Global Economist Review April 15, 2009

Volume I Issue 6

April 15, 2009

Bullish Economic Signs Abound Obama Warns Recovery Still on Horizon

Driving Shareholder Value by Pursing Best Corporate Governance Practices

Indian Real Estate Is the Bottom In Sight?

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Global Economist Review

CONTENTS

Is published bi-weekly FREE Online

Economic HeartBeat

Publisher and Editor Timothy LuCarelli

Bullish Economic Signs Abound - Obama Warns Recovery Still on the Horizon

Associate Editor Karen Smith

By Steve Evans On the eve of Tax Day, with bankruptcies and personal debt on the rise nationwide, new polls show a solid majority of Americans believe President Barack Obama ....

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Webmaster Edgar Patel Contributing Writers Steve Evans

Indian Real Estate - Is the Bottom In Sight?

Sivaramakrishnan V

By Sivaramakrishnan V, CFA India is approximately one-third the size of the United States. However, ...

Page 9

Al Polit

Omid Habibinia Shana C. Lathrop

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Investment Markets

New York, NY 10001-7604 646-350-0089

Driving Shareowner Value By Pursuing Best Corporate Governance Practices

By Al Polit, CFA and Shana C. Lathrop, Esq. Corporate governance practices that focus on accountability, transparency, and disclosure ...

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Editor’s Office ext. 100 editor@globaleconomistreview.com Advertising ext. 120 advertising@globaleconomistreview.com Subscriptions & Technical ext. 150 subscriptions@globaleconomistreview.com Accounting ext. 180 accounting@globaleconomistreview.com

Political Influences Obama asks Khamenei to Tango! How IRI Iran reacts to Obama’s Norouz message

By Omid Habibinia A few days before Norouz, (first day of spring, which is celebrated by Iranians as the New Year) rumors circulated that this time there would be a different message from the White House ...

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Global Economist Review

April 15, 2009

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ALL RIGHTS RESERVED ON ENTIRE CONTENT Global Economist Review (ISSN 1946-7230) is published bi-weekly (two times in a calendar month period) by Timothy LuCarelli and is free of charge by viewing online or in downloaded PDF format. Reproduction of content, articles or advertisements, is strictly prohibited without the express written consent of the Publisher. All information is provided as is and has been checked for validity to the best the writers’ abilities. Any third party information has been reprinted with permission of the content owner and may not be reproduced from this publication without the owner’s consent.

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From The Editor Welcome to the April 15th issue of the Global Economist Review. In this issue, we examine the recent enthusiasm in the U.S. for better economic times and a reality check from the new President. In addition, we look at India’s real estate market and how it is holding up compared to the rest of the world.

Much has been said recently of shareholder value and consequently the rights shareholders have to dictate corporate governance practices. Our investment section in this issue is dedicated to a broad spectrum of information that will answer many questions related to the “hows” and “whys” of corporate best practices.

Thank you for reading the Global Economist Review and please let us know what you like or do not like or want to see more or less of in the future.

Timothy LuCarelli Timothy LuCarelli Editor-In-Chief and Publisher Global Economist Review tlucarelli@globaleconomistreview.com

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Global Economist Review

April 15, 2009

Economic HeartBeat

“It is no measure of health to be well adjusted to a profoundly sick society.�

Jiddu Krishnamurti

Global Economist Review

April 15, 2009

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Bullish Economic Signs Abound Obama Warns Recovery Still on the Horizon

By Steve Evans

On the eve of Tax Day, with bankruptcies and personal debt on the rise nationwide, new polls show a solid majority of Americans believe President Barack Obama has a clear plan to pull the U.S. economy out of recession.

percent of those polled say Congressional Republicans don’t have a clear economic plan.

The April 14 poll results gave the president a boost going into a speech he delivered later that day at Georgetown University in Washington.

A new Gallup poll shows 71% of those interviewed said they placed “a great deal or a fair amount” of confidence in Obama’s ability to lead the nation to an economy recovery.

