2009

This article is reproduces with the permission of the author and can be found on AccountancySA (South Africa´s leading Accountancy Journal).

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There is no doubt that the world we knew before the global economic meltdown will not return. The causes of the meltdown will not disappear, and lurking behind them is another set of even more fundamental issues facing humanity.

The often quoted Chinese curse – ‘may you live in interesting times’ has never been more relevant than it is today.

Humankind has enormous environmental and social challenges facing it. We can no longer ignore them. The impact of the sustainability threats is affecting business more and more each day. Not only do businesses have to adapt their strategies and their way of doing business, they also have to adapt their way of reporting. No longer is it sufficient to report only on their financial performance to shareholders and potential investors. Today companies have a range of stakeholders that have vital interests in the activities of the organisation, and they expect companies to provide a range of information about the company. Indeed, the notion of a company being a corporate citizen has become a reality in recent years, and that has highlighted responsibilities and obligations for companies. Companies operate in communities, they consume scarce resources and they produce waste. All of which impact society and, therefore, society needs information about how companies are dealing with the related responsibilities and obligations.

There are various names given to such reporting, but the two most commonly used are ‘Corporate Social Responsibility’ (CSR) reporting and ‘sustainability reporting’, which are broadly the same thing. In the past, CSR often referred to the philanthropic activities of a company and some people still see it as that, but in reality CSR reporting has become a much broader concept and an essential element of reporting, and it will no doubt become a legal requirement in the not too distant future.

There are a number of codes and reporting frameworks around, but most companies that do prepare sustainability reports use the Global Reporting Initiative (GRI) Guidelines, which may be downloaded from the GRI website at http://www.globalreporting.org/Home . A KPMG Survey[1] published in 2008 shows that 77% of reporting companies use the GRI Guidelines.

The GRI sees sustainability reporting as the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.

Globally, sustainability reporting is increasing rapidly according to the KPMG Survey. It noted that over 80% of the world’s largest 250 companies (G250) now produce sustainability reports. The Survey, which covered 22 countries, revealed that a rising number of companies are producing sustainability reports. On average, 45% of the top 100 companies in the surveyed countries produce sustainability reports; Japan and the United Kingdom lead the table at 93% and 91% respectively; South Africa is some way behind at 45%, but it is one of the leaders in integrating the sustainability report into the annual report.

The recently published draft King Code says:
‘By issuing integrated sustainability reports, a company increases the trust and confidence of its stakeholders and the legitimacy of its operations. It can increase the company’s business opportunities and improve its risk management. By issuing an integrated sustainability report, internally a company evaluates its ethics, fundamental values, and governance and externally, improves the trust and confidence which stakeholders have in it.’

Whilst the GRI Guidelines are fast becoming the standard for sustainability reporting, there are many other voluntary guides and even legal requirements that are relevant to sustainability reporting. Some industries, such as the mining and chemical industries, have developed codes and guides. The Carbon Disclosure Project has developed standard disclosures relating to climate change information and particularly greenhouse gas emissions. In South Africa there is the King II Report and recently a draft King III Code was released. In addition, there are disclosure requirements in terms of the Broad-based Black Economic Empowerment legislation.

The GRI guidelines suggest that a sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organisation – including both positive and negative issues. However, there is always a temptation for companies to tell only the good news so that the organisation can be seen in the best light. Indeed, some companies use the sustainability report as a public relations document. This is known as ‘green washing’ and it can backfire horribly. In the US there are magazines and websites that constantly look for cases of green washing so that they can be exposed.

Sustainability reporting is not something to be taken lightly. It covers many areas on which companies have not traditionally focused and on which they certainly have not reported. In addition, many companies do not have adequate information systems to generate the necessary information, so they and end up making only vague statements, which are not helpful. A fundamental aspect of the exercise is to engage with a wide range of stakeholders to ascertain what the stakeholders see as important. Their views will not necessarily align with the views of management, since some of the areas highlighted by external stakeholders may be sensitive to the company. However, companies that deal with sensitive issues are likely to improve credibility ratings over those that ignore them or gloss over them.

The KPMG Survey suggests, ‘Understanding the way a company impacts the economic, environmental and social circumstances of its stakeholders, and vice versa, is at the heart of corporate responsibility. In order to develop a proactive, strategic approach, and a workable management and reporting system that will help change circumstances for the better for all parties, stakeholders should be part of the process. Identifying and prioritising stakeholders, and being transparent about which groups and individuals a company is engaging with, is a key part of building credibility and trust.’

Producing sustainability reports requires a great deal of planning, and an infrastructure that can generate the necessary information. It is also essential that top management is intimately involved in the process. It becomes very apparent when reading sustainability reports if a company has not embedded sustainability into its strategy and operations. In those circumstances, the report can do more harm than good.

As with any published information the credibility of the information is enhanced if it has some form of supporting assurance. The GRI guidelines outline different assurance models ranging from self-assurance to assurance by certification bodies and assurance by accountancy firms. Such assurance, however, can be costly, since the areas covered are not necessarily part of a normal audit. The KPMG Survey shows an increasing number of companies moving to an enhanced assurance model. In 2008, 70% of the G250 used accountancy firms to provide assurance.

