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Sir Christopher Kelly’s keynote speech at an inaugural gathering of Chairs of National Charities in London on 1 November, reflected on how charity boards can become more effective.
Sir Christopher, who is Chair of the King's Fund, an charity working with the NHS to improve policy, practice and develop leadership reflected on his own experience relating to board effectiveness.
Part of National Trustees’ Week, which takes place annually to promote and celebrate the work of trustees, the event was organised by Governance magazine and hosted by Mazars.
Paul Gibson, a National Charity Specialist at Mazars said it was one in a series of thought leadership events the firm hosts to demonstrate its commitment to the sector. “We aim to share our thinking on current issues and work with others to influence the future shape of the sector. At this event, Sir Christopher gave some excellent thoughts on his experience of a board taking some time out to evaluate its effectiveness,” he said.
The event covered a number of themes, including the idea that the time spent by a board in thinking about its common purposes is never wasted. "Being a chair can be a very lonely experience and there is real value in meeting kindred spirits in a safe and trusting environment," said Gibson.
Other guests included Barrie Collins, Chair of Tomorrow's Company, which is working with Mazars on a model to specifically measure charity board effectiveness. Based on Board Polarities, an approach developed by Mazars and executive leadership and development firm, YSC, it is a way of measuring board effectiveness that involves focusing on the behaviours and outcomes of both the boardroom and wider issues.
Read the sector report on charities in this issue here.
Companies who widen their search for sources of funding are increasingly finding new options. A recent initiative is the Business Growth Fund (BGF).
“This is the fashionable new fund everyone is talking about, which is designed to help companies grow and expand particularly when that expansion is via overseas sales,” explains Mazars’ Corporate Finance Partner, Mark Standish.
The BGF works like a private equity fund. Established last month as a £2.5 billion equity investment fund backed by five of the UK’s largest banks. Standish confirms the BGF is being viewed as a niche operator that can assist companies seeking finance for overseas development and expansion. The latest company to benefit from the BGF is Statesman Travel Group, a travel management company providing a global service through its partnership network, Travel Solutions International (TSI), with locations in North America, Europe, Africa, Middle East, Far East and the Southwest Pacific. The BGF has confirmed an investment of £4.25m into the company and takes a minority stake and a seat on the board.
The first company to receive growth capital for overseas expansion from the BGF was Benefex, described as a “leading provider of online employee reward and benefit schemes.” In this instance, the sum invested was £4.2m. Benefex intends to use the loan to continue developing its “innovative solutions”, expand its product and service lines and “extend its international footprint.” It sees immediate opportunities in the US and Asia Pacific.
See here for tips on how firms can secure finance for an overseas expansion.
The number of thematic, environmental and ethical funds has more than doubled in five years to 130 funds, according to Worldwise Investor (WWI). With £21.8 billion of investment assets, this represents four per cent of the total UK investment market.
In its latest report, WWI says there has been a dramatic increase of 284 per cent in thematic funds, up from 26 to 74 in five years. These include agriculture, water, clean energy, environmental, forestry and carbon funds. In particular, the WWI Agriculture benchmark has outperformed the global equity market and has grown in size in five years to £7.3 billion, equal to the size of ethically screened market at £7.4 billion which has developed since 1984.
However, performance continues to be a difficult environment for investment managers. The past three months show the global equity market, as represented by UT Global Retail TR, has fallen by -13.4 per cent in sterling terms.
Over the past five years agriculture and water have outperformed global equities while clean energy has consistently lost investors’ money. Indeed valuations in clean energy funds are back to where they were just after Lehman Brothers collapsed in October 2008. “While it has been profitable to own energy assets in this period, investing in companies which manufacture goods for this market has not. This is to do with competition from China as well as recent reductions in government tariffs as part of the austerity measures which western governments are introducing,” says Mark Hoskin, Worldwise Investor.
Over longer periods of time the importance of having exposure to the Far East becomes apparent. “While it has been a poor year for Asian equities this underperformance has not hampered these funds over three to five year period,” says the report.
