Although avian influenza A viruses usually do not infect humans, rare cases of human infection with avian influenza viruses have been reported since 1997. More recently, more than 200 confirmed cases of human infection with avian influenza A (H5N1) viruses have been reported since 2004. The World Health Organization (WHO) maintains situation updates and cumulative reports of human cases of avian influenza A (H5N1). Most cases of avian influenza infection in humans are thought to have resulted from direct contact with infected poultry or contaminated surfaces. However, there is still a lot to learn about how different subtypes and strains of avian influenza virus might affect humans. For example, it is not known how the distinction between low pathogenic and highly pathogenic strains might impact the health risk to humans. (For more information, see “Low Pathogenic versus Highly Pathogenic Avian Influenza Viruses” on the CDC Influenza Viruses Web page.)
Because of concerns about the potential for more widespread infection in the human population, public health authorities closely monitor outbreaks of human illness associated with avian influenza. To date, human infections with avian influenza A viruses detected since 1997 have not resulted in sustained human-to-human transmission. However, because influenza A viruses have the potential to change and gain the ability to spread easily between people, monitoring for human infection and person-to-person transmission is important. (See Information about Influenza Pandemics for more information.)
Instances of Avian Influenza Infections in Humans
Confirmed instances of avian influenza viruses infecting humans since 1997 include:
H5N1, Hong Kong, Special Administrative Region, 1997: Highly pathogenic avian influenza A (H5N1) infections occurred in both poultry and humans. This was the first time an avian influenza A virus transmission directly from birds to humans had been found. During this outbreak, 18 people were hospitalized and six of them died. To control the outbreak, authorities killed about 1.5 million chickens to remove the source of the virus. Scientists determined that the virus spread primarily from birds to humans, though rare person-to-person infection was noted.
H9N2, China and Hong Kong, Special Administrative Region, 1999: Low pathogenic avian influenza A (H9N2) virus infection was confirmed in two children and resulted in uncomplicated influenza-like illness. Both patients recovered, and no additional cases were confirmed. The source is unknown, but the evidence suggested that poultry was the source of infection and the main mode of transmission was from bird to human. However, the possibility of person-to-person transmission could not be ruled out. Several additional human H9N2 infections were reported from China in 1998-99.
H7N2, Virginia, 2002: Following an outbreak of H7N2 among poultry in the Shenandoah Valley poultry production area, one person was found to have serologic evidence of infection with H7N2.
H5N1, China and Hong Kong, Special Administrative Region, 2003: Two cases of highly pathogenic avian influenza A (H5N1) infection occurred among members of a Hong Kong family that had traveled to China. One person recovered, the other died. How or where these two family members were infected was not determined. Another family member died of a respiratory illness in China, but no testing was done.
H7N7, Netherlands, 2003: The Netherlands reported outbreaks of influenza A (H7N7) in poultry on several farms. Later, infections were reported among pigs and humans. In total, 89 people were confirmed to have H7N7 influenza virus infection associated with this poultry outbreak. These cases occurred mostly among poultry workers. H7N7-associated illness included 78 cases of conjunctivitis (eye infections) only; 5 cases of conjunctivitis and influenza-like illnesses with cough, fever, and muscle aches; 2 cases of influenza-like illness only; and 4 cases that were classified as “other.” There was one death among the 89 total cases. It occurred in a veterinarian who visited one of the affected farms and developed acute respiratory distress syndrome and complications related to H7N7 infection. The majority of these cases occurred as a result of direct contact with infected poultry; however, Dutch authorities reported three possible instances of transmission from poultry workers to family members. Since then, no other instances of H7N7 infection among humans have been reported.
H9N2, Hong Kong, Special Administrative Region, 2003: Low pathogenic avian influenza A (H9N2) infection was confirmed in a child in Hong Kong. The child was hospitalized and recovered.
H7N2, New York, 2003: In November 2003, a patient with serious underlying medical conditions was admitted to a hospital in New York with respiratory symptoms. One of the initial laboratory tests identified an influenza A virus that was thought to be H1N1. The patient recovered and went home after a few weeks. Subsequent confirmatory tests conducted in March 2004 showed that the patient had been infected with avian influenza A (H7N2) virus.
H7N3, Canada, 2004: In February 2004, human infections of highly pathogenic avian influenza A (H7N3) among poultry workers were associated with an H7N3 outbreak among poultry. The H7N3-associated, mild illnesses consisted of eye infections.
H5N1, Thailand and Vietnam, 2004: In late 2003, outbreaks of highly pathogenic influenza A (H5N1) in poultry in Asia were first reported by the World Health Organization. Human infections with H5N1 were reported beginning in 2004, mostly resulting from contact with infected poultry. However, in Thailand one instance of probable human-to-human spread is thought to have occurred.
H5N1, Cambodia, China, Indonesia, Thailand and Vietnam, 2005: Human infections with H5N1 occurred in association with the ongoing H5N1 epizootic in the region. At least two persons in Vietnam were thought to have been infected through consumption of uncooked duck blood.
H5N1, Azerbaijan, Cambodia, China, Djibouti, Egypt, Indonesia, Iraq, Thailand, Turkey, 2006: Human infections with H5N1 occurred in association with the ongoing and expanding epizootic. While most of these cases occurred as a result of contact with infected poultry, in Azerbaijan , the most plausible cause of exposure to H5N1 in several instances of human infection is thought to be contact with infected dead wild birds (swans).
Symptoms of Avian Influenza in Humans
The reported symptoms of avian influenza in humans have ranged from typical influenza-like symptoms (e.g., fever, cough, sore throat, and muscle aches) to eye infections (conjunctivitis), pneumonia, acute respiratory distress, viral pneumonia, and other severe and life-threatening complications.
Antiviral Agents for Influenza
Four different influenza antiviral drugs (amantadine, rimantadine, oseltamivir, and zanamivir) are approved by the U.S. Food and Drug Administration (FDA) for the treatment and prevention of influenza. All four have activity against influenza A viruses. However, sometimes influenza strains can become resistant to these drugs, and therefore the drugs may not always be effective. For example, analyses of some of the 2004 H5N1 viruses isolated from poultry and humans in Asia have shown that the viruses are resistant to two of the medications (amantadine and rimantadine). Also, please note the January 14, 2006 CDC Health Alert Notice (HAN), in which CDC recommends that neither amantadine nor rimantadine be used for the treatment or prevention (prophylaxis) of influenza A in the United States for the remainder of the 2005-06 influenza season. Monitoring of avian influenza A viruses for resistance to influenza antiviral medications is ongoing.
Senin, 31 Maret 2008
Global Warming: Who Loses—and Who Wins? : Adaptation
Last October 2007, the treasury office of the United Kingdom estimated that unless we adapt, global warming could eventually subtract as much as 20 percent of the gross domestic product from the world economy. Needless to say, if that happens, not even the cleverest portfolio will help you. This estimate is worst-case, however, and has many economists skeptical. Optimists think dangerous global warming might be averted at surprisingly low cost (see “Some Convenient Truths,” September 2006). Once regulations create a profit incentive for the invention of greenhouse-gas-reducing technology, an outpouring of innovation is likely. Some of those who formulate greenhouse- gas-control ideas will become rich; everyone will benefit from the environmental safeguards the ideas confer.
Enactment of some form of binding greenhouse-gas rules is now essential both to slow the rate of greenhouse-gas accumulation and to create an incentive for inventors, engineers, and businesspeople to devise the ideas that will push society beyond the fossil-fuel age. The New York Times recently groused that George W. Bush’s fiscal 2007 budget includes only $4.2 billion for federal research that might cut greenhouse-gas emissions. This is the wrong concern: Progress would be faster if the federal government spent nothing at all on greenhouse-gas-reduction research—but enacted regulations that gave the private sector a significant profit motive to find solutions that work in actual use, as opposed to on paper in government studies. The market has caused the greenhouse-gas problem, and the market is the best hope of solving it. Offering market incentives for the development of greenhouse-gas controls—indeed, encouraging profit making in greenhouse-gas controls—is the most promising path to avoiding the harm that could befall the dispossessed of developing nations as the global climate changes.
Yet if global-warming theory is right, higher global temperatures are already inevitable. Even the most optimistic scenario for reform envisions decades of additional greenhouse-gas accumulation in the atmosphere, and that in turn means a warming world. The warming may be manageable, but it is probably unstoppable in the short term. This suggests that a major investment sector of the near future will be climate-change adaptation. Crops that grow in high temperatures, homes and buildings designed to stay cool during heat waves, vehicles that run on far less fuel, waterfront structures that can resist stronger storms—the list of needed adaptations will be long, and all involve producing, buying, and selling. Environmentalists don’t like talk of adaptation, as it implies making our peace with a warmer world. That peace, though, must be made—and the sooner businesses, investors, and entrepreneurs get to work, the better.
Why, ultimately, should nations act to control greenhouse gases, rather than just letting climate turmoil happen and seeing who profits? One reason is that the cost of controls is likely to be much lower than the cost of rebuilding the world. Coastal cities could be abandoned and rebuilt inland, for instance, but improving energy efficiency and reducing greenhouse-gas emissions in order to stave off rising sea levels should be far more cost-effective. Reforms that prevent major economic and social disruption from climate change are likely to be less expensive, across the board, than reacting to the change. The history of antipollution programs shows that it is always cheaper to prevent emissions than to reverse any damage they cause.
For the United States, there’s another argument that is particularly keen. The present ordering of the world favors the United States in nearly every respect—political, economic, even natural, considering America’s excellent balance of land and resources. Maybe a warming world would favor the United States more; this is certainly possible. But when the global order already places America at No. 1, why would we want to run the risk of climate change that alters that order? Keeping the world economic system and the global balance of power the way they are seems very strongly in the U.S. national interest—and keeping things the way they are requires prevention of significant climate change. That, in the end, is what’s in it for us.
Enactment of some form of binding greenhouse-gas rules is now essential both to slow the rate of greenhouse-gas accumulation and to create an incentive for inventors, engineers, and businesspeople to devise the ideas that will push society beyond the fossil-fuel age. The New York Times recently groused that George W. Bush’s fiscal 2007 budget includes only $4.2 billion for federal research that might cut greenhouse-gas emissions. This is the wrong concern: Progress would be faster if the federal government spent nothing at all on greenhouse-gas-reduction research—but enacted regulations that gave the private sector a significant profit motive to find solutions that work in actual use, as opposed to on paper in government studies. The market has caused the greenhouse-gas problem, and the market is the best hope of solving it. Offering market incentives for the development of greenhouse-gas controls—indeed, encouraging profit making in greenhouse-gas controls—is the most promising path to avoiding the harm that could befall the dispossessed of developing nations as the global climate changes.
Yet if global-warming theory is right, higher global temperatures are already inevitable. Even the most optimistic scenario for reform envisions decades of additional greenhouse-gas accumulation in the atmosphere, and that in turn means a warming world. The warming may be manageable, but it is probably unstoppable in the short term. This suggests that a major investment sector of the near future will be climate-change adaptation. Crops that grow in high temperatures, homes and buildings designed to stay cool during heat waves, vehicles that run on far less fuel, waterfront structures that can resist stronger storms—the list of needed adaptations will be long, and all involve producing, buying, and selling. Environmentalists don’t like talk of adaptation, as it implies making our peace with a warmer world. That peace, though, must be made—and the sooner businesses, investors, and entrepreneurs get to work, the better.
Why, ultimately, should nations act to control greenhouse gases, rather than just letting climate turmoil happen and seeing who profits? One reason is that the cost of controls is likely to be much lower than the cost of rebuilding the world. Coastal cities could be abandoned and rebuilt inland, for instance, but improving energy efficiency and reducing greenhouse-gas emissions in order to stave off rising sea levels should be far more cost-effective. Reforms that prevent major economic and social disruption from climate change are likely to be less expensive, across the board, than reacting to the change. The history of antipollution programs shows that it is always cheaper to prevent emissions than to reverse any damage they cause.
For the United States, there’s another argument that is particularly keen. The present ordering of the world favors the United States in nearly every respect—political, economic, even natural, considering America’s excellent balance of land and resources. Maybe a warming world would favor the United States more; this is certainly possible. But when the global order already places America at No. 1, why would we want to run the risk of climate change that alters that order? Keeping the world economic system and the global balance of power the way they are seems very strongly in the U.S. national interest—and keeping things the way they are requires prevention of significant climate change. That, in the end, is what’s in it for us.
Global Warming: Who Loses—and Who Wins? : Water
If Al Gore’s movie, An Inconvenient Truth, is to be believed, you should start selling coastal real estate now. Gore’s film maintains that an artificial greenhouse effect could raise sea levels 20 feet in the near future, flooding Manhattan, San Francisco, and dozens of other cities; Micronesia would simply disappear below the waves. Gore’s is the doomsday number, but the scientific consensus is worrisome enough: In 2005, the National Academy of Sciences warned that oceans may rise between four inches and three feet by the year 2100. Four inches may not sound like a lot, but it would imperil parts of coastal Florida and the Carolinas, among other places. A three-foot sea-level rise would flood significant portions of Bangladesh, threaten the national survival of the Netherlands, and damage many coastal cities, while submerging pretty much all of the world’s trendy beach destinations to boot. And the Asian Tigers? Shanghai and Hong Kong sit right on the water. Raise the deep a few feet, and these Tiger cities would be abandoned.
The global temperature increase of the last century—about one degree Fahrenheit—was modest and did not cause any dangerous sea-level rise. Sea-level worries turn on the possibility that there is some nonlinear aspect of the climate system, a “tipping point” that could cause the rate of global warming to accelerate markedly. One reason global warming has not happened as fast as expected appears to be that the oceans have absorbed much of the carbon dioxide emitted by human activity. Studies suggest, however, that the ability of the oceans to absorb carbon dioxide may be slowing; as the absorption rate declines, atmospheric buildup will happen faster, and climate change could speed up. At the first sign of an increase in the rate of global warming: Sell, sell, sell your coastal properties. Unload those London and Seattle waterfront holdings. Buy land and real property in Omaha or Ontario.
An artificial greenhouse effect may also alter ocean currents in unpredictable ways. Already there is some evidence that the arctic currents are changing, while the major North Atlantic current that moves warm water north from the equator may be losing energy. If the North Atlantic current falters, temperatures could fall in Europe even as the world overall warms. Most of Europe lies to the north of Maine yet is temperate because the North Atlantic current carries huge volumes of warm water to the seas off Scotland; that warm water is Europe’s weathermaker. Geological studies show that the North Atlantic current has stopped in the past. If this current stops again because of artificial climate change, Europe might take on the climate of present-day Newfoundland. As a result, it might depopulate, while the economic value of everything within its icy expanse declines. The European Union makes approximately the same contribution to the global economy as the United States makes: Significantly falling temperatures in Europe could trigger a worldwide recession.
While staying ready to sell your holdings in Europe, look for purchase opportunities near the waters of the Arctic Circle. In 2005, a Russian research ship became the first surface vessel ever to reach the North Pole without the aid of an icebreaker. If arctic sea ice melts, shipping traffic will begin transiting the North Pole. Andrew Revkin’s 2006 book, The North Pole Was Here, profiles Pat Broe, who in 1997 bought the isolated far-north port of Churchill, Manitoba, from the Canadian government for $7. Assuming arctic ice continues to melt, the world’s cargo vessels may begin sailing due north to shave thousands of miles off their trips, and the port of Churchill may be bustling. If arctic polar ice disappears and container vessels course the North Pole seas, shipping costs may decline—to the benefit of consumers. Asian manufacturers, especially, should see their costs of shipping to the United States and the European Union fall. At the same time, heavily trafficked southern shipping routes linking East Asia to Europe and to America’s East Coast could see less traffic, and port cities along that route—such as Singapore—might decline. Concurrently, good relations with Nunavut could become of interest to the world’s corporations.
Oh, and there may be oil under the arctic waters. Who would own that oil? The United States, Russia, Canada, Norway, and Denmark already assert legally complex claims to parts of the North Pole seas—including portions that other nations consider open waters not subject to sovereign control. Today it seems absurd to imagine the governments of the world fighting over the North Pole seas, but in the past many causes of battle have seemed absurd before the artillery fire began. Canada is already conducting naval exercises in the arctic waters, and making no secret of this.
Then again, perhaps ownership of these waters will go in an entirely different direction. The 21st century is likely to see a movement to create private-property rights in the ocean (ocean property rights are the most promising solution to overfishing of the open seas). Private-property rights in the North Pole seas, should they come into existence, might generate a rush to rival the Sooners’ settlement of Oklahoma in the late 1800s.
Whatever happens to our oceans, climate change might also cause economic turmoil by affecting freshwater supplies. Today nearly all primary commodities, including petroleum, appear in ample supply. Freshwater is an exception: China is depleting aquifers at an alarming rate in order to produce enough rice to feed itself, while freshwater is scarce in much of the Middle East and parts of Africa. Freshwater depletion is especially worrisome in Egypt, Libya, and several Persian Gulf states. Greenhouse-effect science is so uncertain that researchers have little idea whether a warming world would experience more or less precipitation. If it turns out that rain and snow decline as the world warms, dwindling supplies of drinking water and freshwater for agriculture may be the next resource emergency. For investors this would suggest a cautious view of the booms in China and Dubai, as both places may soon face freshwater-supply problems. (Cost-effective desalinization continues to elude engineers.) On the other hand, where water rights are available in these areas, grab them.
