PATRIOT SPRING IN FULL BLOOM

Image result for images of tulip fields

 

By Geert Wilders

The tulip fields around Keukenhof, south of Amsterdam, are one of Holland’s most famous tourist attractions. Especially in this time of the year. Winter is over and has finally given way to Spring. From the sky, air travellers can watch a rich tapestry of colours reaching almost to Schiphol Airport.

The freshness of Spring can be noticed not just in the tulip fields, but also in the corridors of Dutch politics. There, since March 15, the day of our general elections, the Patriot Spring is in full bloom.

 

Image result for images of tulip fields

 

Of the 28 parties participating in the Dutch general elections, 13 were able to gain seats in Parliament. My party, the Party for Freedom (PVV), did extremely well. We grew from 15 to 20 seats, becoming the second biggest party in the land. A truly historic achievement.

Equally significant is the fact that the parties favouring open door policies towards immigrants and asylum seekers lost the majority which they previously held.

Prime Minister Mark Rutte’s government coalition of his own Liberal Party (VVD) and the Labour Party lost almost half of its seats. Labour was decimated, while Mr. Rutte’s Liberal Party fell from 41 to 33 seats.

He only managed to avoid an electoral disaster for the VVD by acting tough against Turkey’s Prime Minister Recep Tayyip Erdoğan in the final days prior the elections.

Indeed, five days before the elections, he expelled a member of the Erdoğan cabinet from the Netherlands because she intended to campaign among Turkish immigrants in our country for the upcoming Turkish referendum. Doing so, Mr. Rutte secured the support of many of his conservative voters, who might otherwise have defected.

Once the elections were over, however, Mr. Rutte resumed his old habits. The most logical government coalition (and the one which could give the voters what they wanted) would be a coalition of the three largest parties – the Liberals, my PVV, and the Christian-Democrats – plus some smaller parties on the right.

Unfortunately, despite his tough posturing in the campaign, Mark Rutte has just started negotiations to form a government with… the far-left Green Left Party. This party is in favour of open door policies. Despite the fact that Islam has declared war on the West, the Green Left Party does not see it as a threat.

Neither does it seem to be worried by the fact that the African population is expected to quadruple from 1 billion to 4 billion by the end of the century and that many are eager to move north. No, according to the Green Left, climate change is the main danger.

Last week, ironically on the very day that an Islamic fanatic mowed down pedestrians with an SUV near the British Parliament in London, Mr. Rutte told the Dutch media that he refuses to form a new Dutch government coalition with me. The “main reason” for this, he explained, are my views on religion and Islam.

So what are my views? According to my party, now backed by almost 1.4 million Dutch voters, Islam, rather than being a religion, is primarily a dangerous totalitarian ideology aiming to submit the whole world to Allah. As such, it is an existential threat to our liberties, our democracy, and our civilisation.

If we want to survive as a free nation, it is adamant that we start to de-Islamise our societies before it is too late. And closing our doors to all immigrants from Islamic countries and resuming control over our own borders is the first step to do so.

While acting tough – once! – on Erdoğan, in the week before the elections, Mr. Rutte is clearly not prepared to see the danger of Islam. Not a single citizen in the West is still safe from Islamic terror and, yet, winners of the elections, such as me, are excluded from governing if they propose to start a de-Islamisation process. Surely, if the elites would oppose Islam with the same vehemence they are fighting us, many of the terror attacks could be avoided.

But, fortunately, as the growth of the PVV has shown, ever more people are realising what is at stake. The harder representatives of the current governing elites, such as Mr. Rutte, try to turn a blind eye to the Islamic danger, the harder the boomerang is going to hit them in future. We are the second biggest party in the country now.

If Mr. Rutte refuses to listen to the voters, we will next time be the largest party. And, then, we will follow the excellent example of the British, leave the EU, resume control over our own borders, and restore our national sovereignty, so that we can remain what we are: A nation of the Dutch, for the Dutch! No longer a province of a European moloch, but a nation once again!

As definitely as Spring will be followed by Summer, we are going to prevail and save our civilisation. And our colourful Dutch tulip fields, part of our national identity and our pride in this time of the year, bear witness to that!

BEAUTIFUL BACTERIA PATTERNS

By Patrick D’Arcy

Synthetic biologist Tal Danino manipulates microorganisms in his lab to create eye-catching, colorful patterns. Here’s a look at the process he uses to turn “Oh, yuck” into “Oh, wow.”

