How sure investors are on their SRI?

Socially responsible investors encourage corporate to engage in practices that promote environmental stewardship, consumer protection, human rights and diversity or in other words to they promote attain sustainable, ethical investments. Though most investors are seeking to find SRI on their investments, but they can never be sure as the information that investors could access is limited. Their decisions mostly tend to depend on company annual reports and publications.

Therefore I see the concept of SRI as promoting element by big companies to attract investors and not that they really practice the meaning.

Today BBC reported that most big multinational companies start their main supply chain at mostly under unethical grounds. One company I noted was Mark & Spencer. Mark & Spencer is well known for ethical investment. However suppose it is not a 100% ethical business. The report on BBC said that most of cloth makers get their raw materials like cotton from India and most of the cotton farms that employed by children. They have no safety cloths, no proper wages. Mostly these children do not have the chance of going to school.

Somewhere in the middle of the supply chain though it gets better, but there is no one to take care of these children, who are engaged in the initial process of creating cotton cloths.  Companies charge high from consumers for their ethical business, but the benefit of the extra charge does not seem to help those poor farmers at the initial stage of the supply chain. 


In reality no any investor who will get in to with such details at the bottom.  

Financial crisis:are the lessons about ethics

Financial crises over last three decades have left many conclusions and things to learn. Some economists blame regulations, especially deregulation which occurred during 1990s. Meanwhile some blame unethical practices and greed for money. However most of these cases managers are blamed for their greed and lack of ethics in the market. Unless managers have attempted to do scandals, greed can be good. Because managers are tempted for their bonuses, and bonuses depends on profits which maximize shareholder wealth the fundamental mission of a financial organization. So what is really wrong? I think the problem is not with ethics or regulations, but again issues with managers, because managers have ignored the "long term" shareholder wealth maximization. During past credit crunches they have all looked at short term and have not considered  the risk in long term. 

 

 On the other hand if regulators can identify financial bubbles, where all most every participants in the market have unusual growth while the market size is the same, then regulators will need to look more carefully than complementing the market growth.

Source : http://www.ft.com/cms/s/0/dd14e65e-28e6-11e0-aa18-00144feab49a.html#axzz1pUfjNBjF

M&A is it really to create shareholder wealth?

In theory there are many motives behind M&A, and at the bottom M&A should generate  shareholder wealth. However in the real corporate world most examples of M&A are failures and shareholder value distractions, for example the merger of Time Warner and AOL.  

However, when looking at M&A happened between First Choice PLC and the Germany company, TUI AG which merged during September 2007 it confirms that Merger It self will not create shareholder wealth or either will not destroy. In my opinion it completely depends on how best the decision match the business, market and capabilities.  When looking at the above example, the merge of two companies formed the market leading TUI Travel on 7th September 2007. TUI AG have a 50% stake in the new firm , with First Choice controlling the remaining 49%. This merge was expected to achieve synergies of £100 million. After this announcement, TUI's shares has raised by 10% , while First Choice's shares also has raised by 8% in London during 2007.

The merger has been announced after months later its main rival Thomas Cook group merged with My Travel. Hence TUI would have wanted to gain the market leading position putting Thomas Cook in to second.  However TUI began to have a higher share price only after 2008 second half.

 


Share price movement of Tui Travel and Thomas Cook since Sep 2007- Sep 2010

Besides, TUI profits have not been too good since the merge till 2011.  It has taken four years for TUI travel to make a good return for shareholders. In my opinion M&A cannot blankly accept for shareholder wealth maximization at the bottom. It could be used as a business survival and to maintain competitive advantage, which in-turn will increase shareholder wealth. However, the time horizon is important. As it for TUI, it has taken 4 years for a positive earning.  

 Sources :

Financial times, (2007) Available at: http://www.ft.com/cms/s/0/815b3cce-d583-11db-a5c6-000b5df10621.html#axzz1oraGuXH7

BBC N\news (2007) Available at : http://news.bbc.co.uk/1/hi/business/6720995.stm