Much of the effect that global warming will have on our water is speculative, so water-related climate change will be a high-risk/high-reward matter for investors and societies alike. The biggest fear is that artificially triggered climate change will shift rainfall away from today’s productive breadbasket areas and toward what are now deserts or, worse, toward the oceans. (From the human perspective, all ocean rain represents wasted freshwater.) The reason Malthusian catastrophes have not occurred as humanity has grown is that for most of the last half century, farm yields have increased faster than population. But the global agricultural system is perilously poised on the assumption that growing conditions will continue to be good in the breadbasket areas of the United States, India, China, and South America. If rainfall shifts away from those areas, there could be significant human suffering for many, many years, even if, say, Siberian agriculture eventually replaces lost production elsewhere. By reducing farm yield, rainfall changes could also cause skyrocketing prices for commodity crops, something the global economy has rarely observed in the last 30 years.
Recent studies show that in the last few decades, precipitation in North America is increasingly the result of a few downpours rather than lots of showers. Downpours cause flooding and property damage, while being of less use to agriculture than frequent soft rains. Because the relationship between artificially triggered climate change and rainfall is conjectural, investors presently have no way to avoid buying land in places that someday might be hit with frequent downpours. But this concern surely raises a red flag about investments in India, Bangladesh, and Indonesia, where monsoon rains are already a leading social problem.
Water-related investments might be attractive in another way: for hydropower. Zero-emission hydropower might become a premium energy form if greenhouse gases are strictly regulated. Quebec is the Saudi Arabia of roaring water. Already the hydropower complex around James Bay is one of the world’s leading sources of water- generated electricity. For 30 years, environmentalists and some Cree activists opposed plans to construct a grand hydropower complex that essentially would dam all large rivers flowing into the James and Hudson bays. But it’s not hard to imagine Canada completing the reengineering of northern Quebec for hydropower, if demand from New England and the Midwest becomes strong enough. Similarly, there is hydropower potential in the Chilean portions of Patagonia. This is a wild and beautiful region little touched by human activity—and an intriguing place to snap up land for hydropower reservoirs.
The global temperature increase of the last century—about one degree Fahrenheit—was modest and did not cause any dangerous sea-level rise. Sea-level worries turn on the possibility that there is some nonlinear aspect of the climate system, a “tipping point” that could cause the rate of global warming to accelerate markedly. One reason global warming has not happened as fast as expected appears to be that the oceans have absorbed much of the carbon dioxide emitted by human activity. Studies suggest, however, that the ability of the oceans to absorb carbon dioxide may be slowing; as the absorption rate declines, atmospheric buildup will happen faster, and climate change could speed up. At the first sign of an increase in the rate of global warming: Sell, sell, sell your coastal properties. Unload those London and Seattle waterfront holdings. Buy land and real property in Omaha or Ontario.
An artificial greenhouse effect may also alter ocean currents in unpredictable ways. Already there is some evidence that the arctic currents are changing, while the major North Atlantic current that moves warm water north from the equator may be losing energy. If the North Atlantic current falters, temperatures could fall in Europe even as the world overall warms. Most of Europe lies to the north of Maine yet is temperate because the North Atlantic current carries huge volumes of warm water to the seas off Scotland; that warm water is Europe’s weathermaker. Geological studies show that the North Atlantic current has stopped in the past. If this current stops again because of artificial climate change, Europe might take on the climate of present-day Newfoundland. As a result, it might depopulate, while the economic value of everything within its icy expanse declines. The European Union makes approximately the same contribution to the global economy as the United States makes: Significantly falling temperatures in Europe could trigger a worldwide recession.
While staying ready to sell your holdings in Europe, look for purchase opportunities near the waters of the Arctic Circle. In 2005, a Russian research ship became the first surface vessel ever to reach the North Pole without the aid of an icebreaker. If arctic sea ice melts, shipping traffic will begin transiting the North Pole. Andrew Revkin’s 2006 book, The North Pole Was Here, profiles Pat Broe, who in 1997 bought the isolated far-north port of Churchill, Manitoba, from the Canadian government for $7. Assuming arctic ice continues to melt, the world’s cargo vessels may begin sailing due north to shave thousands of miles off their trips, and the port of Churchill may be bustling. If arctic polar ice disappears and container vessels course the North Pole seas, shipping costs may decline—to the benefit of consumers. Asian manufacturers, especially, should see their costs of shipping to the United States and the European Union fall. At the same time, heavily trafficked southern shipping routes linking East Asia to Europe and to America’s East Coast could see less traffic, and port cities along that route—such as Singapore—might decline. Concurrently, good relations with Nunavut could become of interest to the world’s corporations.
Oh, and there may be oil under the arctic waters. Who would own that oil? The United States, Russia, Canada, Norway, and Denmark already assert legally complex claims to parts of the North Pole seas—including portions that other nations consider open waters not subject to sovereign control. Today it seems absurd to imagine the governments of the world fighting over the North Pole seas, but in the past many causes of battle have seemed absurd before the artillery fire began. Canada is already conducting naval exercises in the arctic waters, and making no secret of this.
Then again, perhaps ownership of these waters will go in an entirely different direction. The 21st century is likely to see a movement to create private-property rights in the ocean (ocean property rights are the most promising solution to overfishing of the open seas). Private-property rights in the North Pole seas, should they come into existence, might generate a rush to rival the Sooners’ settlement of Oklahoma in the late 1800s.
Whatever happens to our oceans, climate change might also cause economic turmoil by affecting freshwater supplies. Today nearly all primary commodities, including petroleum, appear in ample supply. Freshwater is an exception: China is depleting aquifers at an alarming rate in order to produce enough rice to feed itself, while freshwater is scarce in much of the Middle East and parts of Africa. Freshwater depletion is especially worrisome in Egypt, Libya, and several Persian Gulf states. Greenhouse-effect science is so uncertain that researchers have little idea whether a warming world would experience more or less precipitation. If it turns out that rain and snow decline as the world warms, dwindling supplies of drinking water and freshwater for agriculture may be the next resource emergency. For investors this would suggest a cautious view of the booms in China and Dubai, as both places may soon face freshwater-supply problems. (Cost-effective desalinization continues to elude engineers.) On the other hand, where water rights are available in these areas, grab them.
Much of the effect that global warming will have on our water is speculative, so water-related climate change will be a high-risk/high-reward matter for investors and societies alike. The biggest fear is that artificially triggered climate change will shift rainfall away from today’s productive breadbasket areas and toward what are now deserts or, worse, toward the oceans. (From the human perspective, all ocean rain represents wasted freshwater.) The reason Malthusian catastrophes have not occurred as humanity has grown is that for most of the last half century, farm yields have increased faster than population. But the global agricultural system is perilously poised on the assumption that growing conditions will continue to be good in the breadbasket areas of the United States, India, China, and South America. If rainfall shifts away from those areas, there could be significant human suffering for many, many years, even if, say, Siberian agriculture eventually replaces lost production elsewhere. By reducing farm yield, rainfall changes could also cause skyrocketing prices for commodity crops, something the global economy has rarely observed in the last 30 years.
Recent studies show that in the last few decades, precipitation in North America is increasingly the result of a few downpours rather than lots of showers. Downpours cause flooding and property damage, while being of less use to agriculture than frequent soft rains. Because the relationship between artificially triggered climate change and rainfall is conjectural, investors presently have no way to avoid buying land in places that someday might be hit with frequent downpours. But this concern surely raises a red flag about investments in India, Bangladesh, and Indonesia, where monsoon rains are already a leading social problem.
Water-related investments might be attractive in another way: for hydropower. Zero-emission hydropower might become a premium energy form if greenhouse gases are strictly regulated. Quebec is the Saudi Arabia of roaring water. Already the hydropower complex around James Bay is one of the world’s leading sources of water- generated electricity. For 30 years, environmentalists and some Cree activists opposed plans to construct a grand hydropower complex that essentially would dam all large rivers flowing into the James and Hudson bays. But it’s not hard to imagine Canada completing the reengineering of northern Quebec for hydropower, if demand from New England and the Midwest becomes strong enough. Similarly, there is hydropower potential in the Chilean portions of Patagonia. This is a wild and beautiful region little touched by human activity—and an intriguing place to snap up land for hydropower reservoirs.
Global Warming: Who Loses—and Who Wins? : Land
Real estate might be expected to appreciate steadily in value during the 21st century, given that both the global population and global prosperity are rising. The supply of land is fixed, and if there’s a fixed supply of something but a growing demand, appreciation should be automatic. That’s unless climate change increases the supply of land by warming currently frosty areas while throwing the amount of desirable land into tremendous flux. My hometown of Buffalo, New York, for example, is today so déclassé that some of its stately Beaux-Arts homes, built during the Gilded Age and overlooking a park designed by Frederick Law Olmsted, sell for about the price of one-bedroom condos in Boston or San Francisco. If a warming world makes the area less cold and snowy, Buffalo might become one of the country’s desirable addresses.
At the same time, Arizona and Nevada, blazing growth markets today, might become unbearably hot and see their real-estate markets crash. If the oceans rise, Florida’s rapid growth could be, well, swamped by an increase in its perilously high groundwater table. Houston could decline, made insufferable by worsened summertime humidity, while the splendid, rustic Laurentide Mountains region north of Montreal, if warmed up a bit, might transmogrify into the new Poconos.
These are just a few of many possible examples. Climate change could upset the applecarts of real-estate values all over the world, with low-latitude properties tanking while high latitudes become the Sun Belt of the mid-21st century.
Local changes in housing demand are only small beer. To consider the big picture, examine a Mercator projection of our planet, and observe how the Earth’s landmasses spread from the equator to the poles. Assume global warming is reasonably uniform. (Some computer models suggest that warming will vary widely by region; for the purposes of this article, suffice it to say that all predictions regarding an artificial greenhouse effect are extremely uncertain.) The equatorial and low-latitude areas of the world presumably will become hotter and less desirable as places of habitation, plus less valuable in economic terms; with a few exceptions, these areas are home to developing nations where living standards are already low.
So where is the high-latitude landmass that might grow more valuable in a warming world? By accident of geography, except for Antarctica nearly all such land is in the Northern Hemisphere, whose continents are broad west-to-east. Only a relatively small portion of South America, which narrows as one travels south, is high latitude, and none of Africa or Australia is. (Cape Town is roughly the same distance from the equator as Cape Hatteras; Melbourne is about the same distance from the equator as Manhattan.) More specifically, nearly all the added land-value benefits of a warming world might accrue to Alaska, Canada, Greenland, Russia, and Scandinavia.
Gregg Easterbrook is an Atlantic contributing editor, a visiting fellow at the Brookings Institution, and the author of The Progress Paradox (2003
This raises the possibility that an artificial greenhouse effect could harm nations that are already hard pressed and benefit nations that are already affluent. If Alaska turned temperate, it would drive conservationists to distraction, but it would also open for development an area more than twice the size of Texas. Rising world temperatures might throw Indonesia, Mexico, Nigeria, and other low-latitude nations into generations of misery, while causing Canada, Greenland, and Scandinavia to experience a rip-roarin’ economic boom. Many Greenlanders are already cheering the retreat of glaciers, since this melting stands to make their vast island far more valuable. Last July, The Wall Street Journal reported that the growing season in the portion of Greenland open to cultivation is already two weeks longer than it was in the 1970s.
And Russia! For generations poets have bemoaned this realm as cursed by enormous, foreboding, harsh Siberia. What if the region in question were instead enormous, temperate, inviting Siberia? Climate change could place Russia in possession of the largest new region of pristine, exploitable land since the sailing ships of Europe first spied the shores of what would be called North America. The snows of Siberia cover soils that have never been depleted by controlled agriculture. What’s more, beneath Siberia’s snow may lie geologic formations that hold vast deposits of fossil fuels, as well as mineral resources. When considering ratification of the Kyoto Protocol to regulate greenhouse gases, the Moscow government dragged its feet, though the treaty was worded to offer the Russians extensive favors. Why might this have happened? Perhaps because Russia might be much better off in a warming world: Warming’s benefits to Russia could exceed those to all other nations combined.
Of course, it could be argued that politicians seldom give much thought—one way or the other—to actions whose value will become clear only after they leave office, so perhaps Moscow does not have a grand strategy to warm the world for its own good. But a warmer world may be much to Russia’s liking, whether it comes by strategy or accident. And how long until high-latitude nations realize global warming might be in their interests? In recent years, Canada has increased its greenhouse-gas output more rapidly than most other rich countries. Maybe this is a result of prosperity and oil-field development—or maybe those wily Canadians have a master plan for their huge expanse of currently uninhabitable land.
Global warming might do more for the North, however, than just opening up new land. Temperatures are rising on average, but when are they rising? Daytime? Nighttime? Winter? Summer? One fear about artificially triggered climate change has been that global warming would lead to scorching summer-afternoon highs, which would kill crops and brown out the electric power grid. Instead, so far a good share of the warming—especially in North America—has come in the form of nighttime and winter lows that are less low. Higher lows reduce the harshness of winter in northern climes and moderate the demand for energy. And fewer freezes allow extended growing seasons, boosting farm production. In North America, spring comes ever earlier—in recent years, trees have flowered in Washington, D.C., almost a week earlier on average than a generation ago. People may find this creepy, but earlier springs and milder winters can have economic value to agriculture—and lest we forget, all modern societies, including the United States, are grounded in agriculture.
If a primary impact of an artificially warmed world is to make land in Canada, Greenland, Russia, Scandinavia, and the United States more valuable, this could have three powerful effects on the 21st-century global situation.
First, historically privileged northern societies might not decline geopolitically, as many commentators have predicted. Indeed, the great age of northern power may lie ahead, if Earth’s very climate is on the verge of conferring boons to that part of the world. Should it turn out that headlong fossil-fuel combustion by northern nations has set in motion climate change that strengthens the relative world position of those same nations, future essayists will have a field day. But the prospect is serious. By the middle of the 21st century, a new global balance of power may emerge in which Russia and America are once again the world’s paired superpowers—only this time during a Warming War instead of a Cold War.
Second, if northern societies find that climate change makes them more wealthy, the quest for world equity could be dealt a huge setback. Despite the popular misconception, globalized economics have been a positive force for increased equity. As the Indian economist Surjit Bhalla has shown, the developing world produced 29 percent of the globe’s income in 1950; by 2000 that share had risen to 42 percent, while the developing world’s share of population rose at a slower rate. All other things being equal, we might expect continued economic globalization to distribute wealth more widely. But if climate change increases the value of northern land and resources, while leaving nations near the equator hotter and wracked by storms or droughts, all other things would not be equal.
That brings us to the third great concern: If climate change causes developing nations to falter, and social conditions within them deteriorate, many millions of jobless or hungry refugees may come to the borders of the favored North, demanding to be let in. If the very Earth itself turns against poor nations, punishing them with heat and storms, how could the United States morally deny the refugees succor?
Shifts in the relative values of places and resources have often led to war, and it is all too imaginable that climate change will cause nations to envy each other’s territory. This envy is likely to run both north-south and up-down. North-south? Suppose climate change made Brazil less habitable, while bringing an agreeable mild clime to the vast and fertile Argentinean pampas to Brazil’s south. São Paulo is already one of the world’s largest cities. Would a desperate, overheated Brazil of the year 2037—its population exploding—hesitate to attack Argentina for cool, inviting land? Now consider the up-down prospect: the desire to leave low-lying areas for altitude. Here’s an example: Since its independence, in 1947, Pakistan has kept a hand in the internal affairs of Afghanistan. Today Americans view this issue through the lens of the Taliban and al-Qaeda, but from Islamabad’s perspective, the goal has always been to keep Afghanistan available as a place for retreat, should Pakistan lose a war with India. What if the climate warms, rendering much of Pakistan unbearable to its citizens? (Temperatures of 100-plus degrees are already common in the Punjab.) Afghanistan’s high plateaus, dry and rocky as they are, might start looking pleasingly temperate as Pakistan warms, and the Afghans might see yet another army headed their way.
warming climate could cause other landgrabs on a national scale. Today Greenland is a largely self-governing territory of Denmark that the world leaves in peace because no nation covets its shivering expanse. Should the Earth warm, Copenhagen might assert greater jurisdiction over Greenland, or stronger governments might scheme to seize this dwarf continent, which is roughly three times the size of Texas. Today Antarctica is under international administration, and this arrangement is generally accepted because the continent has no value beyond scientific research. If the world warmed for a long time—and it would likely take centuries for the Antarctic ice sheet to melt completely—international jockeying to seize or conquer Antarctica might become intense. Some geologists believe large oil deposits are under the Antarctic crust: In earlier epochs, the austral pole was densely vegetated and had conditions suitable for the formation of fossil fuels.