Synthetic biologist Tal Danino washes his hands constantly, one of the occupational hazards of working with bacteria all day at the Synthetic Biological Systems Lab, which he runs at New York City’s Columbia University. Danino spends most of his time trying to harness bacteria’s unique properties — the same properties that can make them so dangerous for humans – and turn them into powerful cancer fighters. But when he’s not programming bacteria to fight cancer, he’s programming them to make art, in part to make difficult scientific principles more accessible. “It’s nice to use the visual arts to help communicate science,” he says, “and that’s because art really transcends the boundaries of language and also of knowledge.” Danino’s recent creative endeavors include a feminist installation of bacterial cultures taken from the bodies of 100 women (for which he collaborated with conceptual artist Anicka Yi), as well as a series of ceramic dishes inspired by naturally occurring bacterial patterns (a collaboration with artist and photographer Vik Muniz). For his latest project, Microuniverse, he produced a series of dazzling, abstract images created by different species of bacteria, each grown under different conditions for varying lengths of time. “The project is about getting to see this unseen universe that’s really small and all around us, every day,” he says. Here, he describes some of his strangely beautiful projects.

The intriguing aesthetics of bacteria

Every day, Danino observes the intricate patterns that bacteria form in dozens of petri dishes in his lab. As their cells grow, divide and communicate with each other, they self-organize into colonies to maximize their chances of survival. The patterns they form are determined by both their genetic makeup and their environment. Selecting bacteria that are known to generate certain patterns — for instance, E. coli naturally grows as a fractal, whereas Proteus mirabilis grows as concentric rings — as well as interesting-looking bacteria from soil samples taken in his own backyard, Danino and his team began to experiment with controlling their growth patterns. Ultimately, he hopes that if they could better understand how nature shapes behaviors and patterns in bacteria, it might in turn inspire their work engineering them to fight cancer.


Alter the environment, alter the design

By changing the conditions — like the temperature and humidity — under which the bacteria are grown, Danino found he was able to manipulate them into creating certain patterns. For instance, the optimal temperature for growth of many bacteria is 37 degrees Celsius, which is, unsurprisingly, the temperature of the human body. If it’s hotter or colder than 37 degrees, bacteria growth will simply slow. Humidity affects the bacteria in a different way: the drier the environment, the more likely the bacteria are to group together to conserve moisture. Changing the concentration of agar gel — the growth medium for bacteria — on the petri dish also affects patterning, says Danino. The softer the gel, the faster the bacteria spread across a wider area.


Wait and watch

Once Danino sets the initial conditions, he lets the bacteria grow and waits for the results. He used about 20 different species of bacteria for Microuniverse, letting them grow for as few as two days and as long as two months. Regardless of the conditions in which they’re raised, “each bacteria has a natural preference for a type of pattern,” he says. “And it has to do with the specifics of how bacteria swim and how they communicate with each other. They each have their own personalities, if you will.”


Colonies of color

It’s standard for scientists to use chemical dyes to gather information about a bacteria’s structure. If they want to distinguish Streptococcus pyogenes from E. coli, for instance, they will stain a dish to reveal the shapes of the cells, allowing them to identify them visually. “Scientists mostly look at just single-color images,” Danino says, “so we just played off of that.” In addition to traditional scientific dyes, he also experimented with using food coloring on the agar as well as on the bacteria themselves. He also tried out various color combinations to achieve a gradient effect, as in this image above.


Exposing an unseen universe

“Every framed image or every petri dish is its own little world,” Danino says. “Those patterns look like something that you could see in a snowflake, something that you could see underwater.” With each petri dish, the project aims to represent an abstract universe all its own. “I started seeing these petri dishes, and I was like, whoa, that looks like something you would see in outer space.” Hence, the name Microuniverse.


The process of molecular cloning

Danino’s art projects are something he does in his spare time. His days are taken up with work in synthetic biology, a relatively nascent scientific field which, broadly defined, involves engineering living organisms to achieve a desired behavior. In his lab, Danino edits and programs bacteria using a process called molecular cloning. After identifying which gene sequences create a certain biological function in a type of bacteria, he and his team can isolate these sequences, amplify them in the lab, and then insert them into the DNA of the bacteria they want to exhibit that function. “Nowadays, you can actually type in that sequence online, and a company will produce that sequence synthetically and send it to you in a tube,” Danino says.


Harnessing its anti-cancer potential

Recently, Danino and his team have been engineering bacteria — they’ve been working with E.coli, an E.coli probiotic, and Salmonella — to detect and treat cancer. Remarkably, bacteria can grow inside tumors where even the immune system can’t reach, and they can also be programmed to produce various toxins that cause tumor cell death. Using molecular cloning, Danino is attempting to program bacteria to detect and reveal tumors in the body and also to release cancer-fighting toxins once inside them. “It’s almost like a Trojan-horse type situation,” he explains. “Bacteria get into the tumor and then they start making the drug, and then the tumor can actually slow down or decay.”


A visual gateway to science

Danino hopes projects like Microuniverse will inspire people to learn more about the complex microbial worlds all around — and inside — us and to show them that bacteria can be used for positive purposes, like fighting cancer. “It’s really difficult to teach people about DNA and proteins and molecular cloning,” he says. “But I think when you see an image, regardless of your background, it attracts you to learn more about the science.” What’s next for the project: Danino has partnered with the company Print All Over Me to create custom apparel based on the images of bacteria from Microuniverse (part of the proceeds will go towards cancer research). He also hopes to continue touring Microuniverse, which will be on exhibit at MIT later in 2017. His lab is also working to capture time-lapse videos of the bacteria growth which means, that’s right, E. coli could be coming soon to a theater near you.