Given the growing importance of sustainability reporting in organisations, SAICA has decided to develop a sustainability reporting course, which has been certified by the GRI. The two-day course outlines the principles of sustainability reporting and teaches participants how to go about planning for and implementing the processes to develop a sustainability report.

Chartered Accountants have been slow to embrace sustainability. This is unfortunate as it offers many business opportunities. The big danger, however, is if we do not embrace it we will rapidly lose relevance, and other professionals will usurp much of our ground. One area, amongst many, where Chartered Accountants should become involved is sustainability reporting. That is why SAICA is offering this training course.

[1] International Survey of Corporate Social Responsibility – 2008.

Graham Terry CA(SA), is the Head: Office of the Executive President, SAICA.
Published in AccountancySA – June issue – http://www.accountancysa.org.za/resources/ShowItemArticle.asp?ArticleId=1681&Issue=1076

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Corruption and Banking

Wednesday, April 29th, 2009

29th April 2009

By Charles Wanguhu

Corruption only offers two instances for regulators to step in: at the looting stage where the individuals may seek bribes, dispose of public resources or subvert funds. In an ideal world they are then charged and any monies returned. The second stage is at the laundering stage, where the monies are placed into the financial system either by depositing in a bank or placing in the capital markets. The regulators can step in and require full disclosure of means in which the wealth was acquired. The latter stage is also referred to as the recovery stage. Beyond the two instances it is usually assumed a lost cause as the actual tracing and recovery of assets is rendered almost impossible with the ease at which monies can move from jurisdiction to jurisdiction in the modern global economy.

The banker

Corruption and Banking are two intrinsically linked activities as proceeds from corruption inevitably are laundered into the financial system. In a new report Undue Diligence Global Witness, the human rights and environmental campaign group has accused some of the world’s largest banks including HSBC, Barclay’s among others of complicity or facilitation of corruption. The report available here goes on to blame the Banks action for the looting of revenues from some of the worlds poorest people and condemning them to poverty.

The Looting and Laundering (L&L) is viewed as one of the major challenges in regulation of the banking industry not only in developing countries but also the developed world. Banks have for long under the guise of secrecy laws refused to disclose their account holders and the monies held in many accounts in the many varied tax havens.

The report goes on to give examples of siblings of corrupt leaders who have been able to circumvent the sanctions placed on their parents by opening varied accounts in various capitals and used the same to launder their ill gotten wealth.

In the current financial crisis and for the immediate future it seems that bankers continue to be the favourite pet hate and at every turn we are reminded of their pocketing a quick buck with disregard to any morals.

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UK Oil Company Accused Of Trying To Buy Witnesses

Tuesday, April 7th, 2009

By: Ainsley Brown

It is situations like these that simply go to fuel the general public distain for multinational. I guess the one positive thing that comes out of this and other similar situations is that it provides ample material for Michael Moore- esque films – just great entertainment. Despite the entertainment value of such films they often depict the dire circumstances that many people find themselves in as a result of a multinational’s operations – legal and illegal.

And this where Trafigura comes in. The London based multinational oil company stand accused of trying to buy, that is to say, trying to get some witness-claimants to change their stories about a toxic spill in the Ivory Coast. According to the Times they apparently succeeded in one case.

The lawyer for Trafigura freely admitted that their client had contact with the witnesses but argued that such contact was permitted in exceptional circumstance; which this clearly was. Mr. Justice Jack sitting in the High Court was having none of it. He granted the 31,000 Ivory Coast claimants a temporary injunction prohibiting Trafigura from having “any communications, by whatever means, with any claimant.” This was of course subject to very specific exceptions: where the claimants’ lawyer agrees; where an expert examines a claimant on the directions of the court; and where an independent translator assists the expert.

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Two British Engineers Charged With Espionage… Industrial Espionage That Is.

Monday, March 23rd, 2009

By: Ainsley Brown

Mobile Phone Camera, a very powerful tool.

Mobile Phone Camera, a very powerful tool.

No, no this is not a joke nor is it a case of a 007 mission gone awry. Its is a simple case of two British engineers; a British company and its subsidiary; a mobile phone; an American tire company’s secret equipment; and a Chinese tire company.

Oh all so simple, indeed.

The two engineers, Mr. Clark Roberts and Mr. Sean Howley are due to stand trail in May in Knoxville, Tennessee charged with 12 offences relating to theft of trade secrets and fraud. Both men are looking at a maximum sentence of 150 years – yes you read correctly 150 years – and a fine of $2.75 million.

Oh all so simple, indeed.

The story of how these men found themselves in this predicament unfolds as interestingly as any spy novel – if not better. It’s very true as they say: truth is often stranger than fiction.

The two men worked for Wyko Tire Technology Inc. in Greenback, Tennessee, which happens to be a member of the Wyko Group, one of Britain’s largest suppliers of engineering components. It is alleged that the pair conned their way in to a Goodyear plant in Topeka, Kansas, where they took photographs which were emailed to Wyko Tire Technology in Dudley, Midlands, UK.

And what piece of sophisticated spy gear was used?

