Posts Tagged ‘Obama’

Investor relations for the USA?

August 8, 2011

The President has pulled into the lead, ahead of a three-way tie among the Treasury secretary, “Other” (write-ins Ben BernankePaul Volcker, Bill Clinton and “Someone who’s fluent in Chinese“) and “Oh, never mind!” What do you think?

Not a political comment … just a little comic relief amid wild days in the markets.

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Tax goodies for investors

December 17, 2010

I’ve been holding my breath until Congress came to grips with not raising taxes – and I can exhale, now that “the Bush tax cuts” have been signed (once again) by a president. George W. Bush and Barack H. Obama – who’d have thought it?

Three cheers for compromise, bipartisanship and not shooting our economy in the foot as of Jan. 1. So here are the tax goodies that apply to investors:

  • The top tax rate on dividends remains at 15% through 2012, a boon to shareholders of companies with healthy yields. Investor relations people for utilities and other firms with attractive dividends should breathe a sigh of relief.
  • The top tax rate on long-term capital gains also remains at 15% for two years. So equity investors are encouraged to keep taking risks in pursuit of gains. And this helps public company shareholders and small business owners with gains in M&A transactions.
  • Some industries may profit from specific cuts – e.g., extensions of the R&D tax credits and incentives for businesses to buy capital goods.
  • Of course, the tax bill is also a stimulus bill. Retail spending and GDP should get a shot in the arm from keeping the Bush-era tax rates for all, AMT patch, extension of unemployment benefits and 2% cut in payroll taxes for 2011.

You can debate whether all this is good policy, either in the way it structures our income taxes or the way it affects near-term deficits. There is controversy. But I’m glad to see it resolved – in favor of keeping money in the hands of the people.

Of the tax-bill coverage I’ve seen, Forbes’ “Tax Dude” blogger Dean Zerbe has the best headline …

The Tax Bill: Santa Comes Early

… and by far the best illustration, showing “Obamaclaus.”

Merry Christmas to all, and to all a good night.

© 2010 Johnson Strategic Communications Inc.

Gridlock? Not the end of the world

November 2, 2010

Of the talking heads on the airwaves and op-ed pages, George Will is one of my favorites – for his insights and the way he offers opinions calmly, without shouting. I appreciate two things Will said on Sunday about the US midterm elections.

Regarding GOP gains in Congress possibly causing gridlock in Washington, which many pundits greatly fear, the conservative Will said on ABC’s “This Week”:

Gridlock is not an American problem – it’s an American achievement. The framers of our Constitution didn’t want an efficient government, they wanted a safe government. To which end, they filled it with slowing and blocking mechanisms: three branches of government, two houses of the legislative branch, a veto, veto override, supermajorities, judicial review. … When we have gridlock, the system is working. [Video here, Will about 5:30]

Asked about calls for more civility in politics, Will likewise gave a contrarian view:

Nothing wrong with that, until you begin to equate civility with the absence of partisanship, as though there’s something wrong with partisanship. We have two parties for a reason. We have different political sensibilities. People tend to cluster – we call them parties. And we have arguments – and that’s called politics. [Video here, Will at about 3:00]

For business issues like taxes and regulation, the new climate in Washington could be contentious. Partisan. Even polarized. The next two years could seem awful to those who wanted the Obama administration’s agenda to fly through. Some analysts like those in this AP story also worry about gridlock hurting the economy.

I think I’m with Will on this one. After all, businesses do not usually get more robust when the government is in activist mode. A unified Capitol Hill can mean businesses have to send more money to Washington, or must try to figure out more 2,000-page laws. So gridlock may be OK, if we can tune out the shouting.

That’s my two cents’ worth. What’s your opinion?

© 2010 Johnson Strategic Communications Inc.

New IR tactic? Michelle Obama …

October 22, 2010

Well, there it is, in the pages of the Harvard Business Review for November 2010: Finance prof David Yermack of NYU reports in “Vision Statement: How This First Lady Moves Markets” that Michelle Obama’s choice of outfits generates “abnormal returns” for stocks of publicly traded companies behind the fashion brands.