Over five years ethically screened funds have outperformed global equities. Ecclesiastical Amity International Fund has returned 44.1 per cent and Henderson Industries of the Future and Henderson Global Care Growth, 15.1 per cent and 12.2 per cent respectively. This is against global equity returns of 6.3 per cent.
See here for our article on ethical investment for businesses.
Twenty six per cent of businesses with an annual turnover of £1m or more are holding £4.65 billion in cash as a result of cancelling or postponing business development plans, according to research by Investec Bank.
The average amount of money on hold as a result of this is £86,020 per firm. Much of this money will be sitting in business deposit accounts receiving low returns. Investec research reveals that the average return on balances of £50,000 in business deposit accounts is 0.67 per cent. The average amount on hold of £86,020 would deliver gross annual interest of just £576, compared with annual gross interest of over £1,900 on a business account paying 2.25 per cent.
Commenting on the findings, Linda McBain of Investec Bank said: “With the Bank of England base rate at 0.5 per cent, many business deposit accounts are paying low returns, in many cases much less than 0.5 per cent. Indeed, our research shows that 32.4 per cent of business deposit accounts are paying 0.1 per cent or less on balances of £50,000.
“However, with many different business deposit accounts to choose from, you don’t have to accept this and you may be able to secure a return on your money that is higher than two per cent gross, for example.”
Trustees must take action to address the risks of how governance failings in complex ‘hybrid’ schemes can impact members’ retirement benefits, according to the Pensions Regulator.
The Regulator has published information to help trustees and their advisers understand the structure of their ‘hybrid’ scheme – schemes with defined benefit (DB) and defined contribution (DC) elements.
Information includes a series of checklists which summarise the actions trustees, administrators and employee benefits advisers should take to ensure they are able to properly manage their scheme.
From November 2011, the regulator will include additional questions in the scheme return for DB and hybrid schemes.
Earlier in October, the Regulator published information to help trustees clarify the key differences between DB and DC schemes, and the behaviours that DC trustees should demonstrate.
The move followed analysis of its scheme governance survey that continues to highlight patterns of poor governance in DC schemes.
“Given the predicted increase in the number of employees actively participating in qualifying DC schemes as a result of automatic enrolment, it is important that trustees act to ensure that they are able to carry out their duties to the highest possible standards,” says the Regulator.
The UK Treasury has launched a new steering group tasked with devising a suite of ‘simple’ financial products that will help consumers navigate the financial services market.
The group will be chaired by Carol Sergeant (former Chief Risk Officer, Lloyds Banking Group) and include representatives from government, industry, and trade and consumer bodies. The group will report back to Mark Hoban, Financial Secretary to the Treasury, by July 2012 setting out how to bring simple products to the market, including guidelines on how simple products are structured and marketed to ensure consumers get the best deal.
Initially, this steering Group will focus on simple deposit savings and protection insurance products. Other areas likely to be considered include investment products to help consumers save for the long-term. "Simple financial products have the potential to help many consumers make decisions that will help them save for the first time and plan for a secure financial future for them and their families,” comments Mark Hoban.
Sergeant believes that simple, easy to understand products need to be a viable commercial proposition for the industry, while at the same time offering consumers a straightforward benchmark that gives them the confidence to make good decisions in an often bewilderingly complicated market place. “Getting this right will require the involvement of consumer groups, financial regulators and the Money Advice Service, as well as the savings, investment and protection industries. I look forward to working with all key stake-holders on this,” she says.
New forecasts from the Centre for Economics and Business Research (Cebr) indicate that UK GDP growth is likely to reach just 0.7 per cent in 2012.
Despite the fact the UK economy grew by 0.5% in the third quarter of 2011, according to the Office for National Statistics (ONS), the Cebr's forecast comes on the back of a weakening world economy and the prospect of a severe financial crisis in the Eurozone. Cebr confirms it has also revised down its forecast for 2011 from the 1.0 per cent to 1.5 per cent range, to just 0.6 per cent.