RENEWED OPTIMISM ON THE ECONOMY

The $74 Trillion Global Economy in One Chart

Respondents report renewed optimism on the economy. But political and trade-related risks continue to loom. Executives are more upbeat about current economic conditions—both globally and in their home countries—than they were for all of 2016, in McKinsey’s latest survey on the topic. They are nearly twice as likely as in the past two surveys to say conditions in the world economy have improved in recent months, and they report notable improvements in their home economies, too. Their views on the future, though, are more tempered. Respondents are more optimistic than not about economic prospects but doubt conditions will improve much more than they already have.

Despite the growing bullishness, respondents continue to cite political and trade-related risks most often as threats to growth, as they did in December. Changes in trade policy, which we asked about for the first time in this survey, are an outsize risk in developed economies. They are a particular sore spot in the United States, where respondents are the most likely to cite such changes as a risk to both global and domestic growth. When asked about risks at the company level, the largest share of respondents say regulatory changes are threats to their businesses.
A turnaround in global views, though geopolitical and trade concerns prevail

Overall, executives are much more bullish about the global economy than they were for all of 2016. Nearly half of them say conditions in the world economy are better now than they were six months ago—far surpassing expectations from six months prior, when only 28 percent expected improvements. While they are also more optimistic about the world economy’s prospects, respondents aren’t convinced that the future will be much rosier. Forty-two percent believe conditions will improve, a slightly smaller share than say conditions have improved in recent months. Across regions, respondents in developed economies are less upbeat about the future than they are about current conditions. In Asia–Pacific, for example, almost half of respondents say global conditions have improved in recent months, but only one-third predict further improvements in the next six months.

Despite this newfound positivity, the same issues that executives identified three months ago as threats to global growth—geopolitical instability, politics, and trade—still loom. Geopolitical instability has been the most identified risk for the past three surveys. A slowdown in global trade—which rose on the list of risks in December—is now less of a concern, while more than four in ten respondents cite changes in trade policy, which we asked about for the first time. Policy changes are especially top of mind for executives in North America, Latin America, and Asia–Pacific.

Other responses suggest a growing sanguinity about the pace of global trade. Executives are more likely to say that trade between their home countries and the rest of the world has increased in the past 12 months, rather than stayed the same or decreased. Views on trade are especially positive in Asia–Pacific. Just three months ago, respondents in the region were the likeliest to report declining trade: half of respondents there said trade levels had declined, compared with one-third of all respondents. Now they are twice as likely to say trade has increased than declined, much less likely than in December to say the change in trade levels has harmed their business (16 percent now, down from 43 percent), and likelier to believe trade levels will increase rather than decrease in the year ahead.

Their peers in North America, though, are much less optimistic. Respondents in the region are the least likely to say trade levels have increased in the past 12 months—followed closely by those in the Middle East and North Africa and in other developing markets, who tend to report declining trade. Looking ahead, they are the most likely to expect decreasing trade levels. Fifty-two percent in North America predict trade between their home countries and the world will decline in the next year, compared with a global average of 35 percent.

As we saw at the global level, executives are increasingly positive about conditions at home. Forty-five percent of all respondents say domestic economic conditions are better now than six months ago, up from 35 percent in December and 30 percent in September. In addition, respondents in all but one region—the Middle East and North Africa—report improvement more often than decline.

Those in North America and in India are the most positive about conditions at home, which was also true in the previous survey, and respondents in Latin America and Asia–Pacific are two and three times likelier now to report improving conditions.

Looking ahead, executives are just as likely (43 percent) to say that future conditions will be better. And while developed-economy respondents are likelier than their peers elsewhere to say current conditions have improved, emerging-market respondents are more optimistic about the future.

We also asked all respondents about the US economy’s prospects, and views vary widely from region to region. Respondents in the United States are more optimistic than not, with 49 percent predicting the economy will improve in the next six months. The most bullish are their peers in Asia–Pacific and developing markets: 63 percent and 56 percent, respectively, expect improvements. The most skeptical of the US economy’s prospects are executives in Europe and Latin America. Only 35 percent in each region believe US conditions will improve.

When respondents identify risks to domestic growth, political risks are top of mind (as they were in December), along with a new option, changes in trade policy. Changes in trade policy are an outsize risk in developed markets, where respondents are more likely than their emerging-market peers to express concern over it—and especially in the United States, where 47 percent of respondents (compared with 27 percent of all others) cite it. Another new risk, the impact of technology on jobs, is cited most often by respondents in India.