Who’d have thought the First Lady might become a tool for investor relations?

Yermack reports on 189 public appearances by Obama – FLOTUS, not POTUS – in which she wore 245 items of apparel with recognizable brands of 29 public companies. For those 29 companies, her wardrobe choices generated a total value of $2.7 billion, Yermack says. You read it right: $2.7 billion, with a B.

When the First Lady jetted off on a one-week tour of Europe in March-April 2009, for example, her fashion choices were much in the media – and Yermack calculates the stocks of fashion and retail companies whose clothes she wore rose an average of 16.3%, beating the S&P 500 gain of 6.1%. For 18 major appearances, the cumulative abnormal return averaged 2.3%, he says.

A hedge fund could build a trading strategy on this First Lady Fashion Anomaly. The NYU Finance prof observes:

The stock price gains persist days after the outfit is worn and in some cases even trend slightly higher three weeks later. Some companies that sell clothes that Obama frequently wears, such as Saks, have realized long-term gains. Her husband’s approval rating appears to have no effect on the returns.

This is about impact on revenue (and perhaps investors’ perceptions), not some kind of fashion voodoo like the stock market hemline indicator. And her impact exceeds that of other celebrities or models, Yermack says. He explains it this way:

The unparalleled robustness of the Michelle Obama effect results from the confluence of three factors: her personal interest in fashion, recognized by consumers as authentic; her position as First Lady and the intangible value it confers; and the power of the social internet and e-commerce. Descriptions and images of what she’s wearing spread across the social internet in near-real time, and consumers can buy these fashions almost instantly online.

So figure out how to get your product on the First Lady, preferably for a high-profile event like a state dinner or tour of world capitals. IR needs to be creative!

© 2010 Johnson Strategic Communications Inc.

Mr. Market, meet Mr. Regulator

July 21, 2010

Today President Obama signed into law the far-reaching expansion of federal regulation of US banking and capital markets. The overhaul has been brewing in Washington since the financial crisis in 2008 – and the 848-page heft of the Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF here) may have something to do with the two years spent crafting it. The law orders new rules governing banks and investments, creates new agencies, and grants regulatory powers here, there and everywhere.

Supporters say it will protect investors and consumers, prevent abusive and risky behaviors by the bad boys on Wall Street, and avert future financial meltdowns.

President Obama cited eternal benefits for the Act he signed: “The American people will never again be asked to foot the bill for Wall Street’s mistakes [emphasis added].” Never again, of course, is Washington-speak that promises the latest patch in the roof will keep out the rain at least until after the next election. OK, that’s cynical. But financial crises have recurred every few years – over centuries and centuries – despite many previous regulatory fixes. Never again? Well …

For investor relations professionals trying to figure out what this wave of regulation means to us and the financial markets where we work, a few resources:

The New York Times story “Financial Overhaul Signals Shift on Deregulation” (July 15) offers an understandable overview and historical perspective on passage of the overhaul. The Times calls the new law “a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.”

A Wall Street Journal piece “Congress Overhauls Your Portfolio” (July 17) takes a “micro” view, looking into how regulatory expansion may affect individual or institutional investors – and companies.

“Several provisions promise to give investors a louder voice in policy-making circles and corporate boardrooms,” the WSJ says. Among the coming attractions: a new Office of the Investor Advocate at SEC to assist retail investors; an Investor Advisory Committee, also at SEC, watching out for investors’ interests; a mandate for the SEC to allow major shareholders access to corporate proxies to nominate directors; and nonbinding “say on pay” votes for shareholders.

Lawyers are weighing in with interpretations, too. On the Harvard Law blog on corporate governance and financial regulation, a partner in the firm of Davis Polk Wardwell LLP says this isn’t just about banks or Wall Street giants:

This legislation will affect every financial institution that operates in this country, many that operate from outside this country and will also have a significant effect on commercial companies. As a result, both financial institutions and commercial companies must now begin to deal with the historic shift in U.S. banking, securities, derivatives, executive compensation, consumer protection and corporate governance that will grow out of the general framework established by the bill. …

By our count, the bill requires 243 rulemakings and 67 studies. … U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty.