One in two respondents say they are confident with Congressional Democrats leading economy recovery, while 38 percent expressed confidence in GOP leaders.

Obama signed into law his $787 billion (€595 billion) economic stimulus plan in mid-February. He called it the “beginning of the end” of the country’s economic crisis. Two months later, on the day before most Americans pay their taxes, he touted the early success of his administration’s efforts to resolve the worst U.S. recession in more than 70 years The poll puts the confidence level in – a plan heavily dependent on spending taxObama far ahead of such leading economic payer money. experts as Federal Reserve Chairman Ben Ber“The Recovery Act, the bank capitalizananke, who polled a 49% rating, and the 47% tion program, the housing plan, the strengthresult for Treasury Secretary Timothy Geith- ening of the nonbank credit market, the auto ner. plan and our work at the (Group of 20 summit) Bernanke was a key figure in persuading have been necessary pieces of the recovery Congress last fall to fund a $700-billion (€530 puzzle,” Obama said. billion) bailout of financial services compaThese gains do not mean that hard times nies. are over, the president said. “The severity of Geithner also sought federal aid for the this recession will cause more job loss, more financial markets and homeowners. He was foreclosures and more pain before it ends.” instrumental in persuading the Obama adObama also defended the government’s ministration to push for the ouster of former intervention last year during the closing days General Motors Chairman Rick Wagoner as of the Bush Administration to prevent a colGM asked for more government bailout mon- lapse of the U.S. banking system. ey (see Global Economist Review March 16, “Of course, there are some who argue 2009). that the government should stand back and CNN reported that its poll with Opin- simply let these banks fail – especially since ion Research Corp. shows nearly 60 percent in many cases it was their bad decisions that of people questioned believe Obama is on helped create the crisis in the first place,” the right track with the economy. About 75 Page 5

Global Economist Review

April 15, 2009

the president said. “The truth is that a dollar of capital in a bank can actually result in $8 (€6.06) or $10 (€7.58) of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth.”

Improvements in the commercial paper markets have also been seen as a result of the Fed’s targeted lending in those sectors, he added.

More recently, the Federal Reserve has also begun a lending program to free up the There is no doubt that times are still flow of credit to households and small busitough, the president cautioned, “but from nesses. where we stand, for the very first “Restoring stability to the time, we are beginning to see The Fed continues market for housing and home glimmers of hope. And beyond to buy mortgage mortgages has been a particuthat, way off in the distance, we securities in the lar area of concern,” he said. can see a vision of an America’s The Fed continues to buy future that is far different than open market, with purchases of over mortgage securities in the open our troubled economic past.” market, with purchases of over $1 trillion this The speech came as $1 trillion this year guaranteed Obama approaches his 100-day

by Fannie Mae and Freddie year.... mark in office, the traditional Mac. measure by which new adminBuying mortgage-related securities istrations are judged for their initial success. helps to drive down the interest rates that Obama’s speech was supported by Bernanke’s consumers pay on mortgages. The rate on a suggestion that the recession may be hitting traditional 30-year fixed-rate mortgage has bottom. fallen to less than 5 percent, the lowest level Bernanke said that he is confident in the since the 1940s. economy’s long term prospects. In a speech But to prevent inflation when the econhe gave in Atlanta, a few hours after Obama omy regains its footing, “unwinding or scaling spoke in Washington, the Fed chairman cited down some of our special lending programs data to suggest the recession is slowing. Like will almost certainly have to be part of our the president, Bernanke also defended gov- strategy for reducing policy stimulus once the ernment bailouts of financial firms, especially recovery is under way,” Bernanke said.