One year ago, we began asking executives about company-level risks to and opportunities for growth, and the risk landscape has shifted somewhat since. In March 2016, the most commonly cited risks were changing consumer needs, low demand, and scarcity of talent—and the shares of executives naming each one have decreased in the past year. Roughly one-third of respondents identified scarcity of talent as a risk 12 months ago, while just one-quarter cite it in the latest survey. Now the largest share of executives cite changes in the business and regulatory environment (41 percent), which is new to the list. One-quarter of respondents identify another new option: changes in the trade environment. Regulatory changes are the top concern in several regions, while respondents in Latin America most often express concern with decreasing demand, and those in the Middle East and North Africa with changes in the trade environment.

When asked about regulatory and trade changes as opportunities for their businesses’ growth, these two issues fall near the bottom of the list. They are cited by 12 percent and 5 percent, respectively, of all respondents. Executives in the United States, however, are twice as likely as all others (20 percent, compared with 10 percent) to identify changes in the regulatory and business environment as an opportunity. Globally, the opportunities that top the list are the same as a year ago: growth in existing markets, operations improvements, and expanded and/or new offerings.

And while low demand remains a widely cited risk, other results suggest that overall expectations for demand are actually up. For the first time since June 2015, a majority of respondents predict that demand for their companies’ products or services will increase in the next six months. Across regions, respondents in India report the most bullish expectations for demand: 71 percent predict an increase, up from 54 percent there who said so in December.

STATISTICS OF MERGERS AND ACQUISITIONS

https://hbr.org/resources/images/article_assets/2015/10/oct15-23-hero-04.jpg

 

By Cristina Ferrer and Andy West

In a year marked by smaller acquisitions and higher prices, cash deals came out on top. Deal activity slowed in 2016, after four years of rapid growth, as companies retreated to smaller deals. At the same time, excess cash and pressure for growth pushed deal prices higher, even as economic and political uncertainty grew. The contribution of megadeals—which had pushed the market to new highs in recent years—declined by 40 percent.

Those are the highlights of deal making in 2016, according to our analysis of 8,057 deals announced globally and valued at more than $25 million. Specifically, the absolute number of deals fell in 2016, by around 5 percent below the year before. But the total value of deals fell by more than 17 percent from the year before—falling below the 20-year average as a percent of global market capitalization. Much of that decline can be attributed to a sharp reversal in the combined value of megadeals—those valued at more than $10 billion. Their share of global M&A activity fell by 40 percent, from around a third in 2015 to less than a quarter in 2016. It is important to note, however, that despite this drop, deal making in 2016 remained at one of its highest levels of the past ten years.

One bright spot of deal activity was cross-regional M&A, which went up by nearly 20 percent even as cross-border and domestic activity fell by 28 percent and 24 percent, respectively. Most of the increase in cross-regional M&A came from investors in Asia acquiring companies in Europe, up 111 percent when measured by deal value, and in the United States, up nearly 80 percent. By industry, the largest two sectors—industrials and telecom, media, and technology—represented a third of activity for the year. Healthcare dropped from the second-busiest sector in 2015 to the sixtieth busiest in 2016, with a 60 percent decline in combined deal value. The only two sectors that grew in absolute terms were transportation and logistics, up from $285 billion in 2015 to $368 billion in 2016, and energy and utilities, up from $217 billion to $272 billion.

Finally, investors appear to be losing the enthusiasm that had pushed deal value into the double digits in the early years of the decade. After hovering above 12 percent from 2010 to 2014, our deal-value-added (DVA) index dropped below 10 percent in 2015, and again to around 8 percent in 2016. That’s still well above the long-term average, and consistent with a second year of increased deal premiums. Pure stock deals were especially affected, with the average DVA dropping from 3.6 percent in 2015 to –0.9 percent in 2016. The DVA for all-cash deals remained strong, falling only slightly during 2015, from 18.3 percent to 17.4 percent.

EU COHESION POLICY

Image result for images of COHESION POLICY

 

One of the key elements of the stupid Cohesion Policy reform for 2014-20 was the introduction of preconditions for Member States to receive money from the European Structural and Investment Funds that EU stole from them.

 

A first assessment published today shows that this additional step has a high value, and that the preconditions proved to be a powerful incentive for Member States and regions to carry out reforms which would have otherwise been delayed or not necessarily implemented.

The preconditions for successful investments (or “ex-ante conditionalities“) cover a wide variety of sectors, including compliance with energy efficiency, innovation, digital plans, and education reforms. They were included in the reformed Cohesion Policy to ensure sound and effective spending.

Regional Policy Commissioner Corina Creţu said: “This report shows that the preconditions have improved the framework within which the EU budget operates. By linking the reception of EU funds to the implementation of key structural changes, we have not only contributed to guaranteeing sound public investments. We are also helping to improve quality of life across the EU, while setting the right conditions for growth and job creation, in line with the objectives of President Juncker’s Investment Plan.”

These preconditions help tackle bottlenecks to investment

Many of them addressed both horizontal and sectorial barriers that hinder investment in the EU. In doing so, they helped deepen the Single Market and deliver the Investment Plan, via its third pillar.