Are you ready for this? The answer: a mobile phone. Yes, a mobile phone. No not a watch or a pen that doubles as a camera but an everyday run of the mill cell phone.

According to US prosecutors the two men after conning their way into the Goodyear plant, Mr. Roberts acting as lookout while Mr. Howley proceeded to take the 7 photos. The pictures were of a piece of top secret specialized equipment used in the manufacturing of large off-road tires for earth moving equipment. Later the 7 photos just so happen to end up in the hands of Wyko Tire in England, which coincidentally happened to have a $1.2 million contract with Haohua South China (Guilin) Rubber Company, based – you guessed it – in China, to produce a very similar piece of equipment.

Both men of course deny all the charges.

Oh all so simple, indeed.

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Is tax the new area of concern for Corporate Social Responsibility?

Tuesday, March 17th, 2009

By Charles Wanguhu

In early 90’s Nike suffered a huge backlash from the revelations of child labour in use in its factories abroad there was a drive to ensure that clothing was environmentally sound. In early 2000 a push for carbon footprint labelling ensured that the consumer was conscious of the effect of their consumption habits on the climate.

In 2009 after a guardian expose there has been uproar on tax evasion by the big Corporations. The Corporations through the use of extensive webs of subsidiaries in tax havens have managed to create a near zero tax liability status in their country of operations. The guardian describes it as “the triumph of technical proficiency over social responsibility”.

It is likely to spark the age old debate about whether a corporation’s main point of existence is the creation of shareholder value. If that point of view is to be accepted the lesser tax paid to the government then assumingly a higher dividend or return is then passed on to the shareholder.

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In response, the corporates argue that in strictly legal terms they are not breaking the law or involving themselves in an illegality. In this instance should the regulator then be blamed for the tax avoidance and how can the regulator keep abreast of all new avoidance schemes when at the moment they stand at close to 200 known schemes. The corporate social responsibility debate has been largely pushed forward by the moralist argument rather than the strict legalistic interpretation of the corporate duties to society.

A corporation like all legal persons has a responsibility to pay taxes and in turn the government to provide services at an acceptable threshold. In the instance of the Johnny walker brand while the more valuable royalties earned were moved from England to Holland (which had a zero rating tax on IP rights) while the production largely remained in England. Therefore in one swoop a huge tax gap is imposed on England tax offices. The tax gap has then to be filled by the low income and small businesses who are unable to hire the services of the lawyers, accountant and consultants that dream up these schemes.

A new incentive similar to the carbon footprint labelling of food has been initiated See more at tax ticked, it in effect aims to reward good corporate citizenship.

If successful the focus will then return to all round good corporate citizenship as opposed to charitable acts which is easily negated by tax evasion.

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Long Arm Of US Law Nabs British Solicitor.

Wednesday, March 11th, 2009

A British solicitor, Jeffrey Tesler, was arrested at his North London business address after US authorities requested his extradition. US prosecutors have charged Mr. Tesler and another Briton, Wojciech Chodan, with taking part in a scheme to bribe Nigerian officials to secure lucrative natural gas contracts, according to the Times.

Both men are each charged with ten counts of violating the US Foreign Corrupt Practices Act and one count of conspiracy to violate the Act. The Act, as its name denoted is designed to prevent US business from paying foreign officials out of the normal course of legitimate government business –  in back alleys or smoked filled back rooms –  in order to sure a business advantage.

Mr. Tesler, for his part is being charged for allegedly helping to disperse bribe money for a construction consortium made up of four companies to Nigerian officials. The money was meant to secure lucrative natural gas contracts in the Niger Delta. The funds were allegedly funneled through a Gibraltar based shell company controlled by Mr. Tesler.

How much money are we talking about?

The consortium is alleged to have paid $132 million. In return, either outright or in part, it would seem that they were awarded a $2.2 billion contract to build the first two stages of a gas plant in December 1995.

Critical to the charges against Mr. Tesler is the nature of his relationship with the consortium – agent and principle. It would seem, if the allegations prove to be true, that not only did the consortium (principle) have full knowledge of his wrong doing, it was in fact at its behest that Mr. Tesler was acting.

It defiantly does not help Mr. Tesler that last month one of the members of the consortium, Kellogg Brown & Root (KBR), plead guilty for its part in the bribery scheme and its successor company KBR LLC was order to pay a $402 million fine. Additionally, KBR’s former chief executive and chairman, Albert Stanley, who was dismissed in 2004, also plead guilty to charges relating to the violation of the Act last September.

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Glaxo Proposes Patent Pool

Monday, February 23rd, 2009

By: Ainsley Brown

The world’s second largest drug maker, GlaxoSmithKline has proposed a voluntary patent pool for drug makers. The pool is intended to kick start the development of new treatments for neglected diseases such as malaria and cholera. By proposing and making its own patents available to third party researchers, Glaxo will be providing opportunities, “that might otherwise not happen,” says its CEO Andrew Witty.

Now it will be up to the other drug makers to follow suit and expand the pool as much as possible.

Additionally, Glaxo also announced that it will invest 20% of its profits made in least developed countries towards building healthcare clinics and other infrastructure in those countries.

All around: well done Glaxo, well done.

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