AIG, but also cautioned that increasing govWhile Bernanke defended the Fed’s ernment oversight is necessary to avoid simibailout of insurance giant AIG as essential to lar economic catastrophes in the future. avoiding a global economic meltdown, “allowThe Fed’s emergency lending to finan- ing AIG to at least partly avoid the discipline cial institutions has helped to boost available of the marketplace also sets a bad precedent,” credit and ease conditions in a number of key he said. “For these reasons, it is essential that financial markets, Bernanke said. This has low- we make changes to the financial rules of the ered important benchmark interest rates such game to prevent a similar episode from occuras the London interbank offered rate, or Libor, ring in the future. First, we must ensure that all to which payments on some mortgages and types of financial institutions, especially large other loans are tied. and interconnected ones like AIG, receive Global Economist Review

April 15, 2009

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fueled a new round of criticism from congressional leaders opposed to additional bailout spending. Opponents continue to question whether the recovery efforts are doing any While federal bailout dollars continue good and, if so, for whom.

Obama said the complexity of the U.S. to work through the U.S. economy, changes to bankruptcy laws that were passed in 2005 economic problem is worsened by politicians have failed to slow rate of people seeking who want to score points with their constitprotection from creditors in the current reces- uents, and by an insatiable news media that rushes from one crisis-related story to anothsion.

This week, the Associated Press reported er, feeding the panic fire rather than taking a that 1.2 million Americans have filed for bank- balanced look at local and national efforts to ruptcy in the last year, while 130,831 people resolve the problem. strong and effective government oversight.

AIG’s regulatory oversight was limited, which allowed it to take dangerous risks largely out of sight of federal regulators.”

“When a crisis hits there’s all too often a filed in March alone, an increase of 46 percent from March 2008, and 81 percent higher than lurch from shock to trance, with everyone responding to the tempest of the moment until in 2007.

The report also noted that the current the furor has died away and the media coverbankruptcy figures are approaching the 1.6 age has moved on, instead of confronting the million per year average before passage of major challenges that will shape our future the 2005 bankruptcy reform bill, which was in a sustained and focused way,” Obama said. intended to reduce the number of bankrupt- “This can’t be one of those times.”

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cy filings by making the process more difficult for most people.

-- Steve Evans is a freelance writer based in CharlotThe findings underscore the plight of in- tesville, Virginia. His award-winning reporting on financial markets, politics and U.S. culture has been dividuals who will not benefit from the billions published in newspapers and magazines for nearly being spent on federal bailout programs. That 20 years.

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Global Economist Review

April 15, 2009

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April 15, 2009

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Indian Real Estate Is the Bottom In Sight?

By Sivaramakrishnan V, CFA

India is approximately one-third the size of the United States. However, India’s population is thrice that of the United States.

In January 2009, a 133 square-foot shop on Safdarjang Road in New Delhi, the capital city of India fetched a record rent of Rs.9022 ($180 U.S. €135 Euro) per square foot per month.

It was reported as the costliest rental in the world. According to the Management consulting firm, Mercer, Mumbai is costlier than New York in terms of rent for expatriates. The same survey ranked New Delhi ninth among all major cities. These Indian cities are competing in the league of the most developed cities in the world such as New York, London and Hong Kong even as the Indian economy holds an unenviable rank of 165th among the world economies in terms of per-capita GDP. However, India’s real estate sector has been hit hard by the economic debacle in the US and the slowdown in the domestic economy.

Inspite of the gloom surrounding the sector, there are green shoots visible. Jones Lang LaSalle Inc. predicts that the real estate sectors in India and China will lead the way for the BRIC nations which may recover faster than those in Europe and the US. The overall real estate prices in India were down 15-20% in 2008. In some prime areas in Mumbai, the prices are down by over 50% according to the portal www.indianrealtynews.com. Real Estate is one of worst hit sectors in the Indian equity market. The CNX Realty Index which is a free-float weighted index of realty stocks listed on the National Stock Exchange of India, lost over 91% of value in less than 5 quarters after peaking in the middle of January 2007. During the Page 9

same period, NIFTY, the index of 50 largest Indian companies by market capitalisation lost about 60% of its value. In July 2007, DLF Ltd., the largest realty company in India, came out with a super successful IPO (Initial Public Offer), which was then the largest in India. The company garnered more than Rs. 96 billion ($1.92 billion U.S. €1.44 billion Euro) in the IPO that was over-subscribed on the second day of opening. At its peak, the company’s market capitalisation crossed Rs. 1 Trillion ($20 billion U.S. €15 billion Euro). It was considered the shooting star in a burgeoning market. Just then, the failure of the US real estate sector slowly started affecting the Indian market.

