Areas of Ethical Conversation

Philosophy 301 students will find this glossary of Ethics helpful.

Bioethics: concerns the ethical controversies brought about by advances in biology and medicine. Public attention was drawn to these questions by abuses of human subjects in biomedical experiments, especially during the Second World War, but with recent advances in bio-technology, bioethics has become a fast-growing academic and professional area of inquiry. Issues include consideration of cloning, stem cell research, transplant trade, genetically modified food, human genetic engineering, genomics, infertility treatment, etc.

Business Ethics: examines ethical principles and moral or ethical problems that can arise in a business environment. This includes Corporate Social Responsibility, a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities and operations on customers, employees, shareholders, communities and the environment, over and above the statutory obligation to comply with legislation.

Environmental Ethics: considers the ethical relationship between human beings and the natural environment. It addresses questions like "Should we continue to clear cut forests for the sake of human consumption?", :Should we continue to make gasoline powered vehicles, depleting fossil fuel resources while the technology exists to create zero-emission vehicles?", :What environmental obligations do we need to keep for future generations?", "Is it right for humans to knowingly cause the extinction of a species for the (perceived or real) convenience of humanity?"

Legal Ethics: an ethical code governing the conduct of people engaged in the practice of law. Model rules usually address the client-lawyer relationship, duties of a lawyer as advocate in adversary proceedings, dealings with persons other than clients, law firms and associations, public service, advertising and maintaining the integrity of the profession. Respect of client confidences, truthfulness in statements to others, and professional independence are some of the defining features of legal ethics.

Media Ethics: deals with the specific ethical principles and standards of media in general, including the ethical issues relating to journalism, advertising and marketing, and entertainment media.

Medical Ethics: the study of moral values and judgments as they apply to medicine. Historically, Western medical ethics may be traced to guidelines on the duty of physicians in antiquity, such as the Hippocratic Oath (at its simplest, "to practice and prescribe to the best of my ability for the good of my patients, and to try to avoid harming them"), and early rabbinic, Muslim and Christian teachings. Six of the values that commonly apply to medical ethics discussions are: Beneficence (a practitioner should act in the best interest of the patient, Non-maleficence ("first, do no harm"), Autonomy (the patient has the right to refuse or choose their treatment), Justice (concerning the distribution of scarce health resources, and the decision of who gets what treatment), Dignity (both the patient and the practitioner have the right to dignity), Honesty (truthfulness and respect for the concept of informed consent).

Information Ethics: investigates the ethical issues arising from the development and application of computers and information technologies. It is concerned with issues like the privacy of information, whether artificial agents may be moral, cyber ethics, how to behave in the infosphere, and ownership and copyright problems arising from the creation, collection, recording, distribution, processing, etc, of information.

Virtue Ethics (or Virtue Theory) is an approach to Ethics that emphasizes an individual's character as the key element of ethical thinking, rather than rules about the acts themselves (Deontology) or their consequences (Consequentialism).

Ethics Training is Missing the Mark: Here's Why

S. L. Young


Ethics is a topic that's often discussed by parents, schools, organizations, and employers. These discussions usually teach individuals about the importance of being ethical: what does it mean; why is it important; what are the costs of unethical activities? This subject matter must be taught; however, the toughest parts of being ethical are almost never discussed. That is... what are the emotional, physiological, and moral challenges that individuals who don't want to be complicit to unethical behavior experience?

Before exploring the affects of wanting to be ethical, the reason that ethics is important must be reviewed.

Ethics are behavioral standards that individuals, organizations, and societies apply and generally adhere to as acceptable. Without ethical standards, there can be numerous variables used to determine if something is right or wrong, good or bad. Notwithstanding these random variables, there are always individual considerations based on experiential learning; however, an individual's ethical standards are normally defined and developed by family, religious beliefs, friends, and societal practices. These standards provide common operating practices that are used to define the limits of acceptable behavior.

Generally, individuals know whether something is right or wrong. Although, there are times that ethical decisions will require additional consideration, input, or sometimes assistance to make the appropriate choice. The challenge - many times - is whenever a decision is within an unclear range or the biggest test is making a decision about whether to get involved to resolve a known ethical issue. During these times, individuals can experience an internal battle while attempting to make an ethical decision.

The internal impacts of making tough ethical choices can impact individuals:

Emotionally - a feeling someone has related to a particular situation, event, or consideration;

Physiologically - a body's reaction to making a tough decision, which could be stress, anxiety, sweat, depression, etc.;

Morally - a challenge to an individual's belief system weighed against the things an individual believes to be true --- but may be altered while making a tough decision.

These internal impacts are seldom (if ever) discussed during ethics training. This omission is unfortunate because an ability to process these intangible elements are important factors while individuals determine whether to be ethical during certain moments.

In a time that winning at almost any cost is more pervasive, there must be an increased focus given to educating individuals about the significance of internal processing in ethical decision making --- beyond the mental processing. Otherwise, a larger number of individuals are more likely to bend the limits of standards, rules, policies, or laws to receive an unfair or personal advantage.

After the allegations of ball deflation by the New England Patriots prior to Super Bowl XLIX, my nephew and I discussed the potential ethical issues. During our conversation, my nephew made a couple of points to support his argument: 1) the deflation was found in the first half, but didn't impact the game's outcome and 2) everyone cheats at some point. What?!?!

The rationale used in his positioning is troubling for several reasons:

First, a determination of whether something is ethical should never be decided based on an outcome, but instead by an evaluation of a consideration, situation, or an event;

Second, a choice to be unethical cannot be validated based on attempting to justify the behavior by rationalizing the actions or activities of another;

Third, individuals must be accountable and responsible for their actions --- including complicit acceptance of wrongdoings by allowing known unethical behavior to continue unchallenged.