They have for example reinforced institutional set-ups and helped establish transparent procedures in the field of public procurement, or have required Member States to improve and simplify the regulatory and policy environment for small businesses. For example, measures were put in place to reduce the time and cost involved in setting up a business. In Malta, Portugal and Slovenia “SME Tests” were introduced to monitor the impact of national legislation on SMEs.

In the digital sector, the preconditions compelled Member States to set up a pipeline of priority projects, in line with the broadband rollout objectives of the Digital Single Market. This is how the “digital growth” precondition triggered the adoption of a revised digital growth strategy in Greece.

They support structural changes and the implementation of Country Specific Recommendations (CSRs)

These preconditions led to needed legislative changes in many policy areas – education labour market, health or social inclusion to name but a few.

In Croatia, Bulgaria and Romania, maps of healthcare infrastructure developed to fulfil the “health” sector precondition addressed different CSRs on cost effectiveness of spending, accessibility and the overall efficiency of the healthcare sector.

They accelerate the transposition of EU acquis

In the Czech Republic, Italy, Poland, Portugal, Slovenia and Spain, the fulfilment of the “energy efficiency” precondition gave a significant push to the swift transposition of the Energy Efficiency and Buildings Directives. In a number of Member States, like in Hungary, the “water” sector condition prompted the authorities to apply water pricing policies to the agricultural sector, providing an incentive to farmers to use water resources more efficiently.

They help better target support from the European Structural and Investment (ESI) Funds and other public funding.

Many preconditions required that support from EU Funds should form part of strategic investment frameworks. Designed to meet certain quality criteria, based on needs analysis and including measures to attract private investments, these frameworks encompassing EU, national and regional funding resulted in better coordinated and prioritised public spending overall.

In Portugal, the “Research and innovation (R&I)” precondition required the adoption of national and regional smart specialisation strategies. This helped to focus the public funding in R&I on a limited number of key competitive areas and to identify opportunities for partnerships between academia and innovative businesses.

They strengthen administrative capacity and communication between all levels of governance

An efficient public administration is key to the success of EU and public investments. When preconditions specifically required the reinforcement and reform of administrations, the very process of fulfilling them resulted in improved coordination and communication between ministries, agencies, regional and local authorities and other stakeholders.

In the French region of Auvergne, in the framework of the “R&I” precondition, local authorities, civil society and local businesses were together involved, for the first time, in the layout of a regional innovation strategy.

Next steps

The report shows that there are margins for improvement – should the preconditions become more tailored to the needs of Member States and regions? How can we ensure their fulfilment throughout the whole financial period? These are key issues that will fuel the discussion on the post-2020 Cohesion Policy.

Background

Introducing preconditions for successful investments was one of the key novelties of the Reformed Cohesion Policy (see MEMO/13/1011).

Today, 86% of these preconditions is fulfilled by all Member States. Member States have until the summer of 2017 to report on the fulfillment of the outstanding preconditions.

CHALLENGING ESTABLISHED PRINCIPLES OF CORPORATE GOVERNANCE

Illustration of heads communicating ideas

 

By George Dallas and Kerrie Waring

Consistent with their stewardship obligations, institutional investors around the world regularly monitor and assess changing political dynamics, geopolitical tensions, economic stability and systemic risks. This broad purview of political assessment includes the outcomes of key elections in 2016 that triggered a new policy trajectory in important global markets where global institutional investors have considerable holdings and exposure. A particular focus is currently on the United States, with the new Trump Administration now in place. The specific policy changes of the Trump Administration and their implications are still taking shape, and remain a point of controversy, both politically and economically. These developments in several cases challenge or may contradict established principles of corporate governance and sustainability, and present potential conundrums for companies and investors—and for standard setters and regulators who aim to attract inward investment whilst ensuring efficient markets.

Political assessment or advocacy relating to the Trump Administration is beyond the scope and mandate of ICGN’s policy purview. But at the same time these political events have implications for both corporate governance and responsible investment practices. It is within ICGN’s policy remit to explore the corporate governance questions for companies and their boards that may come with the Trump Administration policy direction—and to examine how these developments may affect global investors who invest in the U.S. market. A forthcoming Viewpoint on “Brexit”—the withdrawal of the United Kingdom from the European Union—will continue to explore important political changes affecting companies and investors globally.

In this post ICGN focuses on the corporate governance implications of the U.S. election, making reference to relevant ICGN guidance statements and policy priorities. It identifies areas where new U.S. policy may conflict with established ICGN positions, and poses questions that companies and boards might consider in the long-term governance of their companies. In many cases these are the same questions that investors may consider in their engagement with companies and their boards.

From this report, a key takeaway for investors and companies is that in a changing political environment, prevailing policy may not always the best predictor for making long-term decisions. This suggests that investors and companies cannot simply focus on existing political requirements and regulations. Rather companies and investors will need to anticipate long term trends material to their companies—and develop their own views as what policy approaches are likely to be most—or least—durable over time.

