Shamed straight

June 29, 2007

Next time you feel the urge to complain to a journalist about a negative story about your company, take a moment to ponder the potential corporate governance benefit that article might have for your organization.

That’s the upshot of a piece I read recently on the Knowledge@Wharton site of the Wharton School of the University of Pennsylvania. Or, possibly, that’s just what I, as a journalist, took as the upshot.

In all seriousness, the piece, Good News about Bad Press: For Corporate Governance, Humiliation Pays Off, is an interesting read. The piece is largely based on the research of Alexander Dyck, professor of finance and business economics at the University of Toronto, and some of his academic colleagues into the impact negative publicity can have on corporate governance.

The article cites the experience of Bill Browder, manager of The Hermitage Fund, a hedge fund focusing on Russian investments, who shared his findings of evidence of shady dealings at Russian oil company Gazprom with journalists in hopes of drawing attention to the misdeeds of the company’s top managers. His efforts ultimately paid off in the firing of Gazprom’s CEO, business reforms at the company and a 10-times increase in the value of his fund’s Gazprom investment.

Damaging publicity can have an impact on governance by forcing regulators to take action on problems that might have been ignored if they hadn’t been brought to the public’s attention by the press, the article notes. And, while bad publicity can hurt a company in a variety of ways, including distrust by labor and the financial markets, a good reputation can have such benefits as a lower cost of capital.

The news media’s potential impact on corporate governance is likely more limited in developed economies than developing ones, according to the Knowledge@Wharton article, as in developed countries the target companies can often fight back with sophisticated public relations campaigns.

Still, no less a developed economy business figure than Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, is cited in the article as noting that one of the most important parts of his job at the SEC was working with the agency’s press office. 


Shifting to neutral

June 28, 2007

Munich Reinsurance Co. has been talking about global climate change and its potential impacts for years, going beyond simply talking about the issue, in fact, and committing its own research resources to studying the phenomenon and its various implications.

It’s a sensible and, probably, necessary step for a global reinsurer whose bottom line is potentially exposed to weather-related events.

It was interesting, though, to see the German-based reinsurer take another step this week, acting not simply as a global business enterprise but as a global citizen, announcing the company’s commitment to taking steps to limit its part in any man-made contributions to climate change.

Earlier this week, Munich Re announced that the company aims to be “climate neutral” by 2012. Essentially, Munich Re plans to reduce its per employee emissions of greenhouse gases, and balance remaining emissions with other steps aimed at reducing emissions elsewhere.

Munich Re, which has offices in more than 50 locations around the world, said its head office in Munich–where more than half its international reinsurance workforce is based–will be CO2 neutral by 2009. And, in addition to reducing per employee emissions, Munich Re said it would use “green” power sources, invest in renewable energies and reforestation and participate in climate-protection projects in emerging countries.

Munich Re has been outspoken about the perceived impact of global climate change—earlier this year the company was one of around 100 signatories to a joint declaration issued by the Global Roundtable on Climate Change calling for a greater international effort to reduce greenhouse gas emissions.

Munich Re isn’t alone in the reinsurance industry in its commitment. Swiss Reinsurance Co. also has long been speaking out about climate change, is also a signatory to the Global Roundtable declaration, and has its own commitment to becoming greenhouse neutral by 2013 through reductions in its own emissions and investments that would offset the remainder.

Having expressed their thoughts about the impact of global climate change and the need to address the issue, it’s good to see these reinsurers doing what they can to lead that effort by example.

When heroes fall

June 26, 2007

Oh the sting of seeing one’s heroes laid low, particularly when the culprit appears to be a repetitive stress disorder, rather than an injury sustained at the glorious height of competition. But yes, it appears that it will be some time before the legendary Kobayashi returns to competitive hot dog eating.

In a recent entry titled “Vocational disease” on the Web translation of Takeru Kobayashi’s blog, the valiant food fighter describes (or appears to describe, as best I can tell from the automatic translation),  his health setback, saying he is currently experiencing such pain in his jaw that he can open it no more than a finger’s-width.

Alas, it would appear the six-time champion of the Nathan’s Famous Inc. hot dog eating contest will be forced to relinquish his crown this Fourth of July, betrayed by an arthritic jaw.  It would have been quite a match, pitting Kobayashi against the man that wrested the world hot dog eating record from him earlier this month.

Joey Chestnut had nearly proven Kobayashi’s match last July 4 when he put away 52 dogs in 12 minutes to Kobayashi’s then record 53 3/4. But recently, in regional qualifying for the big show at Coney Island, Chestnut crushed Kobayashi’s mark, wolfing down 59 1/2 hot dogs and buns.

I’m not sure if Kobayashi’s jaw is covered at Lloyd’s or elsewhere, or whether his absence might trigger any sort of event policy for the Nathan’s competition, but if any of you might know, I’d be interested in finding out. Meanwhile, if the current world record holder Joey Chestnut is going bare jaw-wise, it might be time for him to think about coverage.

A little extra wurst

June 19, 2007

Folks traveling to Berlin in a couple of weeks for the International Insurance Society’s annual gathering have a couple of things to be happy about.

The first, of course, is the fact that the annual seminars are in Berlin, a city I thoroughly enjoyed on my last opportunity to visit there about eight years ago. The second is that Berlin ranks towards the bottom of a new ranking of the world’s 50 most expensive cities.

Moscow tops the list, compiled by Mercer Human Resource Consulting. Second on the ranking from Mercer’s Cost of Living Survey is London, followed by Seoul, Tokyo and Hong Kong.

Rounding out the top 10 on Mercer’s ranking are Copenhagen, Geneva, Osaka, Zurich and Oslo.