There is a cost to individuals, organizations, and societies if unethical activities aren't resolved in a timely manner. However, there are also costs to individuals' emotional, physiological, and moral health while making a choice whether to get involved with the prevention of unethical behavior.

Decisions individuals make cannot be necessarily managed by external factors; although, if ethical training helps individuals to understand and prepare for the internal factors that might be experienced while dealing with ethical dilemmas, then more individuals will be better prepared to handle the internal impacts that can be experienced while attempting to behave ethically.

Additional information on workplace ethical dilemmas can be obtained in Mr. Young's solution-oriented book "Ethical Opportunity Cost: It's a matter of choice".

This post originally appeared on S. L. Young's blog on his website at:www.slyoung.com

Follow S. L. Young on Twitter: www.twitter.com/slyoungva

US Companies who Train and Equip Egypt's Military

Under US law, Washington should not provide military aid “to the government of any country whose duly elected head of government is deposed by military coup d'etat or decree.” However, many US companies would be affected by stopping military trainina dna equipment to Egypt.

The Institute for Southern Studies, specifies the 10 biggest US Defense contracts involving direct military aid to Egypt from 2009 to 2011. These include:

1. Lockheed Martin
Amount: $259 million

In 2010, Lockheed Martin provided Egypt with 20 F-16s as well as night vision sensor systems for Apache helicopters. Lockheed Martin is the biggest beneficiary of US government defense contracts, receiving a record $36 billion in 2008.
Globally, Lockheed Martin is one of the largest defense contractors. Seventy-four percent of its revenues come from military sales.

2. DRS Technologies
Amount: $65.7 million

The US Army contracted this US-operated, Italian-owned military services company to provide vehicles, surveillance hardware and other resources to Egypt in December 2010.

3. L-3 Communication Ocean Systems
Amount: $31.3 million

L3 Communications provided the Egyptian government with a $24.7 million sonar system and military imaging equipment.

4. Deloitte Consulting
Amount: $28.1 million

Deloitte, the world’s second largest professional services firm, won a $28.1 million Navy contract to provide planning and support for Egyptian aircraft programs.

5. Boeing
Amount: $22.8 million

While most people know Boeing for its commercial flights, it is also the second largest defense contractor in the world. Boeing won a $22.5 million Army contract in 2010 to provide Egypt with 10 Apache helicopters. The Aerospace also received a contract to provide logistics support to Egypt.

6. Raytheon
Amount: $31.6 million

The world’s largest guided missiles provider gave Egypt and Turkey 178 STINGER missiles, missile launch systems and 264 months of technical support for the Hawk missile system.

7. AgustaWestland
Amount: $17.3 million

AgustaWestland - also owned by the same Italian company that operates DRS Technologies - secured a contract to provide helicopter maintenance for the Egyptian government.

8. US Motor Works
Amount: $14.5 million
US Motor Works landed a $14.5 million contract in 2009 to provide engines and spare parts for the Egyptian Armament Authority.

9. Goodrich Corp.
Amount: $10.8 million

The US Air Force and Goodrich brokered a $10.8 million contract to obtain and distribute reconnaissance systems for the F-16 jets the Egyptian Air Force uses.

10. Columbia Group
Amount: $10.6 million

Columbia Group provides $10.6 million-worth of unmanned vehicle systems, along with technical training, to the Egyptian Navy.


These companies are characterized in the Iranian press as aggressors. Many Iranians were recurited and welcomed by Morsi to swell his Muslim Brotherhood ranks. It is largely foreigners who are keeping the streets red with blood.


Related reading:  Positive Images of the Conflict in Egypt

 

Thalidomide Survivors Want Apology and More

The German company responsible for manufacturing a drug that directly caused thousands of babies to be born with birth defects apologized Friday, 50 years after thalidomide was pulled off the market. Victims, often born with shortened limbs and missing arms and legs, quickly described the apology as insufficient, saying it was time for the company to begin paying out compensation, reports Reuters.

The drug, a powerful sedative, was given to pregnant women to combat morning sickness but was pulled off the market in 1961 after thousands of babies were born with defects. The drug was never approved in the United States, points out the Associated Press.

Read it all here.

What Dan Cathy Actually Said

Dan Cathy did not speak against same-sex marriage when he responded to a question by a Baptist press outlet whether he believed in the Biblical definition of marriage. Cathy replied that he did. Perhaps the Media have been irresponsible in their handling of this story?

Chick-fil-A’s owners are  Christians and the franchise  remains closed on Sundays.  Dan Cathy said, “I think we are inviting God’s judgment on our nation when we shake our fist at Him and say, ‘We know better than you as to what constitutes a marriage.’

Related reading:  What did Chick-fil-A's CEO Really Say?

Dan Cathy Opposes Same-Sex Unions

Chick-fil-A seems to be making a point of trying to upset gay Americans.

Its president, Dan Cathy, said this week that his company was "guilty as charged" in response to a question about whether it opposed the concept of same-sex marriage—a forthright admission that surprised even those who have pointed out the fast food chain's financial ties to groups fighting equal rights for gays and lesbians.

"We are very much supportive of the family—the biblical definition of the family unit," Cathy told the Baptist Press. "We are a family-owned business, a family-led business, and we are married to our first wives. We give God thanks for that."

In the past, Chick-fil-A has given millions to WinShape, a group that donates regularly to anti-gay organizations like Focus on the Family, a fact that has drawn increasing scrutiny from pro-LGBT rights consumers of late.