Davis Polk has made its memorandum available online as a PDF. This 123-page “brief,” as the lawyers like to say, offers a rundown of all of the Dodd-Frank Act’s provisions and their implications for market participants. By scanning the Table of Contents, which hyperlinks into the narrative, you can see where you fit in.

What you can’t see is where all the rulemaking and wrangling will lead. In a few years, all of us probably will be running into financing deals that can’t be done, or reports that must be filed, or language that must be used – thanks to the 2010 Act.

Who knows what unintended consequences – such as increased costs of capital or even the genesis of our next “bubble and bust” cycle – may lurk amid the unknowns of the new law? I’m sure there is good in the Act, but also plenty of uncertainty.

Feel free to share your comments – pro, con or otherwise – by clicking below. And good luck with financial reform as it applies to your business.

© 2010 Johnson Strategic Communications Inc.

The American way

July 2, 2010

Going into Fourth of July weekend, a friend who has helped raise capital for privately owned businesses – and a couple of public companies – offered his theory about why capital isn’t flowing into enterprises that could reignite our economy.

There’s “plenty of money” sitting in private equity funds and other investors’ stashes, this serial CXO and strategic thinker suggests. But people with the wherewithal to fund growth companies, mostly, aren’t taking the plunge right now.

The reason is the way investors feel about Washington, he opines. Not the place, but the US government’s massive extension of its legislative and regulatory reach. Government is seeking to govern so much more: new rules to prevent the next bubble or flash crash or oil spill, new agencies, health care mandates, too-big-to-fail bailouts, tougher penalties, stronger stimulus … public-sector stimulus.

And higher taxes to pay for it all. Bush-era tax rates will yield to higher rates. Revenue enhancement is in vogue. We’re even looking at the value-added tax.

But the worst part? “It’s the uncertainty” – not knowing what the rules of the game will be in one, two or three years. Washington is pressing its ongoing expansion of control in all areas of business – at a time when the economy is fragile.

So investing in a long-term way today means taking on risks of yet-unwritten mandates and so-far-incalculable costs from tomorrow’s “hope and change.”

Before long, this discussion begins to sound uniquely American: complaints from independent-minded business people against an overly ambitious government.

Which brings me around to one of my annual rituals: re-reading the Declaration of Independence around the Fourth of July. The words soar to rhetorical heights:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

It’s a reminder of why we’re here – in America. And, apropos of my lunchtime conversation about the uncertainties of government on steroids, this time my eye catches on another line, one of the founders’ grievances against King George III:

He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.

No doubt some CEOs, CFOs and even investors feel a bit like that. We’re wondering how much this reform or that Act will eat out “our substance,” how ramped-up regulation will hinder access to credit and raise costs of capital, or what new taxes will come unbidden out of the Beltway.

Not suggesting a revolution – only that we need to give thought to capital formation, to investing and a climate that enhances confidence in the American system. We need investors to resume funding the small and mid-sized firms that, after all, must hire those unemployed workers and create real, sustainable growth.

The American way isn’t negotiated by politicians or codified in 2,000-page bills. It’s not put out for public comment in the Federal Register. Instead, it is thrashed out in the competitive, pressurized, sometimes Wild West openness of the market. The market-driven approach is what, once, put US business on top of the world.

Let’s keep in mind that the American way – still – is about freedom.

Have a great Fourth of July!

© 2010 Johnson Strategic Communications Inc.

Macro rap

January 28, 2010

The late economist John Maynard Keynes has been mentioned more than once in the news coverage of President Obama’s State of the Union speech.

For a little comic relief from all the analysis of Washington and our economy, here’s a fun video – OK, so maybe fun is in the eye of the beholder – let’s call it an educational video on opposing approaches to macroeconomics.

Imagine fiscal policy theorist J.M. Keynes vs. free market capitalist F.A. von Hayek dueling in a music video. They’re rapping – yes, rapping – on the financial crisis, recession, monetary and fiscal policy, and all that:

This clip is the work of EconStories.tv, a newly launched educational venture of Russell Roberts, professor of Economics at George Mason University; John Papola, a producer-director; and a crew of dozens.