And Berlin? It comes in 45th in Mercer’s survey, tied with Abu Dhabi and Dusseldorf.

Due to the dollar’s weakness, only two U.S. cities made the top 50, New York at 15 and Los Angeles at 42.

Mercer’s annual survey covers 143 cities, comparing them on the local cost of more than 200 items including housing, transportation, food, clothing, household goods and entertainment.

Mercer noted that 30 of the 50 most expensive cities were in Europe, adding that strong currencies contributed to the higher relative cost of living in most European cities.

Image problems

June 18, 2007

As part of my commentary in this week’s issue of Business Insurance looking at some factors I think might affect the directors and officers insurance market, I mentioned the apparently low regard in which many in this country apparently hold top business executives.

If you haven’t read the column, I cited a Los Angeles Times/Bloomberg poll released last week showing that most of those surveyed think companies’ chief executive officers are paid too much and doubt their sense of ethics.

A certain distrust of business probably isn’t too surprising, but I found the survey results somewhat shocking.

Among those surveyed, 61% said they believe CEOs of American companies are not ethical in their business practices, 44% saying they think CEOs are “not too ethical” and 18% saying they’re “not ethical at all.” Showing more trust in American business, 33% said they think CEOs are “mostly ethical.”

Particularly surprising, I thought, was that the group saying they think CEOs are unethical included 45% of those identifying themselves as Republicans—traditionally the party of business.

By an even greater margin, those surveyed by L.A.Times/Bloomberg also think American CEOs are overpaid. A whopping 81% think CEOs are overcompensated, according to the survey, vs. 14% who think they’re being paid the right amount and 1% who think they’re paid too little. I assume the latter group was made up of the CEOs who happened to be surveyed.

On a serious note, I can’t help but wonder if such attitudes have a way of manifesting themselves in the volume of litigation against American companies and jurors’ attitudes when those cases come to trial.

Backing the backstop

June 15, 2007

The Santa Monica, Calif.-based RAND Corp. has been loosing some pretty serious thinkers on any of a number of issues over the past 60 years. A new interim report released earlier this month offers some of RAND’s thinking on the issue of a federal terrorism reinsurance backstop.

In short, the research by RAND’s Center for Terrorism Risk Management Policy finds that extending TRIA would be a smart move.

In the sizable report (some 113 pages, including references), RAND concludes that TRIA has positive effects on the market for terrorism insurance, leading to a higher take-up rate for terrrorism insurance for conventional attacks than would exist in TRIA’s absence, reducing the costs to businesses affected by attacks in many of the scenarios RAND examined.

What’s more, RAND concluded that though TRIA does increase the cost to taxpayers in scenarios involving the largest attacks, the expected costs to taxpayers from possible conventional attacks is lower with TRIA than without it. Tranferring risks for the largest events to taxpayers, according to RAND’s research, provides the benefits of lower uncompensated losses and lower taxpayer costs in the most likely terrorist attack scenarios.

The report finds that TRIA’s performance in responding to losses from chemical, biological, radiological or nuclear attacks is more mixed, though. While the TRIA program cap does reduce the risk to the insurance industry, the take-up rate for CBRN coverage is still low under TRIA, RAND said, resulting in little difference in the amount of uncompensated losses or the taxpayer burden than in the absence of a government backstop.

RAND said its findings showed that any expansion of TRIA to address CBRN attacks “must be made with significant care to achieve the desired goals and avoid unintended consequences.”

In particular, modifying TRIA to require insurers to offer policies covering both CBRN and conventional terrorist attacks without changes in other features of the program such as insurer deductibles or program caps may have unintended consequences for coverage for conventional attacks, RAND said, offering little improvement in outcomes after CBRN attacks and producing results in the case of conventional attacks similar to those if TRIA was allowed to expire.

RAND noted that analysis offered in the report, “Trade-Offs Among Alternative Government Interventions in the Market for Terrorism Insurance,” is the result of work in progress, and said it will continue to analyze changes in the existing program that might better address CBRN exposures and improve the take-up of terrorism insurance.

Common interest

June 7, 2007

As information technology becomes ever more important to the insurance industry, more and more companies in the IT sphere are seeing opportunities in insurance. It’s interesting, then, that a number of big money investors seem to be seeing investment opportunities in both.

Talk of the growing influence of private equity funds continues across various business sectors. As you may or may not recall, a couple of weeks back I posted an item here (Follow the Money, May 17) regarding the impact the new capital that’s been entering the insurance business in recent years might have on the way the industry does business.

The upshot, according to the group discussing the issue at the annual Harold H. Hines Jr. Memorial Symposium in Chicago, was that the new capital coming from private equity funds and others in the capital markets generally bodes well for the insurance business.

Regardless of the likely impact, the fact is private equity funds are being quite active in the insurance industry, and likely will continue to be so as long as it’s to their benefit to “play the cycle,” according to many industry insiders.

There are people with money to invest, and they’re looking to invest it where they see the possibility of strong returns. When those returns start to go away, so, presumably, will much of the private equity capital.

There are, obviously, always other places the private equity funds can put their cash. And apparently, in addition to the insurance business, the tech sector is one where they’re currently eager to invest.  Stories this week from the San Jose Mercury News and Reuters both addressed private equity funds’ recent interest in tech sector firms.

I spent a few days earlier this week at the annual conference of the Insurance Accounting & Systems Assn. in Minneapolis, where the trend evidently was much in evidence. More than one company among the various tech firms on the conference’s exhibit floor indicated they’d been visited during the gathering by representatives of private equity firms scoping out potential investment opportunities.