Month: August 2021

As I was scrolling some financial issues on the Harvard university website the following caught my eye :

ESG: Investors Increasingly Seek Accountability and Outcomes

and I realised that the term “accountability” is one many people have difficulty grasping. Let’s start by saying what it’s not: “accountability” is not related to accounting or accountancy. It is related to the expression “to account for something” or to explain or justify the outcome or result of something especially when an individual or organisation experiences consequences due to their actions. 

The above article mentions that the consequences can be shareholders not voting for proposed board directors if the board lacks diversity or investors not providing funding to companies who are not reducing their carbon footprint.

The British Institute for Government website has the following comment to make

Strong accountability provides the foundation of a healthy
democracy. It ensures a relationship between the public and those
in government who have power to shape their lives. People expect
performance to be rewarded if good or penalised if poor, and the
demonstration that this happens matters for their trust in
government. But the rules of accountability also need to enable
those in government to learn from failure.

IFG

While the website Global Banking and Finance claims that investors attach great importance to transparency and accuracy in reporting and that;

Globally, 79% of investors indicated that the CEO should be held accountable for a company’s financial reporting errors, while nearly four in ten (38%) thought the CFO should also be held to account.

GB&F

In other words CEOs’ and CFOs’ should pay the price in the event of misreporting of figures.

The presidential candidate Elizabeth Warren proposed, as senator in 2018, the Accountable Capitalism Act to radically overhaul fiduciary duty and governance issues, explaining in a New York Times article why companies shouldn’t be accountable only to their shareholders. While we know that she was not elected to be the 46th President, by some accounts, her proposals are becoming slightly more mainstream, there’s no accounting for taste.

On no account should I leave you without giving you the opportunity to see more related expressions. Click here for an exercise related to account word expressions.

Leverage is related to the noun “lever”, describing a structure which uses a mechanical advantage to make lifting or applying pressure easier and more effective . By extension, as a verb, it is also used to refer to the fact of gaining a strategic or political advantage, e.g. the Biden administration have suggested offering $100 to lever people into being vaccinated.

The process of applying a lever has become the term “leverage” and when saying leverage the first thing that springs to the mind ( or occurs) to financial people is the ratio of borrowed money, debt, to equity (also known as gearing, especially in English English rather than American English). For example, if you have 10 euros thanks to a bit of financial engineering you can borrow 100 euros against that.

In other words, the influence an amount of money can have can be multiplied various times by borrowing against it, as demonstrated in this example:

Prime brokers extend less of the leverage that hedge funds relied on to juice Spac returns

The word also has its place in traditional economics;

Shortage of adult workers has given younger employees more leverage to seek better wages

However, with the rise of ESG and CSR (aka Corporate Social Responsibility) issues, leverage is currently frequently used to refer to the pressure or influence an individual or entity can exert due to their stake in a company.

Which gave rise to the headline

activist-investors-leverage-esg-to-improve-stocks

meaning that investors that wish to enhance stock returns are taking into account alternative performance measures in order to outperform. Indeed Dan Ariely’s Irrational Capital’s research team claim there is a direct link between corporate culture and business performance.

Another example is that of the activist fund Bluebell Capital which leveraged a less than €20 million holding in Danone, worth over €40bn to oust ( or get rid of) the CEO and chair Emmanuel Faber. In other words, with only a small stake in the company, the fund manager managed to exert sufficient influence on other shareholders to bring about radical change.

But let’s not think that this attitude is a completely modern concept as Archimedes himself said back in the 3rd century B.C

“Give me a place to stand and rest my lever on, and I can move the Earth.”