Read it all here.

God bless Dan Cathy!  Pray for him. Activists hate and target men such as this. You can be sure they will attempt to sue. One thing about Gay-Lesbian-Transgender and Bisexual activists - they never give up!  They are only satisfied when you concede that homosex is natural and even God-ordained.

Related reading:  Genesis and Homosex: Beyond Sodom

Casket-Making Monks Await Court's Decision

Lousiana is one of only three states that restrict the sale of caskets to licensed funeral directors. The state has a history of protecting the funeral industry from competition at the expense of funeral consumers. See here for posts on LA regulators working to protect the funeral industry from the public.

On June 7, 21012, an attorney for the Benedictine monks of St. Joseph Abbey in St. Tammany Parish argued before the 5th U.S. Circuit Court of Appeals that a 1932 Louisiana law requiring anyone selling a casket to be a licensed funeral director is unconstitutional and has no rationale other than "pure economic protectionism."

The monks, who make about 30 cypress caskets a month at their St. Joseph Abbey Woodworks, received a favorable ruling last year from U.S. District Court Judge Stanwood Duval, who struck down the Louisiana law, saying it created an unfair industry monopoly.

Scott Bullock, an attorney with the Virginia-based Institute for Justice, a nonprofit, public-interest law firm that is representing the monks, said the state law, which requires anyone selling a casket to have a funeral director's license, is "pure economic protectionism" that favors one private class and therefore is unconstitutional.

"It is irrational to require somebody to become a funeral director just to sell a box," Bullock said. "It is irrational to require somebody to give up two years of their life, install an embalming room and turn their abbey into a funeral establishment simply to sell a box. That's our fundamental point."

The 36 monks of the 121-year-old abbey decided a few years ago to sell caskets with simple white cloth interiors for $1,500 to $2,000 to support the abbey, which does not receive funding from the Roman Catholic Church.

About 50 to 60 of the caskets were sold, beginning in 2007, before the funeral board, acting on a complaint filed by a funeral home, subpoenaed the order in March and threatened fines. The monks tried to get an exemption from the regulations in 2008 and 2010, but legislators rejected the requests.

Abbot Justin Brown said making and selling caskets is in keeping with a 1,500-year tradition of self-support. "For centuries, Benedictine monks have been entrepreneurs," he said. The monks of St. Joseph Abbey farmed and harvested wood for years, a business that sustained heavy damage from Hurricane Katrina in August 2005, Brown said. The caskets drew public attention at funerals for monks and two Louisiana bishops, leading to requests to purchase them. In 2007, the monks converted part of the abbey into a woodworking shop. Three monks usually work on the caskets.

"All we want to do is sell these simple wood caskets to our friends and the public," Abbot Brown said.

A decision from the 5th Circuit is expected in three to six months.

"We're hopeful and prayerful," Abbot Justin said. "The emphasis is on prayerful."

Senate Committee Investigating "Epidemic of Deaths" from Narcotic Painkillers

The US Senate's Finance Committee has asked seven organisations, including the well-known Center for Practical Bioethics, in Kansas City, for information about financial ties to the pharmaceutical industry. This inquiry is part of the committee's investigation of links between manufacturers, doctors and organisations which have advocated increased use of narcotic painkillers.


The Committee claims that the US is suffering from "an epidemic of accidental deaths and addiction resulting from the increased sale and use of powerful narcotic painkillers" and that opioid-based prescription painkillers kill more people than heroin and cocaine combined. It is concerned about "extensive ties between companies that manufacture and market opioids and non-profit organisations".


The Centre for Practical Bioethics also received a letter demanding information about financial ties because Purdue Pharma, the manufacturer of OxyContin and other pain drugs, is a substantial donor. Myra Christopher, its founder and former president, is an outspoken advocate of pain relief, especially in palliative care. She has always insisted that funds came with no strings attached. The Center says that it will cooperate fully in the investigation.


Because the American Journal of Bioethics is linked to the Center through Glen McGee, the founding editor of AJOB and a former ethicist at the Center, some bioethicists have alleged that AJOB will be drawn into the investigation. AJOB has vigorously denied this. "No financial relationship exists or ever existed between AJOB and Purdue Pharmaceuticals or any pharmaceutical company. AJOB received no financial support from the Center for Practical Bioethics," it says on its blog.

Related reading:  Government Regulation and Independent Findings; Oxygen-Ozone Healing Study Abandoned; Big Pharma Loves Contraception Push; Drug Patents: What's in the Pipeline?; Glacko Smith Kline Good Business

Aussie Scams Nigerian Scammers

A Brisbane woman fleeced Nigerian scam artists by stealing more than $30,000 from their internet car sales racket, a court has been told.

Sarah Jane Cochrane-Ramsey, 23, was employed by the Nigerians as an "agent" in March 2010 but was unaware they were scam artists, the Brisbane District Court heard today.

Her job was to provide an Australian bank account through which they could funnel any payments they received through their dodgy account on a popular car sales website.

Cochrane-Ramsey was to keep eight per cent of all money paid into her account and forward the rest to the Nigerian scammers.

However, the court heard she kept the two payments she received - totalling $33,350 - and spent most of it on herself.

The car buyers who were ripped off reported the matter to police, who traced the account to Cochrane-Ramsey.

Police inquiries found her employers were based in Nigeria but had been using a web server in New York to run their dodgy car sales listings.

Read it all here.