The stocks tumbled and DLF lost about 90% of its total worth.

More than the fall in house prices, it is the almost sudden disappearance of demand that affected these companies. The realty sector in India had been mostly un-organised with some family-owned businesses controlling specific areas in major cities. With the continuous rise in commercial and residential property prices, the realty companies yielded to their temptation to seek public money, leveraged to very high levels and multiplied their profits by adopting a pan-India approach. Whereby, these companies stepped out of the comfort of their home-towns and expanded aggressively into all major States in India. This approach, considered risky as almost every State has its own language or dialect and a distinct culture, yielded rich dividends. When a slowdown of epic proportion hit the sector suddenly, the participants were shocked into the reality of the realty sector.

In a country where housing is considered a Global Economist Review

April 15, 2009

privilege and owned-housing is treated as a luxury, even a mere hint of a possible decline in prices is enough to wipe the idea of buying a property from the minds of the consumers.

The average Indian consumer prefers safety to profitability when it comes to investments.

A Net domestic savings rate in excess of 21% of the GDP (Source: Reserve Bank of India) indicates the conservative nature of the Indian consumers. Conservatism in investments is the reason for the country with a per-capita personal disposable income of just Rs.28670 ($573 U.S. €430 Euro) importing over 20% of world’s gold mined every year. The negative news caught in a feedback loop fuelling fears of a further decline in prices is the reason for the sudden drop in demand.

Another factor that worked against the realty industry is the nature of the industry itself. It is an industry heavily dependent on leverage. Neither the developer nor the buyer invests a major portion of capital from its pockets. Every participant in the industry’s value chain is funded by banks. The long history of rising prices had made the banks complacent and availability of easy finance fuelled the prices ever higher. However, the systemic failure of the realty and the banking sectors in the US caused a panic among the domestic banks that promptly tightened their property lending to save their balance sheets.

Even though the Reserve Bank of India lowered interest rates continuously in an effort to make money cheaper, the commercial banks were hesitant to open their coffers to the few willing borrowers. This sudden stoppage of financing left the developers high and dry.

It is a steep learning curve for the large realty companies. However, they are learning to mitigate the waning demand by appealing to the price-sensitive part of the Indian consumers. In order to encourage new buyers and Global Economist Review

April 15, 2009

to retain the existing buyers who have paid a few instalments, companies are offering price cuts in their premium projects to an extent of 15-20%. DLF recently announced a policy not to collect interest on delayed payments from existing customers. The executive Vice President of DLF Ltd said ““With unprecedented events in the world economy affecting the real estate sector here, bringing changes in input cost and interest rates, DLF went back to the drawing board and created further efficiencies.”

While the property prices are still falling in most of the major cities and towns in the country, some analysts are expressing hope about the likely revival of the sector in 2009.

In March 2009, Macquarie Research stated in a report that “the Indian real estate stocks will bottom out in 6–9 months’ time. The key reasons for the sell-off in the realty stocks were the unprecedented tightness in liquidity and demand destruction. We expect to see some capital flow back (selectively).” The brokerage house also opined that the worst is over from the liquidity point-of-view mainly because of the aggressive stance taken by the Reserve Bank of India. However, the situation in the sector can well be described as ‘chaotic’ at best.

Many developers have expressed optimism that they could spot green shoots amidst chaos. It remains to be seen whether these green shoots can survive in the hostile environment.

One bright spot in the real-estate meltdown story in India is that unlike in the US, the lack of popularity of the second-order derivative instruments such as mortgage-backed securities and sub-prime loans has largely contained the negative effects within the realty sector. It has saved the conservative portfolios such as that of the pension funds and insurance companies from the calamity.