And though I’ve said to this point that Canada would stand to become more valuable in a warming world, actually, Canada and Nunavut would. For centuries, Europeans drove the indigenous peoples of what is now Canada farther and farther north. In 1993, Canada agreed to grant a degree of independence to the primarily Inuit population of Nunavut, and this large, cold region in the country’s northeast has been mainly self-governing since 1999. The Inuit believe they are ensconced in the one place in this hemisphere that the descendants of Europe will never, ever want. This could turn out to be wrong.
For investors, finding attractive land to buy and hold for a warming world is fraught with difficulties, particularly when looking abroad. If considering plots on the pampas, for example, should one negotiate with the current Argentinian owners or the future Brazilian ones? Perhaps a safer route would be the contrarian one, focused on the likelihood of falling land values in places people may leave. If strict carbon-dioxide regulations are enacted, corporations will shop for “offsets,” including projects that absorb carbon dioxide from the sky. Growing trees is a potential greenhouse-gas offset, and can be done comparatively cheaply in parts of the developing world, even on land that people may stop wanting. If you jump into the greenhouse-offset business, what you might plant is leucaena, a rapidly growing tree species suited to the tropics that metabolizes carbon dioxide faster than most trees. But you’ll want to own the land in order to control the sale of the credits. Consider a possible sequence of events: First, climate change makes parts of the developing world even less habitable than they are today; then, refugees flee these areas; finally, land can be snapped up at Filene’s Basement prices—and used to grow leucaena trees.
At the same time, Arizona and Nevada, blazing growth markets today, might become unbearably hot and see their real-estate markets crash. If the oceans rise, Florida’s rapid growth could be, well, swamped by an increase in its perilously high groundwater table. Houston could decline, made insufferable by worsened summertime humidity, while the splendid, rustic Laurentide Mountains region north of Montreal, if warmed up a bit, might transmogrify into the new Poconos.
These are just a few of many possible examples. Climate change could upset the applecarts of real-estate values all over the world, with low-latitude properties tanking while high latitudes become the Sun Belt of the mid-21st century.
Local changes in housing demand are only small beer. To consider the big picture, examine a Mercator projection of our planet, and observe how the Earth’s landmasses spread from the equator to the poles. Assume global warming is reasonably uniform. (Some computer models suggest that warming will vary widely by region; for the purposes of this article, suffice it to say that all predictions regarding an artificial greenhouse effect are extremely uncertain.) The equatorial and low-latitude areas of the world presumably will become hotter and less desirable as places of habitation, plus less valuable in economic terms; with a few exceptions, these areas are home to developing nations where living standards are already low.
So where is the high-latitude landmass that might grow more valuable in a warming world? By accident of geography, except for Antarctica nearly all such land is in the Northern Hemisphere, whose continents are broad west-to-east. Only a relatively small portion of South America, which narrows as one travels south, is high latitude, and none of Africa or Australia is. (Cape Town is roughly the same distance from the equator as Cape Hatteras; Melbourne is about the same distance from the equator as Manhattan.) More specifically, nearly all the added land-value benefits of a warming world might accrue to Alaska, Canada, Greenland, Russia, and Scandinavia.
Gregg Easterbrook is an Atlantic contributing editor, a visiting fellow at the Brookings Institution, and the author of The Progress Paradox (2003
This raises the possibility that an artificial greenhouse effect could harm nations that are already hard pressed and benefit nations that are already affluent. If Alaska turned temperate, it would drive conservationists to distraction, but it would also open for development an area more than twice the size of Texas. Rising world temperatures might throw Indonesia, Mexico, Nigeria, and other low-latitude nations into generations of misery, while causing Canada, Greenland, and Scandinavia to experience a rip-roarin’ economic boom. Many Greenlanders are already cheering the retreat of glaciers, since this melting stands to make their vast island far more valuable. Last July, The Wall Street Journal reported that the growing season in the portion of Greenland open to cultivation is already two weeks longer than it was in the 1970s.
And Russia! For generations poets have bemoaned this realm as cursed by enormous, foreboding, harsh Siberia. What if the region in question were instead enormous, temperate, inviting Siberia? Climate change could place Russia in possession of the largest new region of pristine, exploitable land since the sailing ships of Europe first spied the shores of what would be called North America. The snows of Siberia cover soils that have never been depleted by controlled agriculture. What’s more, beneath Siberia’s snow may lie geologic formations that hold vast deposits of fossil fuels, as well as mineral resources. When considering ratification of the Kyoto Protocol to regulate greenhouse gases, the Moscow government dragged its feet, though the treaty was worded to offer the Russians extensive favors. Why might this have happened? Perhaps because Russia might be much better off in a warming world: Warming’s benefits to Russia could exceed those to all other nations combined.
Of course, it could be argued that politicians seldom give much thought—one way or the other—to actions whose value will become clear only after they leave office, so perhaps Moscow does not have a grand strategy to warm the world for its own good. But a warmer world may be much to Russia’s liking, whether it comes by strategy or accident. And how long until high-latitude nations realize global warming might be in their interests? In recent years, Canada has increased its greenhouse-gas output more rapidly than most other rich countries. Maybe this is a result of prosperity and oil-field development—or maybe those wily Canadians have a master plan for their huge expanse of currently uninhabitable land.
Global warming might do more for the North, however, than just opening up new land. Temperatures are rising on average, but when are they rising? Daytime? Nighttime? Winter? Summer? One fear about artificially triggered climate change has been that global warming would lead to scorching summer-afternoon highs, which would kill crops and brown out the electric power grid. Instead, so far a good share of the warming—especially in North America—has come in the form of nighttime and winter lows that are less low. Higher lows reduce the harshness of winter in northern climes and moderate the demand for energy. And fewer freezes allow extended growing seasons, boosting farm production. In North America, spring comes ever earlier—in recent years, trees have flowered in Washington, D.C., almost a week earlier on average than a generation ago. People may find this creepy, but earlier springs and milder winters can have economic value to agriculture—and lest we forget, all modern societies, including the United States, are grounded in agriculture.
If a primary impact of an artificially warmed world is to make land in Canada, Greenland, Russia, Scandinavia, and the United States more valuable, this could have three powerful effects on the 21st-century global situation.
First, historically privileged northern societies might not decline geopolitically, as many commentators have predicted. Indeed, the great age of northern power may lie ahead, if Earth’s very climate is on the verge of conferring boons to that part of the world. Should it turn out that headlong fossil-fuel combustion by northern nations has set in motion climate change that strengthens the relative world position of those same nations, future essayists will have a field day. But the prospect is serious. By the middle of the 21st century, a new global balance of power may emerge in which Russia and America are once again the world’s paired superpowers—only this time during a Warming War instead of a Cold War.
Second, if northern societies find that climate change makes them more wealthy, the quest for world equity could be dealt a huge setback. Despite the popular misconception, globalized economics have been a positive force for increased equity. As the Indian economist Surjit Bhalla has shown, the developing world produced 29 percent of the globe’s income in 1950; by 2000 that share had risen to 42 percent, while the developing world’s share of population rose at a slower rate. All other things being equal, we might expect continued economic globalization to distribute wealth more widely. But if climate change increases the value of northern land and resources, while leaving nations near the equator hotter and wracked by storms or droughts, all other things would not be equal.
That brings us to the third great concern: If climate change causes developing nations to falter, and social conditions within them deteriorate, many millions of jobless or hungry refugees may come to the borders of the favored North, demanding to be let in. If the very Earth itself turns against poor nations, punishing them with heat and storms, how could the United States morally deny the refugees succor?
Shifts in the relative values of places and resources have often led to war, and it is all too imaginable that climate change will cause nations to envy each other’s territory. This envy is likely to run both north-south and up-down. North-south? Suppose climate change made Brazil less habitable, while bringing an agreeable mild clime to the vast and fertile Argentinean pampas to Brazil’s south. São Paulo is already one of the world’s largest cities. Would a desperate, overheated Brazil of the year 2037—its population exploding—hesitate to attack Argentina for cool, inviting land? Now consider the up-down prospect: the desire to leave low-lying areas for altitude. Here’s an example: Since its independence, in 1947, Pakistan has kept a hand in the internal affairs of Afghanistan. Today Americans view this issue through the lens of the Taliban and al-Qaeda, but from Islamabad’s perspective, the goal has always been to keep Afghanistan available as a place for retreat, should Pakistan lose a war with India. What if the climate warms, rendering much of Pakistan unbearable to its citizens? (Temperatures of 100-plus degrees are already common in the Punjab.) Afghanistan’s high plateaus, dry and rocky as they are, might start looking pleasingly temperate as Pakistan warms, and the Afghans might see yet another army headed their way.
warming climate could cause other landgrabs on a national scale. Today Greenland is a largely self-governing territory of Denmark that the world leaves in peace because no nation covets its shivering expanse. Should the Earth warm, Copenhagen might assert greater jurisdiction over Greenland, or stronger governments might scheme to seize this dwarf continent, which is roughly three times the size of Texas. Today Antarctica is under international administration, and this arrangement is generally accepted because the continent has no value beyond scientific research. If the world warmed for a long time—and it would likely take centuries for the Antarctic ice sheet to melt completely—international jockeying to seize or conquer Antarctica might become intense. Some geologists believe large oil deposits are under the Antarctic crust: In earlier epochs, the austral pole was densely vegetated and had conditions suitable for the formation of fossil fuels.
And though I’ve said to this point that Canada would stand to become more valuable in a warming world, actually, Canada and Nunavut would. For centuries, Europeans drove the indigenous peoples of what is now Canada farther and farther north. In 1993, Canada agreed to grant a degree of independence to the primarily Inuit population of Nunavut, and this large, cold region in the country’s northeast has been mainly self-governing since 1999. The Inuit believe they are ensconced in the one place in this hemisphere that the descendants of Europe will never, ever want. This could turn out to be wrong.
For investors, finding attractive land to buy and hold for a warming world is fraught with difficulties, particularly when looking abroad. If considering plots on the pampas, for example, should one negotiate with the current Argentinian owners or the future Brazilian ones? Perhaps a safer route would be the contrarian one, focused on the likelihood of falling land values in places people may leave. If strict carbon-dioxide regulations are enacted, corporations will shop for “offsets,” including projects that absorb carbon dioxide from the sky. Growing trees is a potential greenhouse-gas offset, and can be done comparatively cheaply in parts of the developing world, even on land that people may stop wanting. If you jump into the greenhouse-offset business, what you might plant is leucaena, a rapidly growing tree species suited to the tropics that metabolizes carbon dioxide faster than most trees. But you’ll want to own the land in order to control the sale of the credits. Consider a possible sequence of events: First, climate change makes parts of the developing world even less habitable than they are today; then, refugees flee these areas; finally, land can be snapped up at Filene’s Basement prices—and used to grow leucaena trees.
April 2007 Atlantic Monthly : Global Warming: Who Loses—and Who Wins?
Climate change in the next century (and beyond) could be enormously disruptive, spreading disease and sparking wars. It could also be a windfall for some people, businesses, and nations. A guide to how we all might get along in a warming world
Climate change could have a broad impact on industrial sectors, and thus help or hurt your stock investments and retirement funds. What types of equity might you want to favor or avoid?
Coastal cities inundated, farming regions parched, ocean currents disrupted, tropical diseases spreading, glaciers melting—an artificial greenhouse effect could generate countless tribulations.
If Earth’s climate changes meaningfully—and the National Academy of Sciences, previously skeptical, said in 2005 that signs of climate change have become significant—there could be broad-based disruption of the global economy unparalleled by any event other than World War II.
Economic change means winners as well as losers. Huge sums will be made and lost if the global climate changes. Everyone wonders what warming might do to the environment—but what might it do to the global distribution of money and power?
Whether mainly natural or mainly artificial, climate change could bring different regions of the world tremendous benefits as well as drastic problems. The world had been mostly warming for thousands of years before the industrial era began, and that warming has been indisputably favorable to the spread of civilization. The trouble is that the world’s economic geography is today organized according to a climate that has largely prevailed since the Middle Ages—runaway climate change would force big changes in the physical ordering of society. In the past, small climate changes have had substantial impact on agriculture, trade routes, and the types of products and commodities that sell. Larger climate shifts have catalyzed the rise and fall of whole societies. The Mayan Empire, for instance, did not disappear “mysteriously”; it likely fell into decline owing to decades of drought that ruined its agricultural base and deprived its cities of drinking water. On the other side of the coin, Europe’s Medieval Warm Period, which lasted from around 1000 to 1400, was essential to the rise of Spain, France, and England: Those clement centuries allowed the expansion of farm production, population, cities, and universities, which in turn set the stage for the Industrial Revolution. Unless greenhouse-effect theory is completely wrong—and science increasingly supports the idea that it is right—21st-century climate change means that sweeping social and economic changes are in the works.
To date the greenhouse-effect debate has been largely carried out in abstractions—arguments about the distant past (what do those 100,000-year-old ice cores in Greenland really tell us about ancient temperatures, anyway?) coupled to computer-model conjecture regarding the 22nd century, with the occasional Hollywood disaster movie thrown in. Soon, both abstraction and postapocalyptic fantasy could be pushed aside by the economic and political realities of a warming world. If the global climate continues changing, many people and nations will find themselves in possession of land and resources of rising value, while others will suffer dire losses—and these winners and losers could start appearing faster than you might imagine. Add artificially triggered climate change to the volatility already initiated by globalization, and the next few decades may see previously unthinkable levels of economic upheaval, in which fortunes are won and lost based as much on the physical climate as on the business climate.
It may sound odd to ask of global warming, What’s in it for me? But the question is neither crass nor tongue-in-cheek. The ways in which climate change could skew the world’s distribution of wealth should help us appreciate just how profoundly an artificial greenhouse effect might shake our lives. Moreover, some of the lasting effects of climate change are likely to come not so much from the warming itself but from how we react to it: If the world warms appreciably, men and women will not sit by idly, eating bonbons and reading weather reports; there will be instead what economists call “adaptive response,” most likely a great deal of it. Some aspects of this response may inflame tensions between those who are winning and those who are losing. How people, the global economy, and the international power structure adapt to climate change may influence how we live for generations. If the world warms, who will win? Who will lose? And what’s in it for you?
Climate change could have a broad impact on industrial sectors, and thus help or hurt your stock investments and retirement funds. What types of equity might you want to favor or avoid?
Coastal cities inundated, farming regions parched, ocean currents disrupted, tropical diseases spreading, glaciers melting—an artificial greenhouse effect could generate countless tribulations.
If Earth’s climate changes meaningfully—and the National Academy of Sciences, previously skeptical, said in 2005 that signs of climate change have become significant—there could be broad-based disruption of the global economy unparalleled by any event other than World War II.
Economic change means winners as well as losers. Huge sums will be made and lost if the global climate changes. Everyone wonders what warming might do to the environment—but what might it do to the global distribution of money and power?
Whether mainly natural or mainly artificial, climate change could bring different regions of the world tremendous benefits as well as drastic problems. The world had been mostly warming for thousands of years before the industrial era began, and that warming has been indisputably favorable to the spread of civilization. The trouble is that the world’s economic geography is today organized according to a climate that has largely prevailed since the Middle Ages—runaway climate change would force big changes in the physical ordering of society. In the past, small climate changes have had substantial impact on agriculture, trade routes, and the types of products and commodities that sell. Larger climate shifts have catalyzed the rise and fall of whole societies. The Mayan Empire, for instance, did not disappear “mysteriously”; it likely fell into decline owing to decades of drought that ruined its agricultural base and deprived its cities of drinking water. On the other side of the coin, Europe’s Medieval Warm Period, which lasted from around 1000 to 1400, was essential to the rise of Spain, France, and England: Those clement centuries allowed the expansion of farm production, population, cities, and universities, which in turn set the stage for the Industrial Revolution. Unless greenhouse-effect theory is completely wrong—and science increasingly supports the idea that it is right—21st-century climate change means that sweeping social and economic changes are in the works.
To date the greenhouse-effect debate has been largely carried out in abstractions—arguments about the distant past (what do those 100,000-year-old ice cores in Greenland really tell us about ancient temperatures, anyway?) coupled to computer-model conjecture regarding the 22nd century, with the occasional Hollywood disaster movie thrown in. Soon, both abstraction and postapocalyptic fantasy could be pushed aside by the economic and political realities of a warming world. If the global climate continues changing, many people and nations will find themselves in possession of land and resources of rising value, while others will suffer dire losses—and these winners and losers could start appearing faster than you might imagine. Add artificially triggered climate change to the volatility already initiated by globalization, and the next few decades may see previously unthinkable levels of economic upheaval, in which fortunes are won and lost based as much on the physical climate as on the business climate.
It may sound odd to ask of global warming, What’s in it for me? But the question is neither crass nor tongue-in-cheek. The ways in which climate change could skew the world’s distribution of wealth should help us appreciate just how profoundly an artificial greenhouse effect might shake our lives. Moreover, some of the lasting effects of climate change are likely to come not so much from the warming itself but from how we react to it: If the world warms appreciably, men and women will not sit by idly, eating bonbons and reading weather reports; there will be instead what economists call “adaptive response,” most likely a great deal of it. Some aspects of this response may inflame tensions between those who are winning and those who are losing. How people, the global economy, and the international power structure adapt to climate change may influence how we live for generations. If the world warms, who will win? Who will lose? And what’s in it for you?