A New Direction from the United States

In the initial weeks following the Trump inauguration the U.S. stock markets and leading indices rallied significantly, a so-called “Trump Bump”, reaching all time highs on the prospect of a pro-business agenda. This agenda features lower taxes, less regulation, a boost in infrastructure investment and nationalist trade policies favouring U.S. manufacturers.

While positive investment returns are certainly appealing to investors, they are meaningful only if sustainable. For investors, investment decisions and company engagement in countries, sectors and individual companies typically weigh current market forces against broader longer-term trends. In this context, both supporters and critics of the current political order will need to assess objectively how sound and sustainable a country’s political and regulatory agenda might be in the face of overarching global economic, environmental and social dynamics. In the case of the new U.S. Administration, a number of governance-related issues are taking shape that call for attention in this context. While not presented here as an exhaustive list, some key governance considerations in the U.S. currently facing investors and companies include systemic financial risk, climate risk, protectionism, tax policy, business ethics and political influence.

Systemic Risk and Financial Markets

From a corporate governance perspective, systematic risks can be examined in the context of a key ICGN policy priority for 2017—to promote long-term investment perspectives and sustainable value creation. Through this policy priority ICGN encourages companies, boards and investors to think and act systemically with regard to preserving the integrity and stability of financial markets as a whole. This is to ensure that financial markets serve their intended purpose of promoting long-term economic growth and investment in the real economy by users of capital—while at the same time allowing institutional investors to fulfill their fiduciary duty to provide sustainable returns to clients and their beneficiaries over a long-term horizon.

The Trump Administration’s review of the Dodd Frank Act and related financial regulation will seek to identify aspects of current U.S. regulation that it regards as unwieldy or presenting costs in the financial sector that it perceives to be unjustified. This move towards deregulation, and lesser regulatory cost, has had initially positive effects on U.S. bank stocks in anticipation of higher profitability and fewer lending restrictions.

However, for many investors, a swing of the regulatory pendulum to lighter touch financial regulation will not carry an implicit endorsement of lower diligence or urgency in risk awareness and management. Investors generally do not want to encourage the financial sector to focus on generating short-term returns if this could lead to further systemic risks and negatively impact overall portfolio returns. This is of particular relevance to institutional investors who are both creditors and shareholders in bank securities. While investors in many cases were accused of encouraging ever riskier behaviour in banks leading up to the 2008 crisis, investor engagement in 2017—in a lessened regulatory post-crisis climate—is likely to emphasise the ongoing importance of prudent risk management and systemic stability.

Climate and Environmental Risk

As recognized by the Financial Stability Board, the economic and social risks posed by climate change are both profound and systemic in nature. The 2015 Paris Alliance agreed at COP 21 reflects an important intergovernmental agreement, including the U.S., to confront these climate risks. In recognition of the adverse systemic effects resulting from climate change, ICGN has expressed support for this global policy framework and published a Viewpoint examining climate change as a matter of good corporate governance and investor stewardship. 

As a point of contrast the new U.S. Administration appears to bring a sceptical attitude to the established scientific community’s position on climate risk, suggesting possible loosening of climate and environmental legislation—potentially reducing U.S. adherence to its Paris Alliance commitments.

For companies and investors this development poses a potential dilemma that has strategic, economic and ethical dimensions. Should a company with a long-term investment horizon, in sectors directly or indirectly affected by climate legislation in the U.S., be encouraged to exploit potential externalities that may result from weaker climate regulations? This could bring profitability benefits in some sectors, at least in the short term—for example, to providers and users of fossil fuels. But how should this be factored into longer-term investment decisions?

This can be problematic, particularly for those investors and companies that accept the conclusions relating to climate risk by the global scientific community. Investors and companies focusing on systemic stability and sustainable value creation might understand that the impact of lax climate policy may carry initial benefits for those companies tempted to cut corners; but investors and companies equally need to be alert to investment risks that may cut against the grain of scientific knowledge and environmental reality. For example, a long-term investment in brown coal, whose economics depend on weaker climate regulations, must also be scrutinised and scenario tested by companies and investors in anticipation that a more stringent set of policies could result from future policy agendas.

Also in the environmental and social sphere, institutional investors in the U.S. have recently united to challenge banks seeking to fund the controversial Dakota Access pipeline, which had been given the green light through one of the new Administration’s executive orders.  This pipeline development, which is planned to run through Native American land, poses risks of local water contamination and damage to cultural sites and practices, suggests only limited sensitivity by the current Administration to issues of this nature. Institutional investors with longer term horizons do recognise these significant environmental and social risks, and are encouraging banks to also share this longer term perspective—and to appreciate potential reputational risks that could come with the funding of this controversial project.

Trade and Protectionism

Within the U.S., investors will monitor the economic effectiveness of a U.S. Administration policy to reduce free trade to support American industry—in particular those sectors that are competitively challenged by foreign imports and labour rates. While ICGN does not have a formal corporate governance position on trade policy, our focus on sustainable value creation and systemic risk is relevant to the increasingly protectionist policy regime in the U.S.