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Investment Markets

“Events tend to recur in cycles.“ W. Clement Stone

Global Economist Review

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Driving Shareowner Value By Pursuing Best Corporate Governance Practices

By Al Polit, CFA and Shana C. Lathrop, Esq.

Corporate governance practices that focus on accountability, transparency, and disclosure protect shareowners and reduce the potential for corporate failure. They also inspire trust and confidence in companies thereby leading investors to lower their equity risk premiums and pay higher prices for ownership interests.

There is plenty of empirical evidence to substantiate a strong positive correlation between good corporate governance practices and shareowner value. Numerous high-profile corporate failures around the world can be traced to weak corporate governance structures lacking shareowner rights and protections. Shareowners need to become familiar with best corporate governance practices and how they may be able to enhance the value of their interests.

Corporate governance is basically the confluence of policies, procedures, and laws that sets the roles and responsibilities for various participants and how they are to interact with one another, paying particular attention to managing conflicts of interest and opportunities for expropriation. The participants, or stakeholders, consist of shareowners, directors, management, auditors, consumers, suppliers, employees, government entities, and the community.

Factors such as subjective beliefs, legal and regulatory regimes, and ownership structures directly influence what constitutes best corporate governance practices. And, while there is no single “best practices” model, as fiduciaries, investment managers generally accept that best practices are based on a fundamental belief that companies are to be managed for the benefit of their owners and that implementing systems of accountability, transparency, disclosure, and Page 13

control enhance long-term shareowner value as they reduce company risk. To this end, best practices dictate that a company’s Board, executive compensation policies, and shareowner rights follow some basic principles.

The structure of the Board of Director’s is of utmost importance as it is the highest governing body within the organization whose purpose is to govern the affairs of the company for the long-term benefit of shareowners and is primarily responsible for determining strategic goals, and selecting, advising, and monitoring a company’s senior management team. To maintain a system of accountability and proper controls for the benefit of shareowners, best practices dictate that Boards be subject to annual elections, and consist of a majority of truly independent members so that they may perform their duties autonomously from management.

Board members also need basic business sense, and the skills, time, and experience required to fulfill their obligations as stewards of the shareowner. To be truly effective, the majorityindependent Board must consist of members with a reputation for active management and who are capable of dealing with currently prevailing corporate issues. Incapable members tend to rely on other members or management for decision-making and may be of no use to shareowners. And while often ignored in the past, careful consideration needs to be given to members serving on multiple Boards as they may lack the time to be attentive, and to retiring senior executives as they are likely to still have ties to management and may be unwilling to challenge structures they were influential in creating. To minimize conflicts, the roles Global Economist Review

April 15, 2009

of management and oversight must be clearly Thus, in the absence of “pay-for-performance” separated as the concentration of power in any compensation packages, management may purone person or body could lead to biased deci- sue sub-optimal capital projects or business arsions and poor corporate performance. Specifi- rangements and ultimately receive compensacally, the Chairman of the Board and CEO roles tion unrelated to performance. For example, need to be segregated as the combined Chair/ maximizing revenue growth is meaningless to a CEO generally has a better grasp on the opera- company if it is pursued at the expense of shartions of the company, sets the Board agenda, eowner wealth. Performance objectives should and is able to influence the nomination of direc- ideally neither be set too low, making success tors, and thus, the potential for self-dealing is easy, nor set too high, thereby frustrating manapparent. Such a structure also makes it more agement. difficult and less likely that independent Board At the most fundamental level, shareownmembers challenge management Boards also need ers are the legal owners of a comor the status quo. pany and have rights associated