Anthony Giddens
Anthony Giddens at the Budapest Progressive Governance Conference, October 2004
Anthony Giddens, Baron Giddens (born January 18, 1938) is a British sociologist who is renowned for his theory of structuration and his holistic view of modern societies. He is considered to be one of the most prominent modern contributors in the field of sociology, the author of at least 34 books, published in at least 29 languages, issuing on average more than one book every year. He has been described as Britain's best known social scientist since John Maynard Keynes.[1]
Three notable stages can be identified in his academic life. The first one involved outlining a new vision of what sociology is, presenting a theoretical and methodological understanding of that field, based on a critical reinterpretation of the classics. His major publications of that era include Capitalism and Modern Social Theory (1971) and New Rules of Sociological Method (1976). In the second stage Giddens developed the theory of structuration, an analysis of agency and structure, in which primacy is granted to neither. His works of that period, like Central Problems in Social Theory (1979) and The Constitution of Society (1984) brought him international fame on the sociological arena. The most recent stage concerns modernity, globalization and politics, especially the impact of modernity on social and personal life. This stage is reflected by his critique of postmodernity, and discussions of a new "utopian-realist"[2] third way in politics, visible in the Consequence of Modernity (1990), Modernity and Self-Identity (1991), The Transformation of Intimacy (1992), Beyond Left and Right (1994) and The Third Way: The Renewal of Social Democracy (1998). Giddens' ambition is both to recast social theory and to re-examine our understanding of the development and trajectory of modernity.
Giddens was born and raised in Edmonton, London, and grew up in a lower middle-class family, son of a clerk with London Transport. He was the first member of his family to go to university. He got his first academic degree from Hull University in 1959, and later took a Master's degree from the London School of Economics, followed by a PhD from the University of Cambridge in 1974. In 1961 he started working at the University of Leicester where he taught social psychology. At Leicester, which was considered to be one of the seedbeds of British sociology, he met Norbert Elias and began to work out his own theoretical position. In 1969 he was appointed to a position at the University of Cambridge, where he later helped create the Social and Political Sciences Committee (SPS), a sub-unit of the Faculty of Economics.
Giddens worked for many years at Cambridge and was eventually promoted to a full professorship in 1987. He is cofounder of Polity Press (1985). From 1997 to 2003 he was director of the London School of Economics and a member of the Advisory Council of the Institute for Public Policy Research. He was also an adviser to former British Prime Minister Tony Blair; it was Giddens whose "third way" political approach has been Tony Blair's (and Bill Clinton's) guiding political idea. He has been a vocal participant in British political debates, supporting the center-left Labour Party with media appearances and articles (many of which are published in New Statesman). Giddens is a regular contributor to the research and activities of progressive think-tank Policy Network. He was given a life peerage in June 2004, as Baron Giddens, of Southgate in the London Borough of Enfield and sits in the House of Lords for Labour.
[edit] Ideas
Giddens, the author of over 34 books and 200 articles, essays and reviews has contributed and written about most notable developments in the area of social sciences, with the exception of research design and methods. He has written commentaries on most leading schools and figures and has used most sociological paradigms in both micro and macrosociology. His writings range from abstract, metatheoretical problems to very direct and 'down-to-earth' textbooks for students. Finally, he is also known for his interdisciplinary approach: he has commented not only on the developments in sociology, but also in anthropology, psychology, philosophy, history, linguistics, economics, social work and most recently, political science. In view of his knowledge and works, one may view much of his life's work as a form of 'grand synthesis' of sociological theory.
[edit] The nature of sociology
Before 1976, most of Giddens's writings offered critical commentary on a wide range of writers, schools and traditions. Giddens took a stance against the then-dominant functionalism (represented by Talcott Parsons, exponent of Weber), as well as criticizing evolutionism and historical materialism. In Capitalism and Modern Social Theory (1971), he examined the work of Weber, Durkheim and Marx, arguing that despite their different approaches each was concerned with the link between capitalism and social life. Giddens emphasised the social constructs of power, modernity and institutions, defining sociology as "the study of social institutions brought into being by the industrial transformation of the past two or three centuries."
In New Rules of Sociological Method (1976) (the title of which alludes to Durkheim's Rules of the Sociological Method of 1895) Giddens attempted to explain 'how sociology should be done' and addressed a long-standing divide between those theorists who prioritise 'macro level' studies of social life - looking at the 'big picture' of society - and those who emphasise the 'micro level' - what everyday life means to individuals. In New Rules... he noted that the functionalist approach, invented by Durkheim, treated society as a reality unto itself, not reducible to individuals. He rejected Durkheim's sociological positivism paradigm, which attempted to identify laws which will predict how societies will operate, without looking at the meanings understood by individual actors in society. He contrasted Durkheim with Weber's approach - interpretative sociology - focused on understanding agency and motives of individuals. Giddens is closer to Weber then Durkheim, but in his analysis he rejects both of those approaches, stating that while society is not a collective reality, nor should the individual be treated as the central unit of analysis.[3] "Society only has form, and that form only has effects on people, insofar as structure is produced and reproduced in what people do".[4] Rather he uses the logic of hermeneutic tradition (from interpretative sociology) to argue for the importance of agency in sociological theory, claiming that human social actors are always to some degree knowledgeable about what they are doing. Social order is therefore a result of some pre-planned social actions, not automatic evolutionary response. Sociologists, unlike natural scientists, have to interpret a social world which is already interpreted by the actors that inhabit it. Thus, there is a "Duality of structure", according to Giddens. With that he means that social practice, which is the principal unit of investigation, has both a structural and an agency-component: The structural environment constrains individual behaviour, but also makes it possible. He also notes the existence of a specific form of a social cycle: once sociological concepts are formed, they filter back into everyday world and change the way people think. Because social actors are reflexive and monitor the ongoing flow of activities and structural conditions, they adapt their actions to their evolving understandings. As a result, social scientific knowledge of society will actually change human activities. Giddens calls this two-tiered, interpretive and dialectical relationship between social scientific knowledge and human practices the "double hermeneutic".
Giddens also stressed the importance of power, which is means to ends, and hence is directly involved in the actions of every person. Power, the transformative capacity of people to change the social and material world, is closely shaped by knowledge and space-time.[5]
In New Rules... Giddens specifically wrote[6] that:
Sociology is not about a 'pre-given' universe of objects, the universe being constituted or produced by the active doings of subjects.
The production and reproduction of society thus has to be treated as a skilled performance on the part of its members.
The realm of human agency is bounded. Men produce society, but they do so as historically located actors, and not under conditions of their own choosing.
Structures must be conceptualized not only as constraints upon human agency, but also as enablers.
Processes of structuration involve an interplay of meanings, norms and power.
The sociological observer cannot make social life available as 'phenomenon' for observation independently of drawing upon his knowledge of it as a resource whereby he constitutes it as a 'topic for investigation'.
Immersion in a form of life is the necessary and only means whereby an observer is able to generate such characterizations.
Sociological concepts thus obey a double hermeneutic.
In sum, the primary tasks of sociological analysis are the following: (1) The hermeneutic explication and mediation of divergent forms of life within descriptive metalanguages of social science; (2) Explication of the production and reproduction of society as the accomplished outcome of human agency.
Anthony Giddens, Baron Giddens (born January 18, 1938) is a British sociologist who is renowned for his theory of structuration and his holistic view of modern societies. He is considered to be one of the most prominent modern contributors in the field of sociology, the author of at least 34 books, published in at least 29 languages, issuing on average more than one book every year. He has been described as Britain's best known social scientist since John Maynard Keynes.[1]
Three notable stages can be identified in his academic life. The first one involved outlining a new vision of what sociology is, presenting a theoretical and methodological understanding of that field, based on a critical reinterpretation of the classics. His major publications of that era include Capitalism and Modern Social Theory (1971) and New Rules of Sociological Method (1976). In the second stage Giddens developed the theory of structuration, an analysis of agency and structure, in which primacy is granted to neither. His works of that period, like Central Problems in Social Theory (1979) and The Constitution of Society (1984) brought him international fame on the sociological arena. The most recent stage concerns modernity, globalization and politics, especially the impact of modernity on social and personal life. This stage is reflected by his critique of postmodernity, and discussions of a new "utopian-realist"[2] third way in politics, visible in the Consequence of Modernity (1990), Modernity and Self-Identity (1991), The Transformation of Intimacy (1992), Beyond Left and Right (1994) and The Third Way: The Renewal of Social Democracy (1998). Giddens' ambition is both to recast social theory and to re-examine our understanding of the development and trajectory of modernity.
Giddens was born and raised in Edmonton, London, and grew up in a lower middle-class family, son of a clerk with London Transport. He was the first member of his family to go to university. He got his first academic degree from Hull University in 1959, and later took a Master's degree from the London School of Economics, followed by a PhD from the University of Cambridge in 1974. In 1961 he started working at the University of Leicester where he taught social psychology. At Leicester, which was considered to be one of the seedbeds of British sociology, he met Norbert Elias and began to work out his own theoretical position. In 1969 he was appointed to a position at the University of Cambridge, where he later helped create the Social and Political Sciences Committee (SPS), a sub-unit of the Faculty of Economics.
Giddens worked for many years at Cambridge and was eventually promoted to a full professorship in 1987. He is cofounder of Polity Press (1985). From 1997 to 2003 he was director of the London School of Economics and a member of the Advisory Council of the Institute for Public Policy Research. He was also an adviser to former British Prime Minister Tony Blair; it was Giddens whose "third way" political approach has been Tony Blair's (and Bill Clinton's) guiding political idea. He has been a vocal participant in British political debates, supporting the center-left Labour Party with media appearances and articles (many of which are published in New Statesman). Giddens is a regular contributor to the research and activities of progressive think-tank Policy Network. He was given a life peerage in June 2004, as Baron Giddens, of Southgate in the London Borough of Enfield and sits in the House of Lords for Labour.
[edit] Ideas
Giddens, the author of over 34 books and 200 articles, essays and reviews has contributed and written about most notable developments in the area of social sciences, with the exception of research design and methods. He has written commentaries on most leading schools and figures and has used most sociological paradigms in both micro and macrosociology. His writings range from abstract, metatheoretical problems to very direct and 'down-to-earth' textbooks for students. Finally, he is also known for his interdisciplinary approach: he has commented not only on the developments in sociology, but also in anthropology, psychology, philosophy, history, linguistics, economics, social work and most recently, political science. In view of his knowledge and works, one may view much of his life's work as a form of 'grand synthesis' of sociological theory.
[edit] The nature of sociology
Before 1976, most of Giddens's writings offered critical commentary on a wide range of writers, schools and traditions. Giddens took a stance against the then-dominant functionalism (represented by Talcott Parsons, exponent of Weber), as well as criticizing evolutionism and historical materialism. In Capitalism and Modern Social Theory (1971), he examined the work of Weber, Durkheim and Marx, arguing that despite their different approaches each was concerned with the link between capitalism and social life. Giddens emphasised the social constructs of power, modernity and institutions, defining sociology as "the study of social institutions brought into being by the industrial transformation of the past two or three centuries."
In New Rules of Sociological Method (1976) (the title of which alludes to Durkheim's Rules of the Sociological Method of 1895) Giddens attempted to explain 'how sociology should be done' and addressed a long-standing divide between those theorists who prioritise 'macro level' studies of social life - looking at the 'big picture' of society - and those who emphasise the 'micro level' - what everyday life means to individuals. In New Rules... he noted that the functionalist approach, invented by Durkheim, treated society as a reality unto itself, not reducible to individuals. He rejected Durkheim's sociological positivism paradigm, which attempted to identify laws which will predict how societies will operate, without looking at the meanings understood by individual actors in society. He contrasted Durkheim with Weber's approach - interpretative sociology - focused on understanding agency and motives of individuals. Giddens is closer to Weber then Durkheim, but in his analysis he rejects both of those approaches, stating that while society is not a collective reality, nor should the individual be treated as the central unit of analysis.[3] "Society only has form, and that form only has effects on people, insofar as structure is produced and reproduced in what people do".[4] Rather he uses the logic of hermeneutic tradition (from interpretative sociology) to argue for the importance of agency in sociological theory, claiming that human social actors are always to some degree knowledgeable about what they are doing. Social order is therefore a result of some pre-planned social actions, not automatic evolutionary response. Sociologists, unlike natural scientists, have to interpret a social world which is already interpreted by the actors that inhabit it. Thus, there is a "Duality of structure", according to Giddens. With that he means that social practice, which is the principal unit of investigation, has both a structural and an agency-component: The structural environment constrains individual behaviour, but also makes it possible. He also notes the existence of a specific form of a social cycle: once sociological concepts are formed, they filter back into everyday world and change the way people think. Because social actors are reflexive and monitor the ongoing flow of activities and structural conditions, they adapt their actions to their evolving understandings. As a result, social scientific knowledge of society will actually change human activities. Giddens calls this two-tiered, interpretive and dialectical relationship between social scientific knowledge and human practices the "double hermeneutic".
Giddens also stressed the importance of power, which is means to ends, and hence is directly involved in the actions of every person. Power, the transformative capacity of people to change the social and material world, is closely shaped by knowledge and space-time.[5]
In New Rules... Giddens specifically wrote[6] that:
Sociology is not about a 'pre-given' universe of objects, the universe being constituted or produced by the active doings of subjects.
The production and reproduction of society thus has to be treated as a skilled performance on the part of its members.
The realm of human agency is bounded. Men produce society, but they do so as historically located actors, and not under conditions of their own choosing.
Structures must be conceptualized not only as constraints upon human agency, but also as enablers.
Processes of structuration involve an interplay of meanings, norms and power.
The sociological observer cannot make social life available as 'phenomenon' for observation independently of drawing upon his knowledge of it as a resource whereby he constitutes it as a 'topic for investigation'.
Immersion in a form of life is the necessary and only means whereby an observer is able to generate such characterizations.
Sociological concepts thus obey a double hermeneutic.
In sum, the primary tasks of sociological analysis are the following: (1) The hermeneutic explication and mediation of divergent forms of life within descriptive metalanguages of social science; (2) Explication of the production and reproduction of society as the accomplished outcome of human agency.
Bank Director Annual Compensation Review
Using 2005 review, boards can weigh fellow directors’ candid opinions on compensation along with results from our annual report on retainers, fees, and benefits to benchmark their own pay packages and training programs.
Establishing the right director compensation structure can be a challenging task for any bank. In doing so, board members must consider the interests of shareholders alongside their own; establish fair, objective policies within their ranks; and eliminate any hint of self-interest.
Moreover, in the wake of governance reform, more accountability has been placed on the board to be the gatekeeper for sound compensation policies and decisions. To fulfill their obligations, board and compensation committee members require a great deal of information and training to make prudent decisions.
Though compensation is rarely the sole reason for accepting a director’s seat, it is an important means of rewarding individuals for the time and inherent risk of the position. Therefore, as industry and regulatory challenges have become more complex, it’s reasonable to periodically evaluate director pay to ensure it keeps pace with responsibilities, hours, and the risk of liability. To aid in this process, Bank Director annually surveys bank board members to obtain the latest information on retainers, fees, benefit levels, and compensation review practices. In addition, we ask directors to share their opinions on their perceptions of liability, director education, and the challenging environment in which they work. The results of the 10th annual Director Compensation Survey are presented here to help boards become better equipped to structure a competitive and equitable director compensation package.
Drawing up a blueprint
The approach taken by boards in designing pay and benefit plans is unique to each institution’s culture, but in general, boards use a common array of tools. The survey found 64% of institutions use peer review to assess compensation; larger institutions also rely on consultants’ benchmarking reports.
The parties involved in evaluating and structuring pay programs often differ according to institution size. Community bank boards are more apt to review their own compensation levels, whereas institutions greater than $1 billion in assets more often have a compensation committee oversee the process. Across the board, 50% of respondents believe the full board should be the primary decision maker in this regard, 35% believe it should be the compensation committee, and 7% believe it should be the CEO. In reality, 38% reported that the full board currently has this primary responsibility, 36% reported that the compensation committe does so, and 15% reported that their CEOs are primarily responsible for setting director compensation.
In large part, directors’ comments reflect a system that is working satisfactorily. “For a community banking organization, I believe peer studies of director compensation, as well as a common sense approach, works well,” says Charles Funk, president and CEO of $535 million Iowa State Bank & Trust Co. in Iowa City, Iowa. He adds, “I have had the sense that our directors are not on our board for the compensation they receive.” He admits that demands placed on his outside directors have increased during the last three years, but explains that Iowa State Bank has proactively raised director compensation during that period to balance those extra demands. Director Dennis C. Hovis, from $525 million Eagle Bank & Trust of Missouri in Festus, Missouri, estimates his director workload has increased about 25% over the last three years and believes director pay “should be evaluated every couple of years.”
Given the wide variety of methods and tools available, how does a compensation committee or community bank board—or in some cases, the CEO—ensure an independent and objective evaluation of director compensation? What means of measurement should a board consider?