FBI File on Steve Jobs

The Mercury News website reports that the Federal Bureau of Investigation (FBI) released a file today (February 9, 2012) that it kept on Apple cofounder Steve Jobs, in which interview subjects -- who were contacted for a background check on Jobs -- discussed his drug use and tendency to "twist the truth and distort reality in order to achieve his goals."

Several of the interview subjects told the FBI agents that Jobs' ethics could bend depending on the situation. One subject described Jobs as "a deceptive individual who is not completely forthright and honest; two former Apple employees said, "Jobs has integrity as long as he gets his way."

In an FBI interview with Jobs, he told agents that he "experimented with marijuana, hashish, and LSD" from 1970 to 1974.

The FBI released its documents on Jobs today because the Freedom of Information Act -- which allows the FBI to make its files public after a person's death -- was used by a reporter to gain access to Jobs' files.

Jobs died October 5, 2011 at the age of 56 as a result of a long battle with cancer.


From Theology and Society

Socially Responsible Investors Balance Values and Returns

American Socially Responsible Investors Don't Want to Sacrifice Returns, Wharton Study. -  "Investors interested in socially responsible investing do not necessarily expect to sacrifice a portion of their gains. Thus, to encourage socially responsible investing, its returns should be comparable to returns for conventional investing."

Fortunately, the conclusion generally drawn from the dozens of studies indicate that over the long term, socially responsible-ethical investors don't have to sacrifice returns. However, this study does contradict many surveys that show SR-ethical investors would tolerate lower returns if they are invested in industries and companies that relate to their values.

It could be that many newly converted SR-ethical investors, investing in green-sustainable companies, don't really share the same values of the more traditional SR-ethical investors.

Socially Responsible Investing, by Olivia S. Jung, January 12, 2012, Wharton, University of Pennsylvania, USA.

Reported by Ron Robins at Investing for the Soul

USA Behind in ESG Investments

The US is falling behind other countries and regions in integrating environmental, social and governance (ESG) factors into mainstream investment decisions, largely due to perceived legal or fiduciary risks, experts said.

“There’s no question in my mind that Northern Europe has got sustainable investing in its sights,” Roger Urwin, global head of investment content for consultancy firm Towers Watson, told attendees of the ESG USA 2011 conference in New York on December 13.

Australia and the UK look to be next to jump on the ESG bandwagon, but there are “big and very ugly roadblocks in the US” to sustainable investing, he said.

The issue of fiduciary duty is a major barrier to the incorporation of ESG factors in investment decision-making in the US, said Jay Youngdahl, trustee for a $650 million benefit fund and a partner at law firm Youngdahl & Citti in Houston, Texas. A fiduciary duty is an obligation to act in the best interest of another party, in this context, the investors in a fund.

“It is holding it back,” he said. “It is a refuge for people who do not want to see ESG put into investments. It does not need to be. This roadblock is an incorrect roadblock legally.”

Any time trustees want to do anything in the ESG space, lawyers tell them this would be a violation of their fiduciary duties, Youngdahl said. “That’s wrong generally speaking,” he said. “On fiduciary duty, there is an extraordinarily high level of intellectually sloppiness that is a major problem for lawyers who work in this area.”

But the Occupy movement in the US has provided a spur to rethink many things, including fiduciary duty as it relates to ESG investing, Youngdahl said. “But it takes courage,” he said. “The American legal establishment at this point does not have that courage.”

In August, investment manager Pimco signed up to the UN-backed Principles for Responsible Investment (UN PRI) and adopted ESG integration into its overall investment process. But more market-leading investment firms need to follow in Pimco’s footsteps and commit to the UN PRI to create momentum in the US and foster widespread adoption, said Michael Burns, Pimco’s executive vice-president.

The firm had extremely strong management support for this initiative, and pressure from and endorsement by clients around the world “definitely accelerated the process”, he said.

“We’ve had a number of Northern European investors help us to understand at an early stage the value of ESG factors in investment decision-making,” Burns said.

During a review, Pimco discovered it was already taking a number of steps that were ESG-related, such as imposing a rigorous standard in evaluating the governance structures of companies. “We were just terrible at communicating it to the broader investment community,” he said.

But there are potential impediments for investment managers considering adopting ESG integration, including the fiduciary duty issue and the need for firms to become comfortable with the legal representations they will make about incorporating ESG, Burns said. For example, when signing on to the UN PRI, a company is making a representation about what it will do and companies need to understand the ramifications and be sure they won't expose themselves to liability.

“I think the legal uncertainty is something that makes some firms step away,” he said.

Another key issue is managers’ lack of information about investors’ true interest in ESG integration, with some investors opposing such initiatives.

“Being able to speak to that audience is equally important as being able to speak to the audience that’s very supportive and I don’t think many investment managers are willing to have those tough conversations,” he said.

Incorporating ESG also requires significant time, resources and training. “It is a costly investment, but it’s one we think will pay off over time,” Burns said.

Source:  Environmental Finance


H/T to Ron Robins MBA at Investing for the Soul. Ron has this to say: "In the US, the degree of scepticism about human induced climate change is much greater than it is in Europe. Just look at what the Republican presidential hopefuls say on this issue! Thus, such attitudes influence American's beliefs of the relevance of ESG issues.

Meanwhile, we all know that companies who lead in responding most effectively to ESG issues are generally 'best of sector,' both financially and in comparative stock performance."

Vatican Calls for Financial Reforms

by George Patsourakos

The Vatican called today (October 24, 2011) for radical reform of the world's financial systems -- including the creation of a global political authority to manage the economy -- according to the Huffington Post website.

A proposal by the Pontifical Council for Justice and Peace calls for a new world economic order based on ethics and the "achievement of a universal common good."