to set appropri- with their interests. Shareowner Boards also need to set appropriate compensation ar- ate compensation rights are derived from the legal rangements to hold management arrangements to and regulatory systems that exist accountable for corporate perforin each country, as well as corpohold management mance. This is usually done via rate governance documents. That accountable ... compensation committees which being said, not all shareowners are responsible for reviewing and have the same rights. However, approving executive compensathere are certain principles with tion packages with a goal to retaining talent, regards to voting procedures and rights, the motivating key executives, and aligning pay election of directors, and takeover defenses, to with the long-term interests of shareowners. A name a few, that are generally considered to be conflict-free structure also requires that com- consistent with best corporate governance pracmittees be comprised of independent mem- tices. bers acting on behalf of the Board and have Proxy Voting. A vote by proxy allows sharthe authority to retain consultants to assist in eowners to cast their votes either electronically, fulfilling their responsibilities. Compensation by mail, through an authorized agent, or by othpackages, generally consisting of base pay, an- er means, without actually needing to be physinual bonuses, long-term incentive payments, cally present at the annual meeting. In extreme restricted stock awards, stock options and stock cases, companies restrict the ability of sharappreciation rights, in addition to retirement eowners to cast votes unless the shareowner is and insurance plans, require careful consider- physically present at the meeting or take other ation of company risks, management tenure, actions to make voting difficult or problematand be geared towards significant “at risk” pay ic. To generate trust in shareowner protection, so as to be aligned with shareowner interests. companies should seek to eliminate inconveMisaligned interests, such as setting execu- niences in the proxy process. tive compensation based on short-term results, may force management to sacrifice long-term Annual Election of Directors. One way of wealth creation to maximize their own pay. ensuring a higher degree of accountability to shareowners is to subject directors to annual

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elections. In the U.S., however, such a practice is not the norm as approximately 50% of S&P 500 companies have staggered Boards making it difficult to remove and replace their directors.

Classified, or staggered Boards, are unfriendly to shareowners as they provide the Board and management greater flexibility to thwart unsolicited takeover bids and/or proxy fights. Proponents of classified Boards argue that they promote continuity and stability of leadership so as to focus on long-term strategies. However, in reality, if those leaders were doing a good job executing and communicating their strategies, they would likely be re-elected by shareowners anyway.

Majority Vote. Most companies utilize plurality voting which allows director nominees receiving the most votes to be elected to the Board up to the full number of available seats.

The problem with this system is that regardless of how many votes were against or withheld for a candidate, only affirmative votes are counted.

This ensures that in an uncontested election (being the norm today), all directors will be elected with at least one affirmative vote. Under pressure from shareowners, some U.S. companies have recently adopted majority voting language into their corporate governance documents requiring a majority of the votes cast to be in the director’s favor for him or her to be elected.

This system arguably places a value on all votes cast.

system puts minority shareowners at a disadvantage as they may be unable to gather enough votes for a particular nominee.

One Share, One Vote. Approximately 6% of U.S. companies still have dual-class shares, or multiple classes of stock, where one or more classes have inferior or no voting rights. This structure may leave some shareowner classes, regardless of whether they have the majority of corporate capital at risk, with minimal influence over Board structures and management. In times of crisis, dual-class structures limit shareowners’ ability to make needed Board changes.

Opponents of dual-class structures maintain that even if voting control rested with individuals who are in fact exceptional stewards and manage the company for the benefit of shareowner maximization, such managers and individuals are mortal, and thus, there is a possibility that the next generation with voting control may destroy value for shareowners. Best practices dictate that dual-class shares should be replaced with shares carrying one vote per share.

Approval of Takeover Defenses. Takeover defenses are reasonable if they don’t protect management or the Board at the shareowner’s expense, but nevertheless, should be subject to shareowner approval. The poison pill is probably the most commonly used takeover defense and is basically a corporate financial tactic designed to prevent an unwanted takeover by making it more expensive for a hostile suitor to Cumulative Voting. Cumulative voting of- purchase a target company. fers minority shareowners the ability to gain Elimination of Super-Majority Voting Rerepresentation on the Board by allocating their quirements. Policies that require super-majorishares to a limited number of nominees. In a ty approval (e.g., two-thirds or three-fourths of cumulative voting system, the number of votes proxies cast) rather than a simple majority to available to a shareowner is equal to the num- amend corporate governance documents or apber of shares owned multiplied by the number prove corporate transactions are nothing more of director positions. Allocating all votes to one than cleverly designed anti-takeover defenses. director increases the probability of minority Shareowner proposals to amend or rescind suBoard representation. The traditional one vote per-majority vote requirements have increased