One thing to remember is that regular board compensation review shouldn’t necessarily translate into regular increases. Todd Leone, managing director for the compensation group of Clark Consulting, a cosponsor of the Bank Director survey, says board pay has been in a state of flux since the passage of Sarbanes-Oxley and may take more time to settle. “We do not recommend changing or increasing board pay every year,” Leone says. Rather, Clark Consulting encourages most boards to review pay levels and practices every two to three years. According to the Bank Director survey, about two-thirds of responding board members reported their director compensation had been reviewed within the last 12 months.
When the time is right to undergo a review, however, banks may need guidance on how to go about it objectively. While there are many methodologies available, in the end, processes used to review compensation are unique to each institution. Leone suggests banks look at proxies as a means of peer review or create their own local peer group survey through original research. Whenever possible, he advises banks to ensure that a number of factors be taken into consideration when developing the peer group—asset size, type of bank, performance, geographic influences, etc.
Nuts and bolts
After conducting research and reviewing its process, an institution should focus on both the pay package components as well as the overall pay on a per-director basis. To assist with this, the Director Compensation Survey breaks out the primary elements that comprise director compensation—cash retainer, board meeting fees, committee meeting and chair fees, and other compensation such as equity. The data from survey respondents is then tabulated and these results are presented in the charts and analysis that follow.
This year, we offer results both at the holding company and lead bank levels (Figure 1). For holding company boards, 2004 cash retainers averaged $10,489 (median $9,000); for lead bank boards, cash retainers averaged $8,704 (median $6,500). Board meeting fees averaged $769 (median $600) at holding companies; at lead banks, board meeting fees averaged $662 (median $500). Total 2004 cash compensation for directors on holding company boards averaged $13,724 (median 9,000); total cash compensation for those at lead banks averaged $13,347 (median $10,900).
As in the past, we note a positive correlation between asset size and total cash compensation as well as by the individual cash components (Figures 2 and 3). Total cash compensation for banks $1.1 billion to $5 billion in assets, for instance, is more than three times as high as for banks with less than $100 million in assets.
Interestingly, while the average number of hours spent on board activities increases slightly with asset size, the annual retainer at banks $1.1 billion to $5 billion is nearly triple that of directors at smaller institutions. One reason for this may be that at least 80% of reporting institutions in the larger-bank category are publicly traded, which brings more complex business models and layers of regulatory concerns. (Only 33% of those in the under $100 million group were publicly traded.)
Leone explains this phenomenon as it relates to pay level comparisons for larger and smaller institutions. “When a bank becomes a certain size, or of a certain complexity, which often happens when a bank moves into the $1 billion to $5 billion range, the board must attract members who are directors and professionals serving at other large, often publicly traded organizations. These individuals have more sophisticated backgrounds and experiences that they bring to the bank. Therefore, it’s not the hours you serve, per se, it’s the type of people you must have on your board that dictates higher compensation for those at larger banks.”
Committee work
Beyond full-board meetings, a great deal of directors’ work occurs in committees that oversee and monitor specific governance functions. To take a closer look at committee compensation, we isolated meeting fees by major committee types for both holding companies and lead banks (see Figure 4).
The table affirms a growing trend of differentiating pay levels among committee types. Publicly traded audit committees, for instance, must supervise external auditors, ensure compliance with internal control guidelines, and oversee certification of quarterly financial reports, which has led many directors and managers to the conclusion that audit committee members deserve additional remuneration. Pay for other committees and roles is following suit, according to Leone.
“By 2003, every board member realized he or she was spending more time on the job—but now the pay differentiation is directed mainly toward specific positions, for example, the audit committee chair.” Among those also being singled out, he says, are lead directors or nonexecutive chairs, and, to a lesser extent, compensation and governance committee chairs, and in some instances, members of the audit committee.
Directors commenting on the fairness of this sliding scale provide fodder for both sides of the issue. In general, says Charles J. Volpe, director at the $553 million Greater Community Bancorp in Totowa, New Jersey, all members of the board should be paid equally, with a few exceptions. “I do believe certain committees (i.e., Audit) should receive higher compensation than other committees,” he says. But Harry Truitt, chairman of $75 million Prime Pacific Bank in Lynnwood, Washington, points out that simply carrying the mantle of the audit committee shouldn’t be a slam dunk for higher pay. “Board members contribute different amounts of time and should be compensated for the time they spend, not the committee they serve on,” he says.
Whether or not it translates to additional pay, across the board, directors acknowledge that the workload for certain committees—and the training and expertise necessary to fulfill those responsibilities—has increased. “It is incumbent upon companies to encourage members of the audit committee to invest time outside the framework of the board and committee meetings to perform research and to educate themselves,” says Eli Kramer, director of $3.2 billion Sun National Bancorp in Vineland, New Jersey. “This is also true for board members involved in other areas such as technology, compensation, and the like.”
Equity
Outside of cash compensation, equity benefits—such as stock options and restricted stock—are still far more prevalent at larger asset-size institutions, according to survey results. Clark Consulting’s proxy study from 2004 provides a snapshot of equity values reported among various asset sizes (see Figure 5). When asked how they would prefer to be paid, the most common answer among community bank respondents was a 100/0 cash/stock split; only those at banks greater than $5 billion chose a 50/50 cash/stock split.
The merits of equity compensation are debated by some, extolled by others. “I believe [equity compensation] drives bank performance, but I am not convinced it will motivate a nonperforming director—nor do I believe it will drive a motivated director to do anything he is not already doing,” says Greater Community Bancorp’s Volpe.
But Prime Pacific chairman Harry Truitt disagrees. “If directors are serious about growing their shareholders’ investment in the bank, then increasing a director’s equity would be most beneficial. Tying equity compensation for directors to bank performance would be a good way to increase bank performance.” Sun National’s Kramer also believes it’s a positive influence, saying, “Equity compensation reminds the directors we are not just being paid to be the government’s policeman—but the shareholders’ champion.”
Leone says equity will continue to play a key role in motivating and rewarding directors and management. “Equity today is alive and well for directors. It is something that, arguably, perfectly aligns directors’ interests with that of shareholders—which is a good thing.” He adds there is an increasing use of full-value shares today, that is, restricted stock. These are being given in lieu of options, which, Leone explains, are sometimes viewed as clouding directors’ independent judgment by inviting them to focus on short-term stock price goals.
Establishing the right director compensation structure can be a challenging task for any bank. In doing so, board members must consider the interests of shareholders alongside their own; establish fair, objective policies within their ranks; and eliminate any hint of self-interest.
Moreover, in the wake of governance reform, more accountability has been placed on the board to be the gatekeeper for sound compensation policies and decisions. To fulfill their obligations, board and compensation committee members require a great deal of information and training to make prudent decisions.
Though compensation is rarely the sole reason for accepting a director’s seat, it is an important means of rewarding individuals for the time and inherent risk of the position. Therefore, as industry and regulatory challenges have become more complex, it’s reasonable to periodically evaluate director pay to ensure it keeps pace with responsibilities, hours, and the risk of liability. To aid in this process, Bank Director annually surveys bank board members to obtain the latest information on retainers, fees, benefit levels, and compensation review practices. In addition, we ask directors to share their opinions on their perceptions of liability, director education, and the challenging environment in which they work. The results of the 10th annual Director Compensation Survey are presented here to help boards become better equipped to structure a competitive and equitable director compensation package.
Drawing up a blueprint
The approach taken by boards in designing pay and benefit plans is unique to each institution’s culture, but in general, boards use a common array of tools. The survey found 64% of institutions use peer review to assess compensation; larger institutions also rely on consultants’ benchmarking reports.
The parties involved in evaluating and structuring pay programs often differ according to institution size. Community bank boards are more apt to review their own compensation levels, whereas institutions greater than $1 billion in assets more often have a compensation committee oversee the process. Across the board, 50% of respondents believe the full board should be the primary decision maker in this regard, 35% believe it should be the compensation committee, and 7% believe it should be the CEO. In reality, 38% reported that the full board currently has this primary responsibility, 36% reported that the compensation committe does so, and 15% reported that their CEOs are primarily responsible for setting director compensation.
In large part, directors’ comments reflect a system that is working satisfactorily. “For a community banking organization, I believe peer studies of director compensation, as well as a common sense approach, works well,” says Charles Funk, president and CEO of $535 million Iowa State Bank & Trust Co. in Iowa City, Iowa. He adds, “I have had the sense that our directors are not on our board for the compensation they receive.” He admits that demands placed on his outside directors have increased during the last three years, but explains that Iowa State Bank has proactively raised director compensation during that period to balance those extra demands. Director Dennis C. Hovis, from $525 million Eagle Bank & Trust of Missouri in Festus, Missouri, estimates his director workload has increased about 25% over the last three years and believes director pay “should be evaluated every couple of years.”
Given the wide variety of methods and tools available, how does a compensation committee or community bank board—or in some cases, the CEO—ensure an independent and objective evaluation of director compensation? What means of measurement should a board consider?
One thing to remember is that regular board compensation review shouldn’t necessarily translate into regular increases. Todd Leone, managing director for the compensation group of Clark Consulting, a cosponsor of the Bank Director survey, says board pay has been in a state of flux since the passage of Sarbanes-Oxley and may take more time to settle. “We do not recommend changing or increasing board pay every year,” Leone says. Rather, Clark Consulting encourages most boards to review pay levels and practices every two to three years. According to the Bank Director survey, about two-thirds of responding board members reported their director compensation had been reviewed within the last 12 months.
When the time is right to undergo a review, however, banks may need guidance on how to go about it objectively. While there are many methodologies available, in the end, processes used to review compensation are unique to each institution. Leone suggests banks look at proxies as a means of peer review or create their own local peer group survey through original research. Whenever possible, he advises banks to ensure that a number of factors be taken into consideration when developing the peer group—asset size, type of bank, performance, geographic influences, etc.
Nuts and bolts
After conducting research and reviewing its process, an institution should focus on both the pay package components as well as the overall pay on a per-director basis. To assist with this, the Director Compensation Survey breaks out the primary elements that comprise director compensation—cash retainer, board meeting fees, committee meeting and chair fees, and other compensation such as equity. The data from survey respondents is then tabulated and these results are presented in the charts and analysis that follow.
This year, we offer results both at the holding company and lead bank levels (Figure 1). For holding company boards, 2004 cash retainers averaged $10,489 (median $9,000); for lead bank boards, cash retainers averaged $8,704 (median $6,500). Board meeting fees averaged $769 (median $600) at holding companies; at lead banks, board meeting fees averaged $662 (median $500). Total 2004 cash compensation for directors on holding company boards averaged $13,724 (median 9,000); total cash compensation for those at lead banks averaged $13,347 (median $10,900).
As in the past, we note a positive correlation between asset size and total cash compensation as well as by the individual cash components (Figures 2 and 3). Total cash compensation for banks $1.1 billion to $5 billion in assets, for instance, is more than three times as high as for banks with less than $100 million in assets.
Interestingly, while the average number of hours spent on board activities increases slightly with asset size, the annual retainer at banks $1.1 billion to $5 billion is nearly triple that of directors at smaller institutions. One reason for this may be that at least 80% of reporting institutions in the larger-bank category are publicly traded, which brings more complex business models and layers of regulatory concerns. (Only 33% of those in the under $100 million group were publicly traded.)
Leone explains this phenomenon as it relates to pay level comparisons for larger and smaller institutions. “When a bank becomes a certain size, or of a certain complexity, which often happens when a bank moves into the $1 billion to $5 billion range, the board must attract members who are directors and professionals serving at other large, often publicly traded organizations. These individuals have more sophisticated backgrounds and experiences that they bring to the bank. Therefore, it’s not the hours you serve, per se, it’s the type of people you must have on your board that dictates higher compensation for those at larger banks.”
Committee work
Beyond full-board meetings, a great deal of directors’ work occurs in committees that oversee and monitor specific governance functions. To take a closer look at committee compensation, we isolated meeting fees by major committee types for both holding companies and lead banks (see Figure 4).
The table affirms a growing trend of differentiating pay levels among committee types. Publicly traded audit committees, for instance, must supervise external auditors, ensure compliance with internal control guidelines, and oversee certification of quarterly financial reports, which has led many directors and managers to the conclusion that audit committee members deserve additional remuneration. Pay for other committees and roles is following suit, according to Leone.
“By 2003, every board member realized he or she was spending more time on the job—but now the pay differentiation is directed mainly toward specific positions, for example, the audit committee chair.” Among those also being singled out, he says, are lead directors or nonexecutive chairs, and, to a lesser extent, compensation and governance committee chairs, and in some instances, members of the audit committee.
Directors commenting on the fairness of this sliding scale provide fodder for both sides of the issue. In general, says Charles J. Volpe, director at the $553 million Greater Community Bancorp in Totowa, New Jersey, all members of the board should be paid equally, with a few exceptions. “I do believe certain committees (i.e., Audit) should receive higher compensation than other committees,” he says. But Harry Truitt, chairman of $75 million Prime Pacific Bank in Lynnwood, Washington, points out that simply carrying the mantle of the audit committee shouldn’t be a slam dunk for higher pay. “Board members contribute different amounts of time and should be compensated for the time they spend, not the committee they serve on,” he says.
Whether or not it translates to additional pay, across the board, directors acknowledge that the workload for certain committees—and the training and expertise necessary to fulfill those responsibilities—has increased. “It is incumbent upon companies to encourage members of the audit committee to invest time outside the framework of the board and committee meetings to perform research and to educate themselves,” says Eli Kramer, director of $3.2 billion Sun National Bancorp in Vineland, New Jersey. “This is also true for board members involved in other areas such as technology, compensation, and the like.”
Equity
Outside of cash compensation, equity benefits—such as stock options and restricted stock—are still far more prevalent at larger asset-size institutions, according to survey results. Clark Consulting’s proxy study from 2004 provides a snapshot of equity values reported among various asset sizes (see Figure 5). When asked how they would prefer to be paid, the most common answer among community bank respondents was a 100/0 cash/stock split; only those at banks greater than $5 billion chose a 50/50 cash/stock split.
The merits of equity compensation are debated by some, extolled by others. “I believe [equity compensation] drives bank performance, but I am not convinced it will motivate a nonperforming director—nor do I believe it will drive a motivated director to do anything he is not already doing,” says Greater Community Bancorp’s Volpe.
But Prime Pacific chairman Harry Truitt disagrees. “If directors are serious about growing their shareholders’ investment in the bank, then increasing a director’s equity would be most beneficial. Tying equity compensation for directors to bank performance would be a good way to increase bank performance.” Sun National’s Kramer also believes it’s a positive influence, saying, “Equity compensation reminds the directors we are not just being paid to be the government’s policeman—but the shareholders’ champion.”
Leone says equity will continue to play a key role in motivating and rewarding directors and management. “Equity today is alive and well for directors. It is something that, arguably, perfectly aligns directors’ interests with that of shareholders—which is a good thing.” He adds there is an increasing use of full-value shares today, that is, restricted stock. These are being given in lieu of options, which, Leone explains, are sometimes viewed as clouding directors’ independent judgment by inviting them to focus on short-term stock price goals.
How the Scorecard Works
The Bank Director Bank Performance Scorecard is determined by using six performance criteria that measure profitability, balance sheet strength, and asset quality. The criteria are:
Return on average assets, which measures a bank’s profitability relative to its total assets. This metric was given a full weighting in the Scorecard calculation.
Return on average equity, a second measurement of profitability that focuses on shareholder returns. This metric also received a full weighting in the Scorecard calculation.
Tier-1 capital ratio, which is comprised of shareholders’ equity, retained earnings, and convertible preferred stock divided by total assets. This received a half weighting.
Leverage ratio, which is shareholders’ equity divided by total assets. This received a half weighting.
Nonperforming asset ratio, which is the ratio of nonaccrual loans and foreclosed assets to total loans and Other Real Estate Owned. This received a half weighting.
Reserve coverage, which is loan loss reserves divided by total loans. This received a half weighting.
The institutions received a numerical rating in each individual category, with the highest ranked bank getting a score of one and the lowest ranked bank a score of 150. Each bank’s and thrift’s scores were then added across and the bank with the lowest score won. In the four categories that received a half weighting, the institutions’ actual scores were divided by two before they were added up. For example, a bank that finished 20th in the leverage ratio category only received 10 points for scoring purposes.
Return on average assets, which measures a bank’s profitability relative to its total assets. This metric was given a full weighting in the Scorecard calculation.
Return on average equity, a second measurement of profitability that focuses on shareholder returns. This metric also received a full weighting in the Scorecard calculation.
Tier-1 capital ratio, which is comprised of shareholders’ equity, retained earnings, and convertible preferred stock divided by total assets. This received a half weighting.
Leverage ratio, which is shareholders’ equity divided by total assets. This received a half weighting.
Nonperforming asset ratio, which is the ratio of nonaccrual loans and foreclosed assets to total loans and Other Real Estate Owned. This received a half weighting.
Reserve coverage, which is loan loss reserves divided by total loans. This received a half weighting.
The institutions received a numerical rating in each individual category, with the highest ranked bank getting a score of one and the lowest ranked bank a score of 150. Each bank’s and thrift’s scores were then added across and the bank with the lowest score won. In the four categories that received a half weighting, the institutions’ actual scores were divided by two before they were added up. For example, a bank that finished 20th in the leverage ratio category only received 10 points for scoring purposes.