Good for a chuckle. And we might as well chuckle. If the news from Washington is any indication, Keynes already won this rap contest and Hayek has gone silent.

If you’re feeling more serious about the dismal science and economic policy’s impact on all of our companies, National Public Radio offers this view of Obama the Keynesian. Talk back by offering a comment – or a rap of your own.

© 2010 Johnson Strategic Communications Inc.

Schoolmarm & the three Rs

September 14, 2009

FederalHall-GovtPhotoPresident Obama commemorated today’s anniversary of the collapse of Lehman Brothers and the ensuing financial panic by going to the Wall Street playground and delivering a schoolmarm’s lecture to the boys who’ve been acting up. (News story here, text of speech here.)

Like many a grammar school teacher, Mr. O lectured all the kids without differentiating much between those who actually misbehaved and those who followed the rules. For example, the president said:

I want everybody here to hear my words: We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

The president retold the brief history of the financial crisis since September ’08. Not delving much into root causes or the cyclical nature of markets, he focused on the misdeeds of Wall Street. He reminded us (twice) that the crisis was already raging when his administration walked in the door. In this lecture, he made it clear that the schoolboys have failed to learn the three R’s.

The first “R” word is risk. And risk, we gathered from the president, is bad. At least, it’s bad when Wall Street fails to properly anticipate or control it – he spoke of risky loans, risky behavior, reckless risk. These may be seen more easily in hindsight, perhaps, but the president definitely wants financial markets to take less risk.

The president also invoked responsibility. We heard the second “R” word 20 times in its various forms. Mostly, he chastised the giants of the financial world for not acting responsibly … and urged them to grow up and embrace responsibility.

Most of all, Mr. O lectured on regulation. He said the financial crisis came about, essentially, because of a lack of adequate regulation from Washington. And he promised the errant schoolboys more regulation – much more – and by the end of this year if he and Vice Principal Barney Frank have anything to say about it.

Don’t get me wrong. I’m not defending executives on Wall Street, or elsewhere, who failed to disclose risks to investors, dodged responsibility for their actions, or found ways to exploit loopholes in regulation. The wreckage of shareholder value is producing recriminations – and malefactors deserve what they get, you might say.

Mr. O offered one admonition to corporate leaders that I think is correct:

The reforms I’ve laid out will pass and these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before — and you don’t have to wait for a new law to do that.  You don’t have to wait to use plain language in your dealings with consumers.  You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote.  You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.

Those are actions CEOs and boards of directors could begin taking, and if they demonstrate responsibility maybe the powers in Washington will feel less need for severity in imposing all manner of new regulation. Maybe.

President Obama had all the rhetoric right today at Federal Hall. His speech, of course, was short on detail and long on generalities. He really was speaking to people outside the financial markets, those who deeply resent the bailouts and bonuses and (especially) both happening at the same banks. The symbolism of going to Wall Street to deliver the lecture was the main point today.

Whether the new rules that the financial markets eventually do get will actually improve things – or merely shift risks into different forms and sectors while stifling the flexibility (and discipline) of the free market – we will see in time.

Yes, the SEC is more active

July 20, 2009

If you think the Securities and Exchange Commission has been cranking out more enforcement actions since President Obama took office, you’re right, says a July 18 Harvard Law School Forum post by lawyers at Gibson, Dunn & Crutcher.

SEC InvestigationsThe numbers show a big increase in enforcement actions across various categories: new investigations opened (+23% in early 2009 vs. 2008), formal orders of investigation (+154%), temporary restraining orders (+183%) and injunctive actions (+46%). No huge surprise in the upturn: Administration officials have been rattling sabers and talking tough, and members of Congress have been calling for the heads of CEOs as some kind of retribution for the economic downturn. At the National Investor Relations Institute annual conference, as noted June 8 in this blog, NIRI President & CEO Jeff Morgan warned more SEC enforcement cases are coming.