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opinions on the strategic Shareowners that feel their or operational direction of a company, activism interests are not being campaigns geared toproperly represented by the wards improving fundamental corporate govcompany ... ernance principles are more likely to receive Implementation of Majority-Approved support from other shareowners and company Shareowner Resolutions. Shareowner-spon- managers. over the years. Studies have shown that supermajority provisions may act to discourage potential acquirers, and thus, be detrimental to shareowner wealth maximization.

sored resolutions, particularly those related to corporate governance issues, should be implemented by the Board upon receiving a majority of affirmative votes which is consistent with the concept that companies be managed for the benefit of their shareowners.

Say on Pay. Despite compensation committees being composed of independent directors (a requirement in the U.S.) who supposedly have a fiduciary duty to shareowners, in general, such directors don’t usually have their own capital at risk when deciding on executive compensation, are usually CEO’s of other publicly-traded companies who may feel it is in their best interests to award high packages, and/or rely on flawed conclusions from retained compensation consultants. In an effort to improve compensation structures, the Securities and Exchange Commission has recommended that companies include a non-binding shareowner vote on executive compensation in their proxy similar to that required by U.K. public companies, or a say on pay, so as to stimulate productive dialogue between shareowners and Boards.

Shareowners that feel their interests are not being properly represented by the company may influence the actions of a company, its Board, and/or its management, by actively engaging in shareowner activism. There are a range of active measures shareowners may pursue which are subject to various legal or regulatory constraints. However, given the variety of Global Economist Review

April 15, 2009

The mildest form of activism may be to simply vote proxy ballots as there is no direct engagement with management. Matters put forth to a vote may range from the election of the Board to social and environmental issues, and may also include shareowner resolutions that are part of the corporate proxy or standalone proxies sent by an activist shareowner.

Votes on certain items may be non-binding and advisory in nature, which ideally, should not serve as a disincentive to shareowners to vote as they may still be utilized to send a strong message to management. A stronger form of activism is to engage the Board in communication with a goal to better understanding Board actions and to present shareowner concerns and views. Dissatisfied shareowners who feel a company is not receptive to their ideas and/ or changes may, in extreme cases, conduct a proxy contest to replace the Board and/or elect director nominees. In some cases, the threat of such action alone forces the company to accommodate some of the shareowner’s requests, but more commonly, management defends its position.

Shareowners may also choose to pursue legal action directly against a company, its management, and/or its directors for losses they may have incurred as shareowners (securities class action suits) or to file a claim on behalf of the company against the directors alleging they violated one or more fiduciary duPage 16

ties owed to the company (derivative suits). At times, legal action is arguably necessary as a means for shareowners to hold companies and/ or their directors accountable for their actions.

However, as shareowners are the ultimate owners of a company, it seems contrary to their best interests that they (assuming they still own the stock) would sue themselves by participating in a securities class action; especially considering that monetary damages paid come directly from corporate assets. Critics contend that these types of complaints are mainly driven by plaintiff’s law firms able to extract high legal fees from any awards or settlements. Derivative suits, on the other hand, generally don’t seek monetary damages but rather demand changes in corpo-

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rate governance and/or management to protect shareowner interests and thereby don’t benefit the plaintiff’s attorneys to such an extent.

In conclusion, pursuing corporate governance practices that incorporate accountability, transparency, and disclosure enhance shareowner wealth as such values protect shareowner rights and minimize enterprise risk. Adoption of core principles also instills confidence and trust in the capital markets leading to further wealth creation opportunities. Shareowners, as the ultimate owners of a company, have an obligation to actively exercise their rights to strengthen corporate governance practices.

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Global Economist Review

April 15, 2009

Page 18

Political Influences

“A word to the wise ain’t necessary - it’s the stupid ones that need the advice.“ Bill Cosby

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Global Economist Review

April 15, 2009

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Obama asks Khamenei to Tango!

How IRI Iran reacts to Obama’s Norouz message

By Omid Habibinia

A few days before Norouz, (first day of spring, which is celebrated by Iranians as the New Year) rumors circulated that this time there would be a different message from the White House. For the first time, a US president sent a video, rather than a written message, marking Norouz and addressed the people and leaders of the Iranian Islamic Republic together.

his response, some of the regime’s leaders, including Rafsanjani (Iranian president from 1989 to 1997), also exhibited the same reaction asking for real change in US policy toward Iran, some of them such as Ahamadinejad insisted and repeated Khamanei’s opinion that they could see little if any change in US policy yet.

On the other side, in Iran, everybody waited for a response from Ali Khamenei, Iran’s supreme (political and cleric) leader. When he talked about the message the day after, in Mashhad, he said in his speech: “We still couldn’t see any real change in US diplomacy toward Iran, if (the) US government continues its animosity with Iran, we would be the same (men) as (the) last 30 years.” This was interpreted as the official Islamic Republic’s response to Obama’s message.

to participate in the Afghanistan summit at The Hague, Iran actually sent its “B Team”. At the summit, the only direct talk between the two countries was greetings and the shaking of hands, which also came with different stories from both sides.

“My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran and the international community. This process will not be advanced by threats. We seek instead engagement that is honest and grounded in mutual respect.”

tomers of US exports in 2008. The two governments have no official direct relationship and in fact, Iran is still under US sanctions.

Since the White house called Obama’s The message made some opposition message ‘just the beginning’ of new a diplogroups angry, since the Iranian people were macy to insure Iran’s regime for real change, addressed equally with the Islamic Republic’s the new opportunity of direct talk came up. leaders.

When the US Foreign Office asked Iran

However, it seems due to a huge economic crisis in Iran, that the Islamic Republic’s leaders prefer to have more hidden economic talks with the US administration than direct talks that might form a relationship with the In his messages, the US president asked US. for an ending to the animosity between the Based on an Associated Press analysis, two countries and stated: Iran was one of the highest benefitting cus-

Khamanei announced new economical austerity to prevent some aspects of a huge economic crises within Iran. Iran has an inflation rate of 28%, the highest in the Middle East and sixth highest in the world. However, After the Islamic Republic’s leader gave some experts believe this crisis, and the fear

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Global Economist Review

April 15, 2009

Obama’s claims of responsibility and honesty must ultimately be put to the test.”

Maybe this “test” might be an official declaration by the US with Iran’s “peaceful” uranium enrichment and the dropping of sanctions. If they could reach an agreement behind closed doors this would indeed be a “new beginning” between the Islamic Republic and the US. A true Tango between the two governments may have to be more public than behind closed doors to bury 30 years of strife.

GER Ayatollah Sayyed Ali Khamenei

of increasing social dissatisfaction, showing itself in demonstrations, riots and strikes could play an essential role toward forming a new US policy with Iran.

Akbar Hashemi Rafsanjani Iranian President 1989 - 1997

For the Iranian people, the most urgent action is not normalizing a relationship with the US, but rather the critical economical situation. A situation that both Iranian reformists and conservatives could find difficult; however it seems during the conservative’s government who came with economical reforms’ slogans, the situation is getting worse.

As rumors surface regarding the new approach by Obama’s administration toward Iran’s nuclear policy, Ali Akbar Javanfekr’s article in the ‘Los Angeles Times’ on March 31, provides a good abstract of the Islamic Republic’s leaders response to Obama’s message.

The article states: “ For decades, the U.S. has heaped insulting invective on our nation and made continuous threats of toppling its lawful government. It has put obstacles in the way of Iran’s progress in technological and scientific fields.”. He also wrote Iran still could not see a real change in US policy. Javanfeker, who is Ahmadinejad’s press consulate, states: “Mr. Global Economist Review

April 15, 2009

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