What Makes A Good Bank Good?
s our Board Performance Scorecard show, high profitability, a strong balance sheet, and outstanding asset quality are what it takes to be become a high-performance bank.
In an industry that has undergone a tremendous amount of consolidation over the past two decades, it’s important to remember that bigger is not always
better when it comes to gauging the performance of a bank. With the objective of identifying the top performers among the 150 largest publicly owned banks and thrifts in the U.S., Bank Director—with assistance from New York-based investment banking firm Sandler O’Neill & Partners—created the Bank Performance Scorecard, which measures each institution across three important categories: profitability, capital adequacy, and asset quality.
The objective was not to use a single yardstick—such as return on average equity (ROAE)—but instead to measure bank performance across all three categories. What makes a good bank good? Because these are all public companies, one defining characteristic is consistent profitability. Since banks and thrifts exist for the purpose of taking on economic risk, they also must be well capitalized—although not so well capitalized that they penalize shareholders by dragging down their investment returns. And since the vast majority of banks and thrifts still make most of their money by making loans, they must demonstrate their skill in that regard by having excellent asset quality.
The calculations in Bank Director’s 2005 Bank Performance Scorecard were based on publicly available data over four linked quarters—the third and fourth quarters of 2004 and the first and second quarters of 2005 (see below for a full explanation of methodology). The winner was Honolulu-based Bank of Hawaii Corp., a $10 billion commercial bank that did not garner a first-place finish in any single performance metric but scored quite high in both the profitability and asset-quality categories. [See story on page 30.] Finishing second was S&T Bancorp of Indiana, Pennsylvania—one of the Scorecard’s smallest institutions with assets of just under $3.1 billion. Third place went to Newark, Ohio-based Park National Corp., a $5.6 billion bank that has adopted an unconventional operating structure. Rounding out the top five were Los Angeles-based City National Corp., which has thrived in the highly competitive California market, followed by $3.5 billion Glacier Bancorp in Kalispell, Montana.
The highest-placed institution with assets of $50 billion or more was 17th-ranked U.S. Bancorp in Minneapolis, which decided a few years ago to suspend its aggressive acquisition program and focus instead on maximizing its financial performance, a move that certainly seems to have paid off. The highest-placed thrift was sixth-ranked Westcorp in Irvine, California—an auto finance specialist that agreed last September to be acquired by Wachovia Corp. in Charlotte, North Carolina.
The ultimate accountability for the performance of any bank or thrift rests with its board of directors, and as such, the Bank Performance Scorecard strives to look beyond singular performance metrics to identify institutions that are superlative in all critical areas. The Scorecard should not be interpreted as an endorsement of any institution’s prospects as an investment since stock performance is ultimately determined by many more factors than the ones isolated here. But it is also highly likely that over the course of time, banks and thrifts with strong balance sheets, superb credit skills, and consistent profitability will be judged as successful public companies by most accepted standards.
The Scorecard uses six performance criteria, beginning with return on average assets (ROAA) and ROAE. The two capital adequacy metrics were the Tier 1 capital and leverage capital ratios. And the institutions’ asset quality was measured by calculating their ratio of nonperforming assets (NPAs) to total loans and Other Real Estate Owned (OREO), and also their percentage of loan loss reserves to total loans. On the theory that profitability is the most important performance criteria for a public company, ROAA and ROAE have been given a greater weight in the Scorecard’s final calculation than the four other metrics.
One trend that is immediately apparent in the Scorecard’s results is that smaller banks and thrifts routinely outperform their larger competitors. There are exceptions to this rule—beginning with U.S. Bancorp., which had the second-highest ROAA and seventh-highest ROAE among the 150 institutions. Pittsburgh-based Mellon Financial Corp., which has assets of $36.9 billion, took the No. 1 spot in the ROAA category and finished ninth overall. And right behind it in the 11th spot was $26.7 billion Synovus Financial Corp. in Columbus, Georgia. But Mellon sold off its retail banking franchise several years ago and now concentrates on investment management and a variety of institutional and corporate services like global custody and benefit consulting. And Synovus augments its four-state regional banking franchise in the Southeast with an electronic payment processing business that operates nationwide.
Most very large institutions that are highly diversified across geographic and product lines did not measure out particularly well on the Scorecard. For instance, the largest bank—$1.5 trillion Citigroup in New York—finished in the 101st spot. Bank of America Corp. in Charlotte, which has assets of $1.24 trillion, finished 62nd. New York-based JP Morgan Chase & Co., which is nearly as large at $1.17 trillion, limped in at the 147th spot. The fourth-largest U.S. bank—Wachovia, with $511 billion in assets—finished 108th. San Francisco-based Wells Fargo & Co.—the fifth-largest bank with assets of $434 billion—did much better coming in at the 38th spot. Although every bank and thrift has its own unique set of circumstances that help determine its performance, it may be that greatly increased size tends to have a ratcheting-down effect when it comes to profitability and asset quality, two of the Scorecard’s key determinants.
This year’s top-ranked institution—Bank of Hawaii—is perhaps an unlikely winner based on its recent history. It was only a few years ago that the bank tried to expand well beyond the Hawaiian Islands, but loan quality ended up deteriorating so badly it was placed on a short leash by its primary regulators, the Federal Reserve Bank of San Francisco and the Federal Deposit Insurance Corp. But former Chief Executive Officer Michael O’Neill engineered an impressively quick turnaround, and O’Neill’s successor as CEO—Alan Landon, previously the bank’s chief financial officer—now has the company focused on the lush Hawaiian market. Bank of Hawaii scored particularly well in both the profitability and asset quality categories. Its highest finish in the individual metrics was for ROAE, where it ranked third.
The second-place finisher, S&T, does business in a part of the country that could hardly be more different from Hawaii. Headquartered in Indiana, a small community of 15,000 people located about 60 miles northwest of Pittsburgh, S&T must scratch and claw for its revenue growth. It’s an area where the median household income level is below the state average—and unemployment is above the state average. For the most, part it is not a market where top-line growth comes easily, yet S&T scored well across the board—particularly on ROAA, where it ranked seventh.
S&T operates a 51-branch network in a 10-county area, and also has both an investment management and insurance agency operation. Chairman and CEO James C. Miller says the bank is particularly focused on servicing small and medium-sized businesses. “The driver for us continues to be commercial lending, particularly family-owned businesses and entrepreneurs,” he says. “We think we bring a little higher level of service to the customer.” Andy Borrmann, an analyst with SunTrust Robinson Humphrey in Atlanta, says S&T’s relationship focus is particularly distinctive. “I would call it a pure community bank,” he says. “It is as relationship-focused as any management team I’m familiar with.”
In recent years S&T has tried to accelerate its top-line growth by expanding into faster-growing Allegheny and Westmoreland Counties to the south, which are driven primarily by the large Pittsburgh market. The bank also does a considerable amount of commercial real estate lending and in recent years has followed some of its best customers when they’ve developed projects well out of S&T’s normal territory—including upstate New York, Florida, Arizona, and California. The bank currently has approximately $250 million in such loans. While banks can sometimes get themselves in trouble by going out of market, Miller is comfortable with the strategy because S&T knows its customers so well. “It comes down to people doing business with people,” he says.
This year’s third-place finisher, Park National, also sits in a part of the country that does not offer abundant growth opportunities. “A lot of the MSAs (Metropolitan Statistical Areas) it’s located in are projected to decline in the next few years,” says Sandler O’Neill analyst Brad Milsaps. Yet the bank still managed to notch high rankings in each individual performance metric except for its nonperforming asset ratio, where in came in 114th. In fact, overall, Park National finished just one-half of a point behind S&T.
Park National focuses primarily on small Ohio communities where it operates 11 subsidiary banks that each trade under a different name. The bank has done nine acquisitions since 1987, and in each instance, it has centralized many of the core service, administrative, and back-office functions while allowing the new subsidiary to operate semi-autonomously under its old name. Chairman and CEO C. Daniel DeLawder believes that strategy makes sense given that Park National is essentially a large community bank that emphasizes personal service. “We do a reasonably good job relative to the rest of the industry, which suggests to us that that is still the right strategy,” says DeLawder—who is only the fourth CEO to run the company since 1927.
While Park National offers a full range of commercial and trust banking services, most of its subsidiaries are located in small towns—in many cases, the country seat—where there is not much organic growth. This has led the bank to slowly expand into such larger Ohio cities as Columbus, Dayton, and Cincinnati where the opportunities for revenue growth are much better—and where DeLawder figures Park National’s strong service culture will be especially well received.
In an industry that has undergone a tremendous amount of consolidation over the past two decades, it’s important to remember that bigger is not always
better when it comes to gauging the performance of a bank. With the objective of identifying the top performers among the 150 largest publicly owned banks and thrifts in the U.S., Bank Director—with assistance from New York-based investment banking firm Sandler O’Neill & Partners—created the Bank Performance Scorecard, which measures each institution across three important categories: profitability, capital adequacy, and asset quality.
The objective was not to use a single yardstick—such as return on average equity (ROAE)—but instead to measure bank performance across all three categories. What makes a good bank good? Because these are all public companies, one defining characteristic is consistent profitability. Since banks and thrifts exist for the purpose of taking on economic risk, they also must be well capitalized—although not so well capitalized that they penalize shareholders by dragging down their investment returns. And since the vast majority of banks and thrifts still make most of their money by making loans, they must demonstrate their skill in that regard by having excellent asset quality.
The calculations in Bank Director’s 2005 Bank Performance Scorecard were based on publicly available data over four linked quarters—the third and fourth quarters of 2004 and the first and second quarters of 2005 (see below for a full explanation of methodology). The winner was Honolulu-based Bank of Hawaii Corp., a $10 billion commercial bank that did not garner a first-place finish in any single performance metric but scored quite high in both the profitability and asset-quality categories. [See story on page 30.] Finishing second was S&T Bancorp of Indiana, Pennsylvania—one of the Scorecard’s smallest institutions with assets of just under $3.1 billion. Third place went to Newark, Ohio-based Park National Corp., a $5.6 billion bank that has adopted an unconventional operating structure. Rounding out the top five were Los Angeles-based City National Corp., which has thrived in the highly competitive California market, followed by $3.5 billion Glacier Bancorp in Kalispell, Montana.
The highest-placed institution with assets of $50 billion or more was 17th-ranked U.S. Bancorp in Minneapolis, which decided a few years ago to suspend its aggressive acquisition program and focus instead on maximizing its financial performance, a move that certainly seems to have paid off. The highest-placed thrift was sixth-ranked Westcorp in Irvine, California—an auto finance specialist that agreed last September to be acquired by Wachovia Corp. in Charlotte, North Carolina.
The ultimate accountability for the performance of any bank or thrift rests with its board of directors, and as such, the Bank Performance Scorecard strives to look beyond singular performance metrics to identify institutions that are superlative in all critical areas. The Scorecard should not be interpreted as an endorsement of any institution’s prospects as an investment since stock performance is ultimately determined by many more factors than the ones isolated here. But it is also highly likely that over the course of time, banks and thrifts with strong balance sheets, superb credit skills, and consistent profitability will be judged as successful public companies by most accepted standards.
The Scorecard uses six performance criteria, beginning with return on average assets (ROAA) and ROAE. The two capital adequacy metrics were the Tier 1 capital and leverage capital ratios. And the institutions’ asset quality was measured by calculating their ratio of nonperforming assets (NPAs) to total loans and Other Real Estate Owned (OREO), and also their percentage of loan loss reserves to total loans. On the theory that profitability is the most important performance criteria for a public company, ROAA and ROAE have been given a greater weight in the Scorecard’s final calculation than the four other metrics.
One trend that is immediately apparent in the Scorecard’s results is that smaller banks and thrifts routinely outperform their larger competitors. There are exceptions to this rule—beginning with U.S. Bancorp., which had the second-highest ROAA and seventh-highest ROAE among the 150 institutions. Pittsburgh-based Mellon Financial Corp., which has assets of $36.9 billion, took the No. 1 spot in the ROAA category and finished ninth overall. And right behind it in the 11th spot was $26.7 billion Synovus Financial Corp. in Columbus, Georgia. But Mellon sold off its retail banking franchise several years ago and now concentrates on investment management and a variety of institutional and corporate services like global custody and benefit consulting. And Synovus augments its four-state regional banking franchise in the Southeast with an electronic payment processing business that operates nationwide.
Most very large institutions that are highly diversified across geographic and product lines did not measure out particularly well on the Scorecard. For instance, the largest bank—$1.5 trillion Citigroup in New York—finished in the 101st spot. Bank of America Corp. in Charlotte, which has assets of $1.24 trillion, finished 62nd. New York-based JP Morgan Chase & Co., which is nearly as large at $1.17 trillion, limped in at the 147th spot. The fourth-largest U.S. bank—Wachovia, with $511 billion in assets—finished 108th. San Francisco-based Wells Fargo & Co.—the fifth-largest bank with assets of $434 billion—did much better coming in at the 38th spot. Although every bank and thrift has its own unique set of circumstances that help determine its performance, it may be that greatly increased size tends to have a ratcheting-down effect when it comes to profitability and asset quality, two of the Scorecard’s key determinants.
This year’s top-ranked institution—Bank of Hawaii—is perhaps an unlikely winner based on its recent history. It was only a few years ago that the bank tried to expand well beyond the Hawaiian Islands, but loan quality ended up deteriorating so badly it was placed on a short leash by its primary regulators, the Federal Reserve Bank of San Francisco and the Federal Deposit Insurance Corp. But former Chief Executive Officer Michael O’Neill engineered an impressively quick turnaround, and O’Neill’s successor as CEO—Alan Landon, previously the bank’s chief financial officer—now has the company focused on the lush Hawaiian market. Bank of Hawaii scored particularly well in both the profitability and asset quality categories. Its highest finish in the individual metrics was for ROAE, where it ranked third.
The second-place finisher, S&T, does business in a part of the country that could hardly be more different from Hawaii. Headquartered in Indiana, a small community of 15,000 people located about 60 miles northwest of Pittsburgh, S&T must scratch and claw for its revenue growth. It’s an area where the median household income level is below the state average—and unemployment is above the state average. For the most, part it is not a market where top-line growth comes easily, yet S&T scored well across the board—particularly on ROAA, where it ranked seventh.
S&T operates a 51-branch network in a 10-county area, and also has both an investment management and insurance agency operation. Chairman and CEO James C. Miller says the bank is particularly focused on servicing small and medium-sized businesses. “The driver for us continues to be commercial lending, particularly family-owned businesses and entrepreneurs,” he says. “We think we bring a little higher level of service to the customer.” Andy Borrmann, an analyst with SunTrust Robinson Humphrey in Atlanta, says S&T’s relationship focus is particularly distinctive. “I would call it a pure community bank,” he says. “It is as relationship-focused as any management team I’m familiar with.”
In recent years S&T has tried to accelerate its top-line growth by expanding into faster-growing Allegheny and Westmoreland Counties to the south, which are driven primarily by the large Pittsburgh market. The bank also does a considerable amount of commercial real estate lending and in recent years has followed some of its best customers when they’ve developed projects well out of S&T’s normal territory—including upstate New York, Florida, Arizona, and California. The bank currently has approximately $250 million in such loans. While banks can sometimes get themselves in trouble by going out of market, Miller is comfortable with the strategy because S&T knows its customers so well. “It comes down to people doing business with people,” he says.
This year’s third-place finisher, Park National, also sits in a part of the country that does not offer abundant growth opportunities. “A lot of the MSAs (Metropolitan Statistical Areas) it’s located in are projected to decline in the next few years,” says Sandler O’Neill analyst Brad Milsaps. Yet the bank still managed to notch high rankings in each individual performance metric except for its nonperforming asset ratio, where in came in 114th. In fact, overall, Park National finished just one-half of a point behind S&T.
Park National focuses primarily on small Ohio communities where it operates 11 subsidiary banks that each trade under a different name. The bank has done nine acquisitions since 1987, and in each instance, it has centralized many of the core service, administrative, and back-office functions while allowing the new subsidiary to operate semi-autonomously under its old name. Chairman and CEO C. Daniel DeLawder believes that strategy makes sense given that Park National is essentially a large community bank that emphasizes personal service. “We do a reasonably good job relative to the rest of the industry, which suggests to us that that is still the right strategy,” says DeLawder—who is only the fourth CEO to run the company since 1927.
While Park National offers a full range of commercial and trust banking services, most of its subsidiaries are located in small towns—in many cases, the country seat—where there is not much organic growth. This has led the bank to slowly expand into such larger Ohio cities as Columbus, Dayton, and Cincinnati where the opportunities for revenue growth are much better—and where DeLawder figures Park National’s strong service culture will be especially well received.
Banking In Paradise
After its expansion strategy blew up a few years ago, Bank of Hawaii retreated to its home market and the results have been sublime. We take a closer look at the bank that made it to the top of our 2005 Scorecard.
When Alan Landon talks about working in paradise, he doesn’t necessarily mean the sand beaches and soft tropical breezes of the Hawaiian Islands—although those are nice, too. Landon is chairman and chief executive officer at $10 billion Bank of Hawaii Corp., and when he talks about paradise he’s more likely to be thinking about the Hawaiian economy, which lately has been roaring like those big waves on Maui.