The proposal suggests the reform process -- which will take some time to complete -- begin with the United Nations as a point of reference.

"It is an exercise of responsibility not only toward the current but above all toward future generations, so that hope for a better future and confidence in human dignity and capacity for good may never be extinguished," the document said.

From here.

Who Controls Banking and Oil and...?

The Four Horsemen of Banking (Bank of America, JP Morgan Chase, Citigroup and Wells Fargo) own the Four Horsemen of Oil (Exxon Mobil, Royal Dutch/Shell, BP Amoco and Chevron Texaco); in tandem with Deutsche Bank, BNP, Barclays and other European old money behemoths. But their monopoly over the global economy does not end at the edge of the oil patch.

According to company 10K filings to the SEC, the Four Horsemen of Banking are among the top ten stock holders of virtually every Fortune 500 corporation. [1]

So who then are the stockholders in these money center banks?

This information is guarded much more closely. My queries to bank regulatory agencies regarding stock ownership in the top 25 US bank holding companies were given Freedom of Information Act status, before being denied on “national security” grounds. This is rather ironic, since many of the bank’s stockholders reside in Europe.

Read it all here.

 

 

US Near End of Game on Debt

Ron Robins, Founder & Analyst - Investing for the Soul


It is a simple statistic that continues to warn of huge economic problems ahead for the US. Some economists call it the ‘marginal productivity of debt (MPD).’ It relates the change in the level of all debt (consumer, corporate, government etc.) in a country to the change in its gross domestic product (GDP). However, due to the message it is delivering, most US economists employed in financial institutions, governments and private industry, as well as financiers and politicians, want to ignore it.

And for the US economy and government finances, the MPD (and related variants of it) is continuing to indicate extremely difficult economic times ahead.

I have vague recollections of the MPD concept from my economics classes long ago. But I was re-introduced to it around 2001 by a renowned economist who, during the following few years prior to his passing, became alarmed as to the MPD path of the US. His name was Dr. Kurt Richebächer, formerly chief economist and managing director of Germany’s Dresdner Bank. Dr. Richebächer, was so respected that former US Federal Reserve Chairman, Paul Volcker once said of him that, “sometimes I think that the job of central bankers is to prove Kurt Richebächer wrong," reported the online financial journal, The Daily Reckoning on May 15, 2004.

Investigating Dr. Richebächer’s concern further, I wrote an article on my Enlightened Economics blog on January 23, 2008, titled, Is the Amazing US Debt Productivity Decline Coming to a Bad End? I found that, “for decades, each dollar of new debt has created increasingly less and less national income and economic activity. With this ‘debt productivity decline,’ new evidence suggests we could be near the end-game... ”

Another way of viewing the debt productivity problem is to look at it in terms of how many dollars of debt it took to help create total national income, which is the wages, salaries, profits, rents and interest income of everyone. Again, from my above mentioned article, which quotes Michael Hodges in his Total America Debt Report, that, “in 1957 there was $1.86 in debt for each dollar of net national income, but [by] 2006 there was $4.60 of debt for each dollar of national income - up 147 per cent. It also means this extra $2.74 of debt per dollar of national income produced zilch extra national income. In 2006 alone it took $6.32 of new debt to produce one dollar of national income.”

Such data helps explain why US exponential debt growth—after reaching certain limits—collapsed in 2008 and contributed massively to the global financial crash.

However, whereas the US private sector debt has marginally ‘de-leveraged’ (retrenched) since that crash (which might now be reversing), the US government, as everyone knows, has run up mammoth deficits to purportedly keep the country’s economy from imploding. Thus, the US’s MPD is marching to another, perhaps even more frightening tune, suggesting government financial insolvency and/or debt default.

One fascinating way of looking at the declining MPD of US government debt has just been presented by Rob Arnott on May 9, 2011, in his post, Does Unreal GDP Drive Our Policy Choices? What Mr. Arnott does is to subtract out the change in debt growth from GDP, and refers to this statistic as ‘Structural GDP.’ He finds that, “the real per capita Structural GDP, after subtracting the growth in public debt, remains 10 per cent below the 2007 peak, and is down 5 per cent in the past decade. Net of deficit spending, our prosperity is nearly unchanged from 1998, 13 years ago.”

In its effort to counter the significant economic difficulties since 2008, the US government has added, or will have added, around $4 trillion in deficits (financed by new debt) in its three fiscal years 2009, 2010 and 2011. Yet, all this massive government deficit spending has failed to really ignite economic growth. Most likely this is because of the enormous dead weight of unproductive and onerous private sector debt, particularly that of consumer debt. Hence, real US GDP will have increased probably less than $1.5trn during these years. Including some further economic benefit in the years thereafter, a total GDP benefit of only about $2trn is probable.

So, $4trn borrowed for $2trn in GDP gains. Thus, in very rough round numbers, each new one dollar of US government debt might only produce $0.50 in new economic activity and probably only about $0.08 in new federal tax revenue. (Federal tax revenue as a percentage of GDP is around 15 per cent.) Therefore, the economic marginal return for each new dollar of US government debt is possibly around -50 per cent! If you loaned someone $10 million and they gave you back $5m, you would not be happy!

Hence, it might not be long before those holding or buying US government bonds perceive the reality that the US government, and US economy, are losing massively on government borrowings. This will result in much, much higher US government bond yields and interest costs. Most importantly, it may make the rollover of US debt and new debt issuance incredibly difficult unless either US taxes rise stratospherically to cover the deficits, and/or the US Federal Reserve money printing goes into hyper-drive to purchase the debt the markets will not buy. (Of course US banks, pension funds etc., could also be forced to buy them.)