The Gibson Dunn lawyers also mention some qualitative changes:

More telling than the statistics, in the last few months, the SEC has filed a number of high profile cases that demonstrate a more aggressive enforcement approach and that are consistent with the themes that [SEC’s new enforcement chief Robert] Khuzami has articulated. Not surprisingly, the SEC has focused its attention on cases related to the financial crisis. In addition, in an effort to bring cases more quickly, the SEC has also more frequently filed these cases in the absence of settlements and in the absence of parallel criminal cases. Moreover, presumably towards its goal of sending an “outsized message of deterrence,” the SEC has charged senior level individual executives.

Since I’m no lawyer, I won’t interpret SEC developments. You can read details in the Gibson Dunn post. As part of an investor relations team, of course, you should be discussing trends like these regularly with your company’s lawyers.

(Thanks to Dominic Jones @IRWebReport on Twitter for calling attention to the Gibson Dunn post on the Harvard Law site.)

Regulation Redux – a risk for 2009

January 26, 2009

As Congress and the new President grapple with the economic crisis, one outcome seems certain: re-regulation of US businesses.

Regulation Redux is at hand, and investor relations people need to think about how to discuss changing regulatory risks with shareholders. No doubt, upcoming 10-Ks should address the surge in regulatory activism. CEOs should be prepared to speak plainly about the evolving environment.

With the economic cycle causing pain on a massive scale – what folks in Washington call “market failure” – politicians are in full fix-it mode. At his inauguration, President Obama voiced confidence in steering government and skepticism about leaving business to its own devices:

The question we ask today is not whether our government is too big or too small, but whether it works … Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control …

I think it’s fair to say the opposite of out of control is under control. The administration and Congress are looking at many sectors to bring under control. Some examples:

  • Banking. Many of America’s banks have a new shareholder in Uncle Sam. And just as Carl Icahn may have a few ideas for management when he buys into your company, it’s a cinch that Barney Franks, Tim Geithner and others are going to start writing new rules for banks. Attacking executive pay and cutting dividends to a cent is just the start.
  • Autos. Different bailout, same basic deal. Accepting the big bucks means making adjustments to satisfy the folks who sign the checks. Today’s announcement that Obama’s EPA may encourage stricter limits on greenhouse gases from cars and trucks points the way. My guess is the auto bailout will usher in policies that perpetuate the US industry’s uneconomical cost structure and subsidize politically correct cars.
  • Healthcare. Reform, a popular campaign promise in ’08, will be very expensive if it means universal coverage. Amid many fiscal demands, the low-hanging fruit of healthcare reform in ’09 may be regulations aimed at cutting costs to consumers. We might expect, say, tougher federal negotiation on drug prices and genericization of biotech drugs. Or maybe new rules to assure “fairness” in health insurance.
  • Securities markets. Amid the rush for bailouts, giant investment banks have accepted a tighter regulatory regime by converting to commercial banks. Next on the agenda is an effort to fix what many see as the SEC’s failure to prevent the meltdown of 401(k)s, implosion of Wall Street and notorious frauds exposed by the bear market. Even the Republicans last year proposed a major expansion of regulatory powers, revamping the SEC and perhaps the CFTC and Federal Reserve. A couple of likely regulatory targets: derivatives and hedge funds.
  • Labor. The Employee Free Choice Act, endorsed by Obama, would change the rules for achieving union representation. If the law is enacted, labor will be able to organize workers by soliciting signatures on cards rather than submitting to secret-ballot elections. The likelihood poses a risk to companies in healthcare, manufacturing, retailing and other services.
  • Energy and environment. Companies that are heavy energy users or impact the environment are accustomed to disclosure of risks on those issues. Legislative and regulatory changes will be on the watch list.
  • Taxes. A weak economy puts tax increases on the back burner and tax cuts, even for business, front and center. But there is tension between a desire for stimulus and an impulse to take away business “breaks.” Risks remain, amid soaring deficits, that efforts to capture more revenue may come at the expense of investors or unpopular industries.

Obviously, I’m no expert in policy challenges for specific industries. But I do know IR people need to talk to our companies’ experts about Washington and what may be coming our way.

Feel free to offer your own comments on regulatory risks and how we should discuss them with investors. (Comments can be anonymous.)

© Copyright 2009 Johnson Strategic Communications Inc.