Life is very good in Landon’s corner of the world at the moment and he has the numbers to show it. Bank of Hawaii came in first on the 2005 Bank Performance Scorecard on the strength of a good all-around showing—which included third- and ninth-place finishes in the return on equity and return on assets categories, respectively, and high marks for asset quality, as well. But what’s the story behind the numbers? Landon and his management team have successfully refocused the bank on its core Hawaiian market, where opportunities abound. “They’ve done a very good job of leveraging their marketplace,” says analyst Jacqueline Reeves at Florham Park, New Jersey-based Ryan Beck & Co.
It wasn’t always so at Bank of Hawaii. The company got into trouble back in the late 1990s after an aggressive expansion program had taken it to California and various locations throughout Asia. “We had become America’s smallest international bank,” quips Landon. But the Bank of Hawaii brand meant little in most of those faraway markets, and according to Landon, the bank too often ended up with loans that other banks didn’t want—particularly since its loan officers were trying to compete with the locals by loosening up on terms and conditions. Commercial lending opportunities are somewhat limited in Hawaii since it doesn’t have a lot of industry, and the bank also used its retail deposits to fund a $3 billion portfolio of syndicated loans—which also experienced significant asset quality problems around the same time. Things got so bad that Bank of Hawaii was forced to operate under a memorandum of understanding with the Federal Reserve Bank of San Francisco and the Federal Deposit Insurance Corp.
Help arrived in 2000 when former Bank of America Corp. Chief Financial Officer Michael E. O’Neill was brought in as CEO. Under a three-year turnaround plan, O’Neill pulled the bank out of California and from all those Asian outposts and refocused its energies on Hawaii, while also cleaning up its loan portfolio. One of O’Neill’s top management recruits was Landon, who was brought in from Nashville, Tennessee-based First American Corp. to become Bank of Hawaii’s CFO. An accountant who had also spent 28 years at Ernst & Young, the 57-year-old Landon took over for O’Neill in September 2004.
Reeves says Landon is “very engaged in the business,” while New York-based investment banker Sandler O’Neill & Partners analyst Michael McMahon describes him as a “detail person who also seems to have an appreciation for sales and customer service. I think that Al is well regarded on Wall Street.” Landon is now two years into a second three-year plan, and his first objective is the acceleration of the bank’s revenue growth in its island markets, which include Guam and American Samoa. The Hawaiian economy is heavily dependent on tourism, which happens to be booming at the moment. “Right now the economy is great,” Landon says. “We’re on pace to set a record for tourism. We’re enjoying as good an environment as we’ve had in quite some time.”
According to Reeves, home prices and payroll employment also reached new highs in the second quarter of this year. Unemployment declined to 2.7% in the second quarter—well below the national average of 5%—while personal income grew by 6%. And construction activity was strong in both the private and military housing sectors.
Bank of Hawaii and its largest competitor—First Hawaiian Bank, a subsidiary of San Francisco-based BancWest Corp.—both command about 25% of the local deposit market, according to Landon. A smaller thrift and various community banks control the other 50%. Although competition is stiff in such a highly concentrated market, Landon says it is at least “rational” when it comes to deposit and loan pricing.
The turnaround at Bank of Hawaii is complete, judging by its asset quality score for a linked four-quarter period that encompasses the third and fourth quarters of 2004 and the first and second quarters of 2005. The bank’s ratio of nonperforming loans to total loans and other real estate owned was just 0.18%—good enough for a 16th place finish in that category. And its reserve coverage—at 1.65%—ranked it 12th in that particular metric. Landon says its portfolio of syndicated commercial loans has been reduced to under $700 million, and the bank has stiffened its underwriting standards for that business.
A smaller balance sheet has also allowed Bank of Hawaii to return capital to its investors. Under a buyback program initiated in July 2001, the bank has returned $1.3 billion to its shareholders. Landon says he is aiming for a relatively lean 7% leverage ratio target—its Scorecard ratio was 7.42%, which ranked it 95th—and wants Bank of Hawaii to use its investors’ money carefully. “We had much higher capital levels (in years past) and were inefficient,” he explains. “When we can’t use it, we return it to shareholders.”
Going forward, Landon’s job will be to mine that rich Hawaiian economy for all it’s worth. In addition to its sizeable retail and commercial banking operations, the bank also has several subsidiaries that are focused on investment management and equipment leasing, along with insurance and insurance agency services. Landon wants to tie these businesses together through a better cross-sell performance, a strategy that McMahon heartily endorses. “The way they’ll grow is through selling more products to the customer base,” McMahon says.
The one way that Bank of Hawaii won’t grow is by reestablishing itself in some distant locale like California. Landon says the company has learned its lesson well. “Mainland expansion is not in our plans right now,” he says. “We have a lot of opportunities here at home.”
When Alan Landon talks about working in paradise, he doesn’t necessarily mean the sand beaches and soft tropical breezes of the Hawaiian Islands—although those are nice, too. Landon is chairman and chief executive officer at $10 billion Bank of Hawaii Corp., and when he talks about paradise he’s more likely to be thinking about the Hawaiian economy, which lately has been roaring like those big waves on Maui.
Life is very good in Landon’s corner of the world at the moment and he has the numbers to show it. Bank of Hawaii came in first on the 2005 Bank Performance Scorecard on the strength of a good all-around showing—which included third- and ninth-place finishes in the return on equity and return on assets categories, respectively, and high marks for asset quality, as well. But what’s the story behind the numbers? Landon and his management team have successfully refocused the bank on its core Hawaiian market, where opportunities abound. “They’ve done a very good job of leveraging their marketplace,” says analyst Jacqueline Reeves at Florham Park, New Jersey-based Ryan Beck & Co.
It wasn’t always so at Bank of Hawaii. The company got into trouble back in the late 1990s after an aggressive expansion program had taken it to California and various locations throughout Asia. “We had become America’s smallest international bank,” quips Landon. But the Bank of Hawaii brand meant little in most of those faraway markets, and according to Landon, the bank too often ended up with loans that other banks didn’t want—particularly since its loan officers were trying to compete with the locals by loosening up on terms and conditions. Commercial lending opportunities are somewhat limited in Hawaii since it doesn’t have a lot of industry, and the bank also used its retail deposits to fund a $3 billion portfolio of syndicated loans—which also experienced significant asset quality problems around the same time. Things got so bad that Bank of Hawaii was forced to operate under a memorandum of understanding with the Federal Reserve Bank of San Francisco and the Federal Deposit Insurance Corp.
Help arrived in 2000 when former Bank of America Corp. Chief Financial Officer Michael E. O’Neill was brought in as CEO. Under a three-year turnaround plan, O’Neill pulled the bank out of California and from all those Asian outposts and refocused its energies on Hawaii, while also cleaning up its loan portfolio. One of O’Neill’s top management recruits was Landon, who was brought in from Nashville, Tennessee-based First American Corp. to become Bank of Hawaii’s CFO. An accountant who had also spent 28 years at Ernst & Young, the 57-year-old Landon took over for O’Neill in September 2004.
Reeves says Landon is “very engaged in the business,” while New York-based investment banker Sandler O’Neill & Partners analyst Michael McMahon describes him as a “detail person who also seems to have an appreciation for sales and customer service. I think that Al is well regarded on Wall Street.” Landon is now two years into a second three-year plan, and his first objective is the acceleration of the bank’s revenue growth in its island markets, which include Guam and American Samoa. The Hawaiian economy is heavily dependent on tourism, which happens to be booming at the moment. “Right now the economy is great,” Landon says. “We’re on pace to set a record for tourism. We’re enjoying as good an environment as we’ve had in quite some time.”
According to Reeves, home prices and payroll employment also reached new highs in the second quarter of this year. Unemployment declined to 2.7% in the second quarter—well below the national average of 5%—while personal income grew by 6%. And construction activity was strong in both the private and military housing sectors.
Bank of Hawaii and its largest competitor—First Hawaiian Bank, a subsidiary of San Francisco-based BancWest Corp.—both command about 25% of the local deposit market, according to Landon. A smaller thrift and various community banks control the other 50%. Although competition is stiff in such a highly concentrated market, Landon says it is at least “rational” when it comes to deposit and loan pricing.
The turnaround at Bank of Hawaii is complete, judging by its asset quality score for a linked four-quarter period that encompasses the third and fourth quarters of 2004 and the first and second quarters of 2005. The bank’s ratio of nonperforming loans to total loans and other real estate owned was just 0.18%—good enough for a 16th place finish in that category. And its reserve coverage—at 1.65%—ranked it 12th in that particular metric. Landon says its portfolio of syndicated commercial loans has been reduced to under $700 million, and the bank has stiffened its underwriting standards for that business.
A smaller balance sheet has also allowed Bank of Hawaii to return capital to its investors. Under a buyback program initiated in July 2001, the bank has returned $1.3 billion to its shareholders. Landon says he is aiming for a relatively lean 7% leverage ratio target—its Scorecard ratio was 7.42%, which ranked it 95th—and wants Bank of Hawaii to use its investors’ money carefully. “We had much higher capital levels (in years past) and were inefficient,” he explains. “When we can’t use it, we return it to shareholders.”
Going forward, Landon’s job will be to mine that rich Hawaiian economy for all it’s worth. In addition to its sizeable retail and commercial banking operations, the bank also has several subsidiaries that are focused on investment management and equipment leasing, along with insurance and insurance agency services. Landon wants to tie these businesses together through a better cross-sell performance, a strategy that McMahon heartily endorses. “The way they’ll grow is through selling more products to the customer base,” McMahon says.
The one way that Bank of Hawaii won’t grow is by reestablishing itself in some distant locale like California. Landon says the company has learned its lesson well. “Mainland expansion is not in our plans right now,” he says. “We have a lot of opportunities here at home.”
7 key IT issues you may face in 2008
7 key IT issues you may face in 2008
By Victor Ng
30 Jan 2008
For SMBs, IT is largely about solving problems and keeping the business running, but it can also lead to new problems. Basing on developments in 2007, we've drawn up a list of the 7 biggest problems that SMBs might face when dealing with IT in 2008.
1. Getting or keeping IT mindshare in top management
IT is a key business enabler and part of much innovation carried out in organizations. Therefore, it makes sense to have a boardroom representative to champion the cause of IT for business innovation. In the past, the HR buzz was about hiring a CIO or IT manager. However, some IT departments are now being classified under "Operations" and report up through the COO or Director for Operations. No matter how you structure your organization, businesses need to figure out how to get a competent IT champion at high-level strategy meetings.
2. IT-business alignment
This is somewhat related to the first issue. Good IT managers are always looking out for new and enhanced technologies to help improve their companies' business. However, business goals and objectives often change, and top management may do so without informing IT in a timely manner. This can lead to inefficiencies and wasted resources. How do you fix that without being accused of over-communicating or allowing IT to hog strategy meetings?
3. Invasion of consumer technology
It is easier than ever for employees to get their hands on technologies to help them do their jobs without ever consulting management or the IT department. The problem is that many of these technologies can lead to security and compliance risks. Workers turn to these consumer devices because they are faster and easier to get, without the hassle of management approvals; users simply pay for these devices out of their own pockets (since these devices can also be used personally at home or at play).
4. Risk assessment for information security
Too many SMBs look at security as a technology issue that can be solved with the right hardware or software. Not enough organizations focus their security efforts around what really matters - business and company information. Those who have gone through the whole security and compliance smorgasbord would have realized that the way to start doing it right is with a risk assessment that looks at what data is most valuable (and therefore most costly to lose), the likelihood of it being leaked or stolen, and the cost of securing it.
5. Centralized vs. decentralized IT
Many businesses struggle with whether to centralize or decentralize their IT deployment. Centralization allows pooled resources and more specialization among your staff, while decentralization allows IT to be more closely tied to each business unit. In some organizations, the pendulum swings back and forth between being more centralized or decentralized. In 2007, decentralization was the more popular approach, but the internal debates continue to rage and some organizations are even opting for a hybrid approach.
6. To adopt Windows Vista or not
SMBs are usually slow adopters of new operating systems. And that's even when the new OS offers clear benefits, which many IT managers would say isn't the case with Windows Vista. Some businesses are purchasing Vista licenses as part of their PC and server purchases, but are actually downgrading to XP. Despite some creative marketing from Microsoft, businesses are still searching for something that makes upgrading to Vista worth the while.
7. Growing storage needs
The digital information load is growing at an exponential rate, with multimedia and online communication/transactions becoming larger parts of the data load. Storage needs are exploding for lots of SMBs. Some have designed their data systems for scalability, but even these are being stressed much earlier than expected. The storage crunch is expected to escalate.
By Victor Ng
30 Jan 2008
For SMBs, IT is largely about solving problems and keeping the business running, but it can also lead to new problems. Basing on developments in 2007, we've drawn up a list of the 7 biggest problems that SMBs might face when dealing with IT in 2008.
1. Getting or keeping IT mindshare in top management
IT is a key business enabler and part of much innovation carried out in organizations. Therefore, it makes sense to have a boardroom representative to champion the cause of IT for business innovation. In the past, the HR buzz was about hiring a CIO or IT manager. However, some IT departments are now being classified under "Operations" and report up through the COO or Director for Operations. No matter how you structure your organization, businesses need to figure out how to get a competent IT champion at high-level strategy meetings.
2. IT-business alignment
This is somewhat related to the first issue. Good IT managers are always looking out for new and enhanced technologies to help improve their companies' business. However, business goals and objectives often change, and top management may do so without informing IT in a timely manner. This can lead to inefficiencies and wasted resources. How do you fix that without being accused of over-communicating or allowing IT to hog strategy meetings?
3. Invasion of consumer technology
It is easier than ever for employees to get their hands on technologies to help them do their jobs without ever consulting management or the IT department. The problem is that many of these technologies can lead to security and compliance risks. Workers turn to these consumer devices because they are faster and easier to get, without the hassle of management approvals; users simply pay for these devices out of their own pockets (since these devices can also be used personally at home or at play).
4. Risk assessment for information security
Too many SMBs look at security as a technology issue that can be solved with the right hardware or software. Not enough organizations focus their security efforts around what really matters - business and company information. Those who have gone through the whole security and compliance smorgasbord would have realized that the way to start doing it right is with a risk assessment that looks at what data is most valuable (and therefore most costly to lose), the likelihood of it being leaked or stolen, and the cost of securing it.
5. Centralized vs. decentralized IT
Many businesses struggle with whether to centralize or decentralize their IT deployment. Centralization allows pooled resources and more specialization among your staff, while decentralization allows IT to be more closely tied to each business unit. In some organizations, the pendulum swings back and forth between being more centralized or decentralized. In 2007, decentralization was the more popular approach, but the internal debates continue to rage and some organizations are even opting for a hybrid approach.
6. To adopt Windows Vista or not
SMBs are usually slow adopters of new operating systems. And that's even when the new OS offers clear benefits, which many IT managers would say isn't the case with Windows Vista. Some businesses are purchasing Vista licenses as part of their PC and server purchases, but are actually downgrading to XP. Despite some creative marketing from Microsoft, businesses are still searching for something that makes upgrading to Vista worth the while.
7. Growing storage needs
The digital information load is growing at an exponential rate, with multimedia and online communication/transactions becoming larger parts of the data load. Storage needs are exploding for lots of SMBs. Some have designed their data systems for scalability, but even these are being stressed much earlier than expected. The storage crunch is expected to escalate.
The Best Way to Secure Your Financial Dreams
Dividend-paying stocks are absolutely the fastest and most reliable way to achieve financial security and independence. Here are five reasons why you should love dividend stocks right now:
They're beating the market. According to Standard & Poor's, for the first seven months of 2006, dividend-paying stocks returned 4.3%, compared with -3.3% for non-dividend payers.
They're low risk. Since the companies pay out cash, investors are more willing to hold dividend stocks through bear markets. Hence, they don't fall as far or as quickly as non-dividend stocks. These stocks become a magnet for investors seeking security.
They earn much better yields with lower taxes. Thanks to a recent change in the tax law, dividends are now taxed at only 15%. Compare that to interest on your savings, CD, or money market account that is taxed as ordinary income — up to 35%! Standard & Poor's estimates this change should save investors more than $100 billion through 2008. Much of this will be invested back in dividend stocks.
They help you avoid the Enrons of tomorrow. Dividends don't lie. For example, between 1997 and 2000, Enron's "earnings" rose 69% but dividends rose only 9%. That's a sure sign that something fishy was going on. Paper profits can fool analysts but hard cash can't be faked.
By reinvesting dividends, you “dollar-cost average” and get the power of compounding automatically. Reinvesting dividends improves your portfolio's long-term returns by buying more shares when the price is low and by helping your profits earn more profits.
Dividends aren't just for retirees. They're for anyone who wants to amass great wealth with low risk. Do you think it's boring to make great returns — and sleep like a baby at night? We don't.
They're beating the market. According to Standard & Poor's, for the first seven months of 2006, dividend-paying stocks returned 4.3%, compared with -3.3% for non-dividend payers.