Thus, the idea that US government debt continues to be ‘risk-free’ is absurd.

For this, and for many other reasons cited above, is why the US financial and political elites want to keep hush-hush about what the MPD and its variants reveal!


Copyright alrroya

ESG Reduces Investment Risk and Yields Profits

By Ron Robins, Founder & Analyst - Investing for the Soul


When I started my career as an investment analyst in 1970, the idea that a company’s environmental and social activities would be important in helping predict its future financial and stock performance was seen as largely irrelevant. Well, not anymore!

Inclusive of governance issues and abbreviated as ESG (environmental, social and governance), factors pertaining to ESG are now included in mainstream corporate stock and bond analysis in numerous investment firms, funds and managers globally. Why? Because it provides analysts better insight into companies and a possibility of producing higher investment returns with less risk.

ESG has its beginnings in ethical and socially responsible investing (SRI), which have their roots in some religious traditions. Now, with mounting environmental and climate change concerns, ‘green’ or sustainable investing has emerged. It was with these asset classes that ESG issues first began to play a pivotal role. However, ESG issues are now becoming a significant factor in all asset classes.

Evidencing the enormous shift towards inclusion of ESG issues in investment analysis among global financial institutions, were the findings reported in a September 14, 2010, press release of the United Nations (UN) Principles for Responsible Investment (PRI). The PRI is a “ …framework to help investors achieve better long-term investment returns and sustainable markets through better analysis of environmental, social and governance issues in investment process and the exercise of responsible ownership practices.” Companies sign on as signatories to the PRI framework.

In the PRI press release, Executive Director James Gifford said, “every large, world-class listed company is now monitoring and reporting on its ESG performance, and so too are an increasing number of investors.” The PRI reported that, “total [PRI] signatory numbers… has jumped in the last year by more than 30 per cent… The value of the assets under management of PRI signatories now stands at $22 trillion, over 10 per cent of the estimated total value of global capital markets…”

Continuing, “signatories are now drawn from 45 countries… Over 95 per cent of asset owners and 87 per cent of investment managers have an overall investment policy that addresses ESG issues... The percentage of asset owners involved in dialogue with regulators on ESG issues rose to 85 per cent.”

And governments and regulators everywhere are listening. Countries that are taking big steps in promoting ESG issues in corporate reports include the USA, the UK, France and Sweden. Also, the European Union might soon have a policy for all member countries on ESG corporate reporting as well.

Even stock exchanges are becoming proactive on ESG issues concerning their listed companies. For instance, in South Africa, the Johannesburg Stock Exchange became the first exchange to require all listed companies to produce fully integrated financial and ESG reports. In Malaysia, its major stock exchange, the Bursa Malaysia, actively pursues ESG reporting among its listed companies.

As a result of such interest, especially by global investment institutions and individual investors, ESG stock and bond indexes are becoming commonplace everywhere. All the major stock/bond index producers—Dow Jones, FTSE, MSCI, S&P etc.—have global, continental, country and often even industry specific ESG stock indexes.

Encouraging the ESG cause are studies demonstrating improved financial, portfolio and stock performance where ESG factors are analytically applied. One study, published in March 2009 is by risklab, a division of Allianz Global Investors. It is “… a landmark study [that] strengthens the position of ESG advocates. The results reveal that a focus on ESG (environmental, social and corporate governance) factors can significantly reduce portfolio risk or enhance returns. The study… is the first systematic quantitative analysis explicitly examining ESG risk in a portfolio context… [it] concludes that investors ‘not only have a right to feel good about promoting ESG, but that clear financial benefits can be expected.”

Another study finds that, “… [ESG] improves portfolio diversification through a reduction of the average stock’s specific risk …ESG criteria probably leads best-in-class ESG screened funds to be better diversified than otherwise identical conventional funds… pension funds should at least contemplate about the use of ESG criteria, as an ignorance of ESG criteria could violate their fiduciary risk management duties.” (From, Portfolio Diversification and Environmental, Social or Governance Criteria: Must Responsible Investments Really Be Poorly Diversified? By Andreas G. F. Hoepner of the University of St. Andrews, School of Management, Principles for Responsible Investment, UN.)

And a third study also by risklab, reported in Global Pensions on April 18 found that ESG can reduce the risk of negative or ‘tail’ risk impacts on portfolios in emerging as well as developed markets. “ … The tail risk of an ESG risk neutral emerging market equity strategy defined by the MSCI Emerging Markets Index can be reduced from -64.5 per cent p.a. to -38.8 per cent. The same is true for corporate bonds defined by the Merrill Lynch Global Broad Market Corporate Index, it added, where the tail risk—measured as conditional value at risk (95 per cent) of the default strategy—can be reduced from -8.1 per cent p.a. to -4.9 per cent... [and for developed market equity, the] tail risk optimisation potential of the ESG neutral default strategy defined by the MSCI World Equity Index [went down] from -38.1 per cent p.a. to -25.7 per cent.”

With increasing social, environmental and climate change risks, it makes dollars and cents to now include ESG issues in investment decisions. And that is why asset managers and investors everywhere are adopting ESG criteria in the selection of individual stocks and bonds as well as aiding in their structuring of entire portfolios.


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E-mail the writer: r.robins@alrroya.com or comment here.

Profitablilty of Corporate Social Responsibility

Ron Robins, Founder and Analyst - Investing for the Soul

It is generally held that corporate social responsibility (CSR) could increase company profits and thus most large companies are actively engaged in it. But few executives and managers are aware of the research on this important subject. And as I review here, the research does show that it may improve profits. However, linking profit growth to abstract variables that are frequently difficult to define is a challenging task.

