Monday, January 12, 2009

Labelling risk levels

The Madoff Incident could have been prevented. All it requires is a labelling of the risk level of the company. Once a company has been labelled as a low risk investment this means that all its underlying investments ought to reflect the same level of risk as the company has represented to its investors. This would allow the expectation of the investors to be met. Presumably an investor would expect a low risk company to invest only in low risk investment.

With the disclosure system that the global security industry seems to be upholding to, it is not necessarily useful to the average investor. An average investor may not have the resources to consume all the information disclosed. Which is why it may be necessary to use a labelling approach in addition to the full disclosure system. Whilst the institutional investor may have the capacity to sieve through all the information, labelling would allow the average investor to know at a glance the risk level which the company is adhering to or whether it has not been able to adhere to. A company with a low risk level would need to disclose if its investments have complied with the same low risk level. If it has not, the company would need to reflect that it has exceeded its risk level and moved on to higher risk level. This would enable the average investor to decide if it wishes to maintain its investment at that higher risk or to sell out of the higher risk investment.

The labelling can be done by a simple colour coding. If all stocks are labelled, the colour label can easily be implemented.

Monday, January 5, 2009

corporate social responsibility

It may be a good time to re-look at corporate social responsibility ("CSR"). Instead of the norm in looking at charities or endangered species to protect, it may be relevant or useful to look at the integral business concerned.

On a typical sale season in the shopping mall, for instance, in the clothes department, one can see so much of clothes piled up high with its prices slashed. It gives one an idea of how much over-production is involved in each production run. This is where i believe the CSR team in the company should begin. Is it possible to look beyond economies of scale for management to decide how much of the stocks can truly be sold and ultimately consumed? Can social responsibility begin way before production and the creation of the waste. Instead of tagging bonus to the sales people who can rake in the turnover. Should management deduct bonus where there is a major overrun in production resulting ultimately in pollution. Should CSR look into the amount of waste created and contributed by its own business?

It would seem even more critical to consider this issue of over production, particularly where consumption is expected to be much lower. Is management looking into lowering production? or slowing the release of new designs. To take it a step further, should ethical standards be placed on consumption. For instance the use of bottled water to be banned in certain countries. Could this global economic turmoil become a catalyst for striving towards a more ethical consumption and ultimately resulting in a better environment?