They're low risk. Since the companies pay out cash, investors are more willing to hold dividend stocks through bear markets. Hence, they don't fall as far or as quickly as non-dividend stocks. These stocks become a magnet for investors seeking security.
They earn much better yields with lower taxes. Thanks to a recent change in the tax law, dividends are now taxed at only 15%. Compare that to interest on your savings, CD, or money market account that is taxed as ordinary income — up to 35%! Standard & Poor's estimates this change should save investors more than $100 billion through 2008. Much of this will be invested back in dividend stocks.
They help you avoid the Enrons of tomorrow. Dividends don't lie. For example, between 1997 and 2000, Enron's "earnings" rose 69% but dividends rose only 9%. That's a sure sign that something fishy was going on. Paper profits can fool analysts but hard cash can't be faked.
By reinvesting dividends, you “dollar-cost average” and get the power of compounding automatically. Reinvesting dividends improves your portfolio's long-term returns by buying more shares when the price is low and by helping your profits earn more profits.
Dividends aren't just for retirees. They're for anyone who wants to amass great wealth with low risk. Do you think it's boring to make great returns — and sleep like a baby at night? We don't.
The Secret to Building Real Wealth
We believe that building a long-term fortune simply requires these two steps:
1.Buy the best dividend-paying stocks, and
2.Reinvest the dividends.
Do this and you've built an instant money machine.
For example, here's the difference reinvesting dividends can make.
The Power of Reinvesting Dividends
It's true. If you had invested $10,000 in Ibbotson's large-cap companies back in 1980, you could sell them today for about $130,000. Not too shabby.
Had you reinvested the dividends, you'd be sitting on more than $400,000. And that's assuming you didn't invest another dollar since — just imagine if you had been investing even a modest amount along the way.
What a difference. Dividends really do matter. Stocks have done well — no matter how you slice it. You can see that clearly from the chart. You can also see that dividends can make the difference between merely doing well and quietly amassing a fortune.
1.Buy the best dividend-paying stocks, and
2.Reinvest the dividends.
Do this and you've built an instant money machine.
For example, here's the difference reinvesting dividends can make.
The Power of Reinvesting Dividends
It's true. If you had invested $10,000 in Ibbotson's large-cap companies back in 1980, you could sell them today for about $130,000. Not too shabby.
Had you reinvested the dividends, you'd be sitting on more than $400,000. And that's assuming you didn't invest another dollar since — just imagine if you had been investing even a modest amount along the way.
What a difference. Dividends really do matter. Stocks have done well — no matter how you slice it. You can see that clearly from the chart. You can also see that dividends can make the difference between merely doing well and quietly amassing a fortune.
6 Secrets of Dividend Investing:How You Can Earn Great Returns with Less Risk
Finding the best dividend stocks takes some legwork and careful analysis. But here's how you can find the best long-term winners:
1.Avoid the Highest Dividend Stocks — You can't pick stocks by dividend yield alone. Above-normal dividends are often a red flag for a company in distress. Studies have consistently shown that you will earn higher long-term returns by avoiding risky stocks with overly high dividends.
2.Beware the “Dividend Time Bombs” — Not all dividends are created equal. Even if a company has a generous dividend, it must be able to maintain it. A "doomed-to-be-cut" dividend can be worse than no dividend at all. Once a dividend is cut, it's likely to make the share price fall also.
3.Cash Is King — Free cash flow (FCF) is the true health of the business. Find the companies that generate tons of it. Even in the worst of times, those flush with greenbacks have options. Firms with cash can buy back their shares to raise stock prices, make their debt payments, increase dividends, and buy other profitable businesses. That's why cash flow is the single most important factor that determines value in the marketplace.
4.Don't Focus on Income without Growth — Only growing businesses are truly healthy. So cash flow needs to be strong enough to not only pay a healthy dividend but also generate enough cash to grow and stay strong strategically.
5.Don't Forget Value — An investment's total yield depends on both the dividend amount and the stock price. Stocks of companies making real products and real profits often don't make the headlines. So dividend stocks can also be a great source of hidden value. Finding value by focusing on dividends first can help you avoid catching the "falling knives" that trap some value investors.
6.Have a Longer-Term Focus — Many brokerage houses make investment recommendations based on a very short-term view of the world — often a maximum 12-month timeframe. Individual investors should have at least a three- to five-year view when considering investments. More time helps you fully realize the true power of compounding dividends.
At Income Investor we do all this legwork and much more before we recommend any stock to you. We have truly looked under the hood, kicked the tires, and taken a thorough test drive before we put you behind the wheel of any investment. Our stock screening system sifts out the highest potential stocks from around the world.
1.Avoid the Highest Dividend Stocks — You can't pick stocks by dividend yield alone. Above-normal dividends are often a red flag for a company in distress. Studies have consistently shown that you will earn higher long-term returns by avoiding risky stocks with overly high dividends.
2.Beware the “Dividend Time Bombs” — Not all dividends are created equal. Even if a company has a generous dividend, it must be able to maintain it. A "doomed-to-be-cut" dividend can be worse than no dividend at all. Once a dividend is cut, it's likely to make the share price fall also.
3.Cash Is King — Free cash flow (FCF) is the true health of the business. Find the companies that generate tons of it. Even in the worst of times, those flush with greenbacks have options. Firms with cash can buy back their shares to raise stock prices, make their debt payments, increase dividends, and buy other profitable businesses. That's why cash flow is the single most important factor that determines value in the marketplace.
4.Don't Focus on Income without Growth — Only growing businesses are truly healthy. So cash flow needs to be strong enough to not only pay a healthy dividend but also generate enough cash to grow and stay strong strategically.
5.Don't Forget Value — An investment's total yield depends on both the dividend amount and the stock price. Stocks of companies making real products and real profits often don't make the headlines. So dividend stocks can also be a great source of hidden value. Finding value by focusing on dividends first can help you avoid catching the "falling knives" that trap some value investors.
6.Have a Longer-Term Focus — Many brokerage houses make investment recommendations based on a very short-term view of the world — often a maximum 12-month timeframe. Individual investors should have at least a three- to five-year view when considering investments. More time helps you fully realize the true power of compounding dividends.
At Income Investor we do all this legwork and much more before we recommend any stock to you. We have truly looked under the hood, kicked the tires, and taken a thorough test drive before we put you behind the wheel of any investment. Our stock screening system sifts out the highest potential stocks from around the world.
6 Secrets to Finding Dividend “Money Machines” : That Keep Your Portfolio Growing
Imagine…
What if you owned a money machine…
…automatically cranking out cash for you day-in and day-out?
And not only that… the machine reproduces itself. It breeds more little money machines — and they're all working 24/7, making money for you.
Sounds fantastic — or at least illegal — doesn't it?
But in a very real sense, that's just what happens when you buy dividend-paying stocks and reinvest the dividends.
Hard to believe? Just look at these examples…
Money Machine #1: Pepsi — $2,000 invested in Pepsi in 1980 is now worth more than $150,000. You would have started with 80 shares, but by reinvesting dividends, you now would have 2,800 shares.
Money Machine #2: Philip Morris — $2,000 invested in Philip Morris in 1980 is worth just under $300,000 today. You would have started with 58 shares. Today, thanks to stock splits and reinvesting dividends, you now would have more than 4,300 shares!
Money Machine #3: Johnson & Johnson — $2,000 invested in Johnson & Johnson in 1980 would be worth close to $140,000 today. You would have started with only 13 shares of stock. Today thanks to reinvestment and splits, you now would own more than 2,000 shares.
You'd have a portfolio now worth close to $600,000, starting with a total investment of only $6,000. And you never needed to add another penny.
Today, your little $6,000 investment is generating $17,000 every year in dividends. You're earning almost…
3 times your total original investment
EVERY YEAR in dividends alone!
Now that's what you call a money machine!
In addition to Johnson & Johnson, we'll show you some of the money machines we've selected in Income Investor in a moment. But just imagine yourself 10 or 20 years from now with a few money machines in full operation, cranking out money for you…
Our passion here at The Motley Fool's Income Investor is to help people like you build real wealth through the power of great dividend-paying stocks.
In this message we'll show you how you too can find great dividend-paying stocks. You'll see some of the great success stories we've had in the last three years.
What if you owned a money machine…
…automatically cranking out cash for you day-in and day-out?
And not only that… the machine reproduces itself. It breeds more little money machines — and they're all working 24/7, making money for you.
Sounds fantastic — or at least illegal — doesn't it?
But in a very real sense, that's just what happens when you buy dividend-paying stocks and reinvest the dividends.
Hard to believe? Just look at these examples…
Money Machine #1: Pepsi — $2,000 invested in Pepsi in 1980 is now worth more than $150,000. You would have started with 80 shares, but by reinvesting dividends, you now would have 2,800 shares.
Money Machine #2: Philip Morris — $2,000 invested in Philip Morris in 1980 is worth just under $300,000 today. You would have started with 58 shares. Today, thanks to stock splits and reinvesting dividends, you now would have more than 4,300 shares!
Money Machine #3: Johnson & Johnson — $2,000 invested in Johnson & Johnson in 1980 would be worth close to $140,000 today. You would have started with only 13 shares of stock. Today thanks to reinvestment and splits, you now would own more than 2,000 shares.
You'd have a portfolio now worth close to $600,000, starting with a total investment of only $6,000. And you never needed to add another penny.
Today, your little $6,000 investment is generating $17,000 every year in dividends. You're earning almost…
3 times your total original investment
EVERY YEAR in dividends alone!
Now that's what you call a money machine!
In addition to Johnson & Johnson, we'll show you some of the money machines we've selected in Income Investor in a moment. But just imagine yourself 10 or 20 years from now with a few money machines in full operation, cranking out money for you…
Our passion here at The Motley Fool's Income Investor is to help people like you build real wealth through the power of great dividend-paying stocks.
In this message we'll show you how you too can find great dividend-paying stocks. You'll see some of the great success stories we've had in the last three years.
10 tax goofs many of us keep making
Year after year, the IRS sees Americans committing the same sorts of mistakes on their returns. Many of these errors are easy to avoid; some are more complicated.
Your income-tax return can inflict a special kind of pain when you make a mistake. Even a simple error can cost you time, aggravation, stress and, yes, money. So doing your return dispassionately and carefully is a must.
The Internal Revenue Service says taxpayers make some mistakes again and again. (I see them a lot, too.) If you can keep from making them, you'll avoid much of that lost time, aggravation, stress and lost cash.
Here, according to the IRS, are the 10 most common taxpayer mistakes:
Claiming the wrong filing status
Sorry, you can't just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn't matter for tax purposes. You file either jointly or married filing separately. You may qualify for "head of household," but you have to satisfy all the requirements. You don't qualify just because you consider yourself the head of your household.
Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents. Check out the instructions for Form 1040 for detailed information to help you select your correct filing status.
Omitting or using wrong Social Security numbers
The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents' Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.
If you're still doing your return by hand, put down that stone tablet you're reading and pay attention. Make sure your handwriting is legible, at least on your tax return. Although to be fair, I suspect that many of these mistakes attributed to taxpayer error actually result from bad inputting by the IRS.
Failing to use correct forms and schedules
Think of the IRS as a vast bureaucracy that responds to the dictates of an outdated computer system for audit direction. You don't want to anger the computer gods.
If you file your employee business expenses on Schedule A without attaching Form 2106, the computer's gonna click. The more the computer clicks, the more likely that you will get audited.
So, be nice to the computer. Correctly file all of the appropriate forms.
Failing to sign and date the return
This one is easy. If you don't sign the return, you haven't filed. Both spouses must sign a joint return. If you haven't filed, you're going to be subject to all kinds of penalties, not to mention interest on any amounts not paid in full.
The only reason not to sign the return is if the numbers on it would constitute perjury. Do you think the IRS wouldn't notice?
Claiming ineligible dependents
When the IRS started requiring Social Security numbers for claimed dependents, millions of dependents disappeared. I suspect most of them sulked back to their doghouses, flew to their bird cages or jumped back into their aquariums.
In any case, the qualification criteria to claim a dependent are technical and very specific. With nontraditional families, there are the exceptions, the exclusions to the exceptions, the exceptions when the exclusions don't apply and the special rules for the third Wednesday each month.
You'll have to meet each of at least four qualifications. Follow the flowchart in the instructions for your Form 1040. But it's not simple.
Misusing -- or not using -- the earned-income credit
This one I blame on Congress. It's a provision to help the poorest in our nation, but lawmakers designed it to be one of the most convoluted provisions in our tax code.
It's so bad that the IRS reports failure to claim the EIC as its No. 6 top taxpayer mistake and incorrectly claiming the EIC as No. 7.
Lots of crooks -- and unwitting but misinformed taxpayers -- illegally claim the credit. Many of those whom the credit was designed to aid lack the tax sophistication or the dollars necessary to hire a professional to claim those dollars.
Failing to report domestic workers
Even if you don't want to be a Supreme Court justice or the U.S. attorney general, you still have to pay the payroll taxes on your nanny, housecleaner or in-home caregiver.
Sorry, it's the law. If you pay $1,500 or more in 2007 (same as 2006) to any one household employee, you're going to have to withhold, and match, both Social Security (6.2%) and Medicare (1.45%) taxes. You must file Schedule H to compute and report the liability.
Video on MSN Money
Hidden ways to cut your taxes
Congress renewed some breaks too late to make the forms. Here's how to find out what you're entitled to.
You'll owe federal unemployment taxes if you pay wages of $1,000 or more in any calendar quarter to household employees. You may also owe state employment and disability taxes.
If you pay certain related parties, or employees under age 18 who qualify, you may escape liability. See Publication 926 for details.
Failing to report all income
You can't avoid reporting all of your income just because you don't get a W-2 form or a 1099. Not all income is reported on 1099s. That doesn't excuse you from having to pay tax on it. The fact that there's no reporting to the IRS doesn't prevent the agency from auditing your receipts and reconciling your bank deposits with your reported income.
Unreported income can lead to civil and criminal sanctions. I don't care how lucky you feel. The potential consequences aren't worth the risk.
Failing to check for the alternative minimum tax
The AMT, or "awfully mean tax," was created to catch high-income taxpayers who used allowable deductions and credits to wipe out too much tax liability. It's an alternative computation of your tax, with different deductions, add-backs and flat rates.
You pay the higher of your regular tax or that computed under the AMT.
Unfortunately, because it hasn't been updated to reflect inflation since the original bill was passed, the AMT has been projected to hit about 19 million families in 2007, including 64% of households earning $100,000 to $200,000.
You might not think you're a victim, at least until you get that letter from the IRS with penalties and interest. The IRS has an AMT estimation calculator on its Web site, but, to be sure, run through Form 6251.
Your income-tax return can inflict a special kind of pain when you make a mistake. Even a simple error can cost you time, aggravation, stress and, yes, money. So doing your return dispassionately and carefully is a must.
The Internal Revenue Service says taxpayers make some mistakes again and again. (I see them a lot, too.) If you can keep from making them, you'll avoid much of that lost time, aggravation, stress and lost cash.
Here, according to the IRS, are the 10 most common taxpayer mistakes:
Claiming the wrong filing status
Sorry, you can't just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn't matter for tax purposes. You file either jointly or married filing separately. You may qualify for "head of household," but you have to satisfy all the requirements. You don't qualify just because you consider yourself the head of your household.
Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents. Check out the instructions for Form 1040 for detailed information to help you select your correct filing status.
Omitting or using wrong Social Security numbers
The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents' Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.
If you're still doing your return by hand, put down that stone tablet you're reading and pay attention. Make sure your handwriting is legible, at least on your tax return. Although to be fair, I suspect that many of these mistakes attributed to taxpayer error actually result from bad inputting by the IRS.
Failing to use correct forms and schedules
Think of the IRS as a vast bureaucracy that responds to the dictates of an outdated computer system for audit direction. You don't want to anger the computer gods.
If you file your employee business expenses on Schedule A without attaching Form 2106, the computer's gonna click. The more the computer clicks, the more likely that you will get audited.
So, be nice to the computer. Correctly file all of the appropriate forms.
Failing to sign and date the return
This one is easy. If you don't sign the return, you haven't filed. Both spouses must sign a joint return. If you haven't filed, you're going to be subject to all kinds of penalties, not to mention interest on any amounts not paid in full.
The only reason not to sign the return is if the numbers on it would constitute perjury. Do you think the IRS wouldn't notice?
Claiming ineligible dependents
When the IRS started requiring Social Security numbers for claimed dependents, millions of dependents disappeared. I suspect most of them sulked back to their doghouses, flew to their bird cages or jumped back into their aquariums.
In any case, the qualification criteria to claim a dependent are technical and very specific. With nontraditional families, there are the exceptions, the exclusions to the exceptions, the exceptions when the exclusions don't apply and the special rules for the third Wednesday each month.
You'll have to meet each of at least four qualifications. Follow the flowchart in the instructions for your Form 1040. But it's not simple.
Misusing -- or not using -- the earned-income credit
This one I blame on Congress. It's a provision to help the poorest in our nation, but lawmakers designed it to be one of the most convoluted provisions in our tax code.
It's so bad that the IRS reports failure to claim the EIC as its No. 6 top taxpayer mistake and incorrectly claiming the EIