Investment banking and Human rights

1
Investment banking and Human rights

• Maneesh Sharma, Ph.D.
• Dormer School of Business
• Presented at World Trade, World Poverty
  Conference
• IPFW
• September 19, 2009

2
Human rights in context of Economic

• Right to education
• Right to Food
• Right to live in dignity could be used to imply
  living standards
• Right to conduct commerce

3
What is Investment Banking

• Investment banks (IB) perform several important
  functions in capital markets. Among the most
  important are
• - Raising of capital
• - Advising corporate clients
• - Making markets in securities, and
• - Trade activities

4
Some Major Investment Banks

• Goldman Sachs
• Morgan Stanley
• Deutsche Bank
• United Bank of Switzerland, UBS
• Banc of America (Merrill Lynch)

5
Structure of Ownership of IB

• All of the IB listed on the previous slide are
  publicly owned
• Shares trade either on New York Stock Exchange
  and or other foreign markets
• Must answer to shareholders like other corporate

6
Sources of capital and steps in obtaining Capital
for IB

• Source of capital is public investors
• Steps 1) Perform due diligence
• 2) Prepare preliminary prospectus
• 3) Road show
• 4) Sell securities
• 5) Collect fees

7
Issues with directing capital

• Nature of markets to invest in stable and growing
  opportunities
• Since capital raised by IB belongs to other
  stakeholders, IBs ensure proper returns
• Mere existence of IB requires them to seek profits

8
What drives IB?

• Like any other business entity, it is PROFITS

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Anatomy of a Profit

• How profits are made

Human rights (5)
Profits (2)
(1) Business Conditions
Corporate Needs (3)
IB (4)
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Discussion on Profits

• As seen, Profits/ability to make profits is
  central to capital market solution to Human
  rights issues
• Even more so, business conditions are central to
  Profits
• Experiences of different countries demonstrate
  this phenomenon

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Countries with worst human right records (top 11)

• Congo- Civil wars ethnic conflict
• Rwanda- Civil wars ethnic conflict
• Burundi- Civil wars ethnic conflict
• Algeria- Civil war (1991-2002)
• Sierra Leone- Civil wars ethnic conflict
• Egypt- Dictatorship, Political and personal
  freedom
• North Korea- Dictatorship
• Sudan- Civil wars ethnic conflict
• Indonesia, Yugoslavia, Pakistan

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Countries with worst human rights violation

• Of the top 10 violators, 7 in Africa
• Of the top 10, 6 afflicted by civil war, ethnic
  conflicts
• Two are dictatorships
• All 10 have either unstable political environment
  and or dictatorial rule which results in lack of
  transparency and unsuitable business climate

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Some Numbers!

• Total IB revenue in 2007 84B
• Revenue from U.S 44.7B
• Revenue from Europe, Middle East, Africa 27B
• Revenue from Asia 12.7B
• Half the revenue from U.S

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More numbers

• Flow of capital to emerging nations in 2007
  270B
• Of this, 146 was to Asia-Pacific
• Emerging European nations 96B
• Africa 9.6B- Consistent with previous
  discussion

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The Reality

• As much as we wish that capital markets will lead
  the change, they cant- different missions
• Capital markets follow business climate which
  then leads to evolution of human rights
• Long process to that change though
• Investment banks/Capital markets are just tools
  that have no emotions

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What would it take?

• All ten offenders offer great business
  opportunity in the following areas IT
  infrastructure, civil infrastructure, medicine,
  education, medicine and consumer products
• The preventing factors are persecution on people
  and businesses
• If people can be convinced to create a stable
  political environment, it would lead to much
  capital inflow
• The Investment banks could and would play leading
  role to direct this capital flow!

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India and China as examples

• Even though India is not on the list and China
  further down, both have set examples for how we
  can achieve greater human rights open markets,
  and stable political environment
• Pursuing these policies has educated a vast
  number of people helped improve standard for
  countless people, and empowered millions others.

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Conclusion

• Looking to Investment banking as a solution is
  not productive
• Investment bankers follow profits which follow
  stable and predictable social and political
  environment
• What is needed is political and social reforms
  (which allow human rights to develop)