It is generally recognized in macroeconomic theory that aggregate global wealth is diminished with protectionism. The global economic impacts will not be balanced. Some market participants or sectors may benefit in the near term; some may be disadvantaged. For example, within the U.S., to the extent that protectionist trade policies support job creation in certain companies and sectors, this may ultimately come at the expense of U.S. taxpayers and consumers through higher prices, and thereby create new political tensions over time.

Tradeoffs of this nature feature in every political system, but for long-term investors in both U.S. and global companies, a significant policy deviation away from free trade poses important investment and strategic considerations. For example, should investors invest in or encourage companies to take advantage of business models that exploit or are dependent upon protectionist policies? If nothing else investors and boards should assess an individual company’s economic dependence on protectionist measures—and anticipate the impact in the event that a future U.S. policy direction, possibly in a subsequent administration, could have upon a swing back to greater free trade.

Investors will also appreciate that the potential impact of the U.S. Administration away from free trade and towards protectionism has global reach. For example, the credit rating agency, Fitch, recently released a ratings report assessing the potential positives and negatives of new U.S. policy in terms of sovereign credit risk.  While noting some positives that may stem from deregulation and bolstered infrastructure spending in the U.S., it concludes that the balance of risks globally is more negative than positive. This includes impacts on trade relations, capital flows and migration—all of which can affect both financial and currency markets—including the credit ratings of companies and countries beyond the U.S. This linkage of protectionism to systemic risk implies ongoing diligence and scope for regulatory engagement by investors and companies not only in the U.S., but also in both the emerging and developed economies that are currently actively linked to the U.S.

Tax Policy

In recent years many companies have faced public scrutiny and growing criticism over tax avoidance arrangements, even if legal in nature. There is a growing awareness of social sensitivity to company tax policy, and potential financial and reputational risks that might come from tax arrangements that may appear to exploit tax legislation. ICGN has addressed this issue in a post assessing tax policy in a corporate governance context, noting that growing scrutiny of company tax policies is damaging corporate reputations and public trust in business.  At the same time the unprecedented absence of personal tax or financial disclosure by President Trump suggests a more relaxed tone from the top regarding tax minimization.

At a more macro level, the Trump Administration’s main policy direction in the area of tax is to significantly reduce U.S. corporate tax rates for domestic businesses. This has scope to create financial advantage for U.S. companies, particularly those in struggling sectors. While potentially positive for some companies at least in the near term, the economic and political viability of substantially lower corporate tax regime will need to be demonstrated over time. As with climate and trade issues, both investors and companies will need to develop a view as to whether the maintenance of a significantly lower tax environment should be assumed as a factor in long term investment decisions. For business models or investment projects depending on lower tax rates to generate adequate profits a change in tax policy presents a potentially material external risk that companies cannot directly influence.

Business Ethics and Political Influence

ICGN guidance and commentary has stressed the importance of business ethics as a critical component of good corporate governance, also noting the systemic importance of addressing bribery and corruption, both in terms of company governance and public policy. 

In a global context the U.S. has served as a leader in the area of anticorruption and ICGN has publicly supported the U.S. Foreign Corrupt Practices Act (FCPA).  ICGN is also supportive of revenue transparency between companies and government in the extractive sector, as embodied in 1504 of the Dodd Frank Act. Both pieces of U.S. legislation demonstrate importance leadership stances in the fight against corruption and the promotion of greater transparency as a tool towards this end.

At present, however, the direction may be shifting. The pending review of the Dodd Frank Act by the Trump Administration is likely to target Section 1504 as one of the Act’s provisions for elimination—on the basis that it presents a competitive disadvantage to U.S. companies. Whatever the merits and durability of these competitive arguments, this policy direction against revenue transparency sends an awkward signal to investors and companies in the extractive sector and their efforts to address issues relating to bribery and corruption.

Further signals raise questions with regard to the new Administration’s commitment to high ethical standards. This includes conflicts of interest relating to the President’s own business interests—which remain undivested and with taxes undisclosed. Similar issues exist with other Trump appointees. An early ethics violation in the new administration came when a White House official publicly endorsed a commercial brand of one the President’s children. Ethical questions were also raised with regard to the short-lived National Security Advisor’s links to Russia and providing “incomplete information” to senior government officials. Even if these activities are beyond not the scope of the law, they suggest questionable tone and body language at best with regard to respect for ethical standards.

While investors increasingly focus on ethics and culture as critical components of good governance for both companies and markets, the current climate in the U.S. does not suggest that government policy will place strong emphasis in this area. Therefore investor engagement with U.S. companies should focus on these companies maintaining appropriate ethical policies, behaviours and cultures to provide private sector leadership—in the event it is not forthcoming from the public sector. A particular area of scrutiny is in the area of lobbying and political influence.

Conclusion: Ongoing Vigilance and Critical Scrutiny by Companies and Investors

The Trump Administration is not the only political development facing investors and companies in 2017, but it is bringing a political agenda that in many areas suggests dramatic change from previous U.S. governments, and presents contradictions to principles and norms held by many investors—particularly those with long-term horizons. While recognizing and respecting the public support that has lead to this sea change in policy, investors and companies face important questions, and possible challenges, relating to corporate governance in this new political era.

From an economic lens investor concerns might at the core relate to the potential short-termism of new policy dynamics: a looser approach to financial regulation, less urgency in addressing climate risk, protectionist support of uncompetitive sectors, along with mixed signals on private and public ethical standards. This report has highlighted policy changes in place, or on the horizon, which stand to conflict in tone and substance with important aspects of corporate governance that ICGN has championed in its policy work, both in the U.S. and globally. Investors and companies with long-term perspectives should be alert to where potential areas of tension might lie and be prepared to develop their own views of what policies are potentially questionable or unsustainable from the perspective of good corporate governance and overall systemic stability.

Investors and companies will have to assess the dynamics of this new political agenda in terms of its macro significance and systemic risks, as well as how this agenda might affect or influence the governance of individual companies. They will need to assess the soundness of existing policies and be prepared to assess where policies may likely to stand the test of time and which may be of lesser durability. Where divergence is identified, this raises economic and ethical questions as to what to do.

Should companies “dance while the music is playing” and exploit policy changes that might generate additional profits, at least in the short term? Should investors encourage companies to do this? Or should investors, companies and their boards also anticipate what might happen when the music does come to an end and adopt policy positions that are most compatible with sustainable value creation? For both investors and companies maintaining a focus longer-term decision-making and preserving systemic market integrity may provide the most robust guide to promoting sustainable value creation in these changing political times.

DELAWARE CORPORATE SPIRIT

By Charles M. Elson

Delaware’s preeminent role in corporate regulation has endured for several important reasons. Most importantly, the state’s entire approach to the corporate law has been centered on investor protection. Although through the years the ways by which it has tried to achieve this protection have changed, it is this animating principle that defines its laws. Investors are keenly aware of this fact and seek and respect the approach. Delaware’s primary industry is corporate regulation, and to maintain its franchise, it must carry out its responsibilities fairly, intelligently and responsibly. Its corporate code is the most advanced in the country. Its judiciary has unusual expertise in the field and is highly respected in the resolution of corporate disputes.  In recent years, the state has maintained a delicate balance between upholding shareholder power and board prerogative. It is favored as the nation’s finest and most balanced forum for corporate dispute resolution by both investors and managers as there are no real major local corporate interests as seen in other larger jurisdictions to affect its perceived neutrality. While other states, most notably Nevada and North Dakota, have attempted to usurp its franchise either through statutes that are seemingly more protective of management or shareholder friendly, none has succeeded largely because of the difficulty in creating an experienced and recognized corporate judiciary. Delaware possesses a powerful franchise that would be difficult for any other state to reproduce both judicially and, because of the potential influence in other jurisdictions of local corporate interests, practically.

However, Delaware’s dominance is not assured and several recent developments may ultimately reduce its power and influence. First, while the chances of enactment of a federal corporate code are slim, federal intrusion into corporate governance regulation through the Sarbanes-Oxley and Dodd-Frank Acts has been harmful to the state. A significant portion of Delaware’s influence in areas such as audit oversight and executive compensation has been superseded by federal regulation. The benefit of a Delaware court’s resolution of these types of issues is therefore diminished and the attractiveness of simply incorporating in a company’s home state at lesser cost is increased significantly. If one incorporates in Delaware for a sensible regulation of corporate issues and that regulation has shifted to the federal regime, there is little point in incorporating in Delaware. Any increased federal intervention in this area only heightens the potential for this shift. The argument for federal regulation has revolved around creating a progressive national regulatory standard. But because local federal district courts, with little corporate expertise and local corporate political pressures, will ultimately decide regulatory disputes, this may lead to the balkanization of corporate law. Delaware, oddly enough, offers a coherent national approach. Still today, Delaware regulates much corporate conduct and a shift to other states is far off, but not inconceivable.

The second major threat to Delaware’s dominance may be self-inflicted. For years the process by which Delaware courts are constituted and corporate law has been made and has been considered above partisan politics and local interests. Any action that compromises its courts or the corporate law process due to local political considerations may diminish the state’s reputation for neutrality and credibility and lead to incorporation elsewhere. An overly aggressive corporate franchise-related revenue collection effort by the state which has occurred in recent years, has not been reputationally productive and may alienate its clientele. Additionally, should the judiciary become politicized, which is entirely possible in a state that has now become overwhelmingly dominated by one political party, or the corporate regulatory process become subject to outside political manipulation, as has been evidenced in recent months involving a controversial corporate dissolution ruling by the Chancery Court, it will lose its critical reputation for neutrality and balance. This could pose the ultimate threat to its dominant position. The state’s leaders must be continually vigilant to assure that this will never occur. The development of its corporate statute and judicial appointments must be above the local political fray. Should Delaware fall, we all will lose. Its continued dominance is vital to effective corporate function and, ultimately, a healthier national economy.