Cebr warns that market volatility due to the ongoing Eurozone sovereign debt crisis now looks set to severely disrupt global growth. It fears the risk of a Lehmans-style financial crisis in the Eurozone should not be discounted. Such an outcome, says Cebr, will be triggered by the unsustainable nature of the single currency area in its current form and the failure of European politicians to take decisive action to calm the markets or make the necessary pro-growth reforms at a fast enough rate.
Cebr points out that such risks threaten to severely curb the potential for export demand and business investment to drive the UK economy in the short term, all of which is necessary to offset the negative impact of government spending cuts and weak consumer demand following the decade of debt-fuelled spending.
Scott Corfe, Cebr Senior Economist, comments, "Given the likely weakness of the economy, I suspect that many people will be surprised by how fast inflation falls next year. This in turn means that we will be likely to have more, rather than less, quantitative easing. Sterling is also likely to remain weak for the foreseeable future."
The launch of new lender, Shawbrook Bank, has been given a cautious welcome from the Forum of Private Business (FPB). Shawbrook Bank, 100 per cent financed by the Royal Bank of Scotland, promises to lend up to £250 million per year exclusively to small businesses.
Shawbrook joins Metro Bank and Aldermore as the latest challenger to the big banks. While the FPB sees this latest development as potentially good news for some small businesses struggling to access affordable finance, it warns that it cannot solve all the lending problems small businesses are facing. “The bank represents a new source of finance for small firms and that is certainly a positive development,” said the Forum’s Campaigns Manager Jane Bennett. “But it has to be put into perspective. Shawbrook’s model is lending against the value of a property, a form of asset finance rather than a return to the strong relationship banking that we want to be the bedrock of commercial finance in the UK.”
Shawbrook combines the savings and lending expertise of three financial businesses - Whiteaway Laidlaw Bank (WLB), Link Loans and the lending platform of Commercial First.
Initially, Shawbrook, which describes itself as ‘specialists in good sense’ is offering its services to consumers in England and Wales. The bank is expected to start operating in Scotland later this year.
The FPB believes more competition between leading banks and allowing alternative funders to compete in the finance markets they dominate – including via substantial tax breaks for private lenders – would help to address the perception of small businesses as risky propositions and subsequently bring down lending costs.
Shawbrook Bank claims its customers can borrow at “genuinely competitive rates”, and in most cases have a definitive answer within 24 hours on whether their loan application has been successful. Businesses do need to hold a current account with the bank to access its services.
FSA Chief Executive Hector Sants recently met with US Securities and Exchange Commission (SEC) Chairman Mary L Schapiro to restate their commitment to working together as part of the SEC-FSA Strategic Dialogue sessions which were first set up in 2006.
The meeting continued discussions in the areas of common regulatory interest including cross-border enforcement cases, the oversight of dually-regulated firms, and the global regulatory agenda.
Topics under discussion included regulatory reform, over-the-counter derivatives trading and clearing, market structure issues including high frequency trading, market surveillance and short selling. The meeting also gave both agencies the opportunity to reiterate their commitment to working together and to continue discussions in the areas of common regulatory interest including cross-border enforcement cases and the global regulatory agenda.
“Close co-operation between the FSA and the SEC is important as we seek to meet the G20 commitment to enhance transparency, mitigate systemic risk and protect against market abuse. The strategic dialogue is key to this and gives the two agencies the opportunity to find common ground, build on areas of mutual interest, and identify potential regulatory gaps,” said Hector Sants.
SEC Chairman Schapiro responded to Sants' comments. “The ongoing dialogue between the SEC and the UK FSA demonstrates both agencies’ commitment to aligning interests with the goal of achieving regulatory consistency. As Europe and the US continue to enhance regulation in the wake of the financial crisis, working with all of our counterparts is essential to help prevent regulatory arbitrage, especially in the areas involving over-the-counter derivatives and market structure.”