Most executives believe that CSR can improve profits. They understand that CSR can promote respect for their company in the marketplace which can result in higher sales, enhance employee loyalty and attract better personnel to the firm. Also, CSR activities focusing on sustainability issues may lower costs and improve efficiencies as well. An added advantage for public companies is that aggressive CSR activities may help them gain a possible listing in the FTSE4Good or Dow Jones Sustainability Indexes, or other similar indices. This may enhance the company’s stock price, making executives’ stock and stock options more profitable and shareholders happier.

Substantiating some of these beliefs is a study, Corporate citizenship: Profiting from a sustainable business, by the Economist Intelligence Unit (EIU) published in November 2008. Corporate citizenship is another term roughly equivalent to CSR.

The EIU study said that, “corporate citizenship [CC] is becoming increasingly important for the long-term health of companies even though most struggle to show a return on their investment from socially responsible activities… 74 per cent of respondents to the survey say corporate citizenship can help increase profits at their company… Survey respondents who say effective corporate citizenship can help to improve the bottom line are also more likely to say their strategy is ‘very important’ to their business (33 per cent) compared with other survey respondents (8 per cent).”

At the heart of the debate as to whether CSR improves profits is first how you define it. Besides the terms CSR and CC, another frequently used and related term is corporate social performance (CSP). In the above quoted EIU study, it provides the following definition of CC: “corporate citizenship is defined as transcending philanthropy and compliance, and is addressing how companies manage their social and environmental impacts as well as their economic contribution. Corporate citizens are accountable not just to shareholders, but also to stakeholders such as employees, consumers, suppliers, local communities and society at large.”

The study of CSR and its relation to corporate profits is growing. The most recent study on this subject is by Cristiana Manescu. In her thesis, "Economic Implications of Corporate Social Responsibility and Responsible Investments,” at the University of Gothenburg's School of Business, Economics and Law, Sweden, she wrote on December 6, 2010 that, “the results [of her thesis] reveal that CSR activities do not generally have a negative effect on profitability, but that in the few cases where they have a positive effect, this effect is rather small.” Other studies add further perspectives.

Defining the experience of CSR in relation to different industries is this study, The Economics and Politics of Corporate Social Performance, by David P. Baron, Maretno A. Harjoto, and Hoje Jo, published on April 21, 2009. The researchers found that, “For consumer industries, greater CSP [corporate social performance] is associated with better CFP [corporate financial performance], and the opposite is true for industrial industries… Empirical studies have examined the relation between CSR and corporate financial performance, and while the results are mixed, overall the research has found a positive but weak correlation.”

However, reviewing individual empirical studies can be confusing. But by using the technique of ‘meta-analysis,’ many studies can be statistically analysed to determine collective results. A meta-analysis on CSR and its link to profits won the famed socially responsible investing, Moskowitz Prize in 2004. The study, Corporate Social and Financial Performance: A Meta-Analysis, was compiled by researchers Marc Orlitzky, Frank L. Schmidt and Sara L. Rynes. It yielded encouraging data suggesting a positive link between CSR and increased profits.

Summing up their results, the researchers said, “we conduct[ed] a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta-analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility, is likely to pay off… CSP [corporate social performance] appears to be more highly correlated with accounting-based measures of CFP [corporate financial performance] than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.”

So the research generally indicates that CSR/CC/CSP, no matter how you define it, does offer potential benefit to corporate profits. But there is another unanswered problem, and that relates to causation.

Do high profits enable greater spending on CSR, or is it that CSR itself creates higher profits? Referring again to the study, The Economics and Politics of Corporate Social Performance, the researchers write that, “…the direction of causation remains an open question. That is, good CSP could cause good CFP, but good CFP could provide slack resources to spend on CSP. As the Economist wrote, ‘...whether profitable companies feel rich enough to splash out on CSR, or CSR [activity itself] brings profits.’” Hopefully, future research will be able to answer this question.

On balance, surveys and the research literature suggest that what most executives believe intuitively, that CSR can improve profits, is possible. And almost no large public company today would want to be seen unengaged in CSR. That is clear admission of how important CSR might be to their bottom line, no matter how difficult it may be to define CSR and link it to profits.


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E-mail the writer: r.robins@alrroya.com

Sharia-compliant Indices

The Stoxx Europe Islamic index and two blue-chip sub-indices, Stoxx Europe Islamic 50 and Euro Stoxx Islamic 50, will measure the performance of sharia-compliant companies selected from the Stoxx Europe 600 index.


Hartmut Graf, chief executive for Stoxx, said the indices were designed to act both as a benchmark for actively managed funds, and to underlie exchange-traded funds and other investable products that enable investors to participate in the performance of European companies that are adhere to the principles of Islam.

Sharia finance is based around sharing profit and loss and forbids the use of interest of profit derived from industries such as alcohol or gambling.

Read more here.

Gold and Silver Popular Monetary Vehicles

Ron Robins, Founder & Analyst - Investing for the Soul

Gold, “the ancient metal of kings,” is reasserting itself as the currency of choice as it has done again and again since the earliest of human times. In our modern era, as central banks and governments fight to devalue their currencies to gain purported trade advantages, gold rises in value against them all. And central banks are buying gold again amidst serious doubts as to the size of some of their real physical gold holdings. Silver too is experiencing a similar re-emergence. The reasons for gold and, to a lesser extent, silver acting as currencies, are easy to understand.

Gold’s history as a currency extends back thousands of years. The western world’s first known standardised minting of gold currency took place in 564 BCE by King Croesus of western Asia Minor. However, it is also believed that China in the fifth and sixth century BCE, minted the Ying yuan gold coin as well. In the great Gupta Empire of India, from 320 to 550 CE, gold coins were used throughout its domain. And in the early Islamic world around the time of the Prophet Muhammad, the gold dinar coin led as its currency. In Europe, gold coins became an important or central monetary unit for the Greeks, Romans, Venetians, Dutch, Spanish and British.

During approximately 1870 to 1910 all major countries linked their currencies to gold, thereby adopting the gold standard. However, China was the exception preferring a silver-based standard. The first silver coins are reported as being minted by King Pheidon of Argos around 700 BCE.

Gold and silver have historically asserted themselves as monetary mediums due to their intrinsic value. They are consistent, divisible, durable and convenient, and they are nobody’s liability.

Unlike paper money, gold, particularly, has proven itself in maintaining its value over many centuries. The World Gold Council (WGC) says that, “since the 14th Century, gold’s purchasing power has maintained a broadly constant level… an ounce of gold has repeatedly bought a mid-range outfit of clothing… in the fourteenth century… in the late 18th century and… at the beginning of this century (2000 to 2008)… On the other hand, the US dollar that bought 14.5 loaves of bread in 1900 buys only 3/4 of a loaf today. While inflation and other forces have ravaged the value of the world’s currencies, gold has emerged with its capacity for wealth preservation firmly intact… [whether] in the face of financial turmoil… [as] a crisis hedge… [or] as an inflation hedge.”

Since their origins, central banks have realised the importance of gold, and sometimes silver, as a strategic part of their reserves. Commenting on the rapidly rising price of gold, Alan Greenspan, former chairman of the US Federal Reserve, said in a Bloomberg report on September 9, 2009, that, “[the rising gold price is] an indication of a very early stage of an endeavor to move away from paper currencies… What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.”

And this is also because, “[the central banks] no longer trust each other… [and] there's this perception that different countries are trying to weaken their currency in order to get a competitive advantage," said Francisco Blanch, head of global commodity research at Bank of America Merrill Lynch at a New York City November 2010 conference, reports Fastmarkets. Among the countries whose central banks are increasing their gold reserves are China, India, and Russia—all countries with mammoth trade surpluses and foreign exchange reserves.

However, as throughout history, he who owns gold and how much he owns is often shrouded in secrecy. For a central bank, covertly selling and buying of gold and its currency can be used to secretly manipulate the value of its currency. Some indirect proof of this comes again from Mr Greenspan during testimony to a US Congressional committee in 1998. He remarked that, “central banks stand ready to lease gold in increasing quantities should the price rise.” Therefore, declaring the precise gold holdings of a central bank might be akin to giving away ‘trade secrets.’

Central banks worldwide supposedly hold around 30,000 tonnes of gold, perhaps 20 to 25 per cent of all the gold ever mined. But true independent verification of their holdings is not available. The US based Gold Anti Trust Committee (Gata) has compiled extensive and critical information concerning western central bank gold holdings. Their information and that from other sources suggests the actual physical gold holdings of some western central banks could be 30 to 50 per cent lower than publicly reported.

As an example, the US boasts official gold holdings of 8,133.5 tonnes. However, it is known that some, perhaps a significant portion of these holdings, have been leased out to various financial entities and might not be returned without huge financial losses. Ron Paul, the chairman of the influential US Congress’s Domestic Monetary Policy Subcommittee of the House Financial Services Committee, is so concerned about such activities that he is calling for a full public audit of US gold holdings.

Additionally, gold is possibly set to play a reinvigorated role in the international monetary system. The International Monetary Fund (IMF) as well as most members of the G20 are seeking alternatives to the US dollar as the world’s principal reserve asset. And in this regard, gold—perhaps silver too—could be included in a basket of currencies and commodities that create the basis for a new international unit of exchange (currency).

Moreover, an RBC survey of global financial executives and business leaders reported on Yahoo! Finance on February 3 that “just 52 per cent of respondents expect the dollar to be the world's currency in five years,” and that “gold is coming back as a reserve currency ‘of sorts,’” says Marc Harris, head of global research at RBC Capital Markets.

Probably since the beginning of civilisation, gold especially, but silver as well, have served as monetary vehicles. Gold has demonstrated itself to hold its value over centuries and in many diverse cultures. And despite today’s sophistication with paper money, gold is still seen by central banks as the ultimate source of payment. Concerns are growing that the real physical gold holdings of some major central banks might be substantially lower than they have reported, and as they unabashedly devalue their paper money, gold and silver rise once again as history’s chosen currencies.


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Using Mercenaries to Stop Piracy

Ansel J. Halliburton (UC Davis School of Law) has posted Pirates Versus Mercenaries: Purely Private Transnational Violence at the Margins of International Law on Social Science Research Network. Here is the abstract:

Because of the recent surge in piracy emanating from the failed state of Somalia, the world’s navies have focused unprecedented resources and attention on the Gulf of Aden and Indian Ocean. Despite a few successes, this military might has largely failed to reverse the tide of piracy. Shipping companies have begun to hire armed private guards to protect their vessels and crew where the public navies cannot. But should private force take a larger role? Should shipping companies hire mercenaries to go on the offensive against pirates? Does, or should, international law allow them to do so? This paper surveys public international law, emerging transnational criminal law, human rights and humanitarian law, and the histories of piracy and transnational private violence in search of answers.
 
 
Hiring mercenaries to go after pirates... humm. Since corporations already do this, we are faced with a question of business ethics. As far as I know there is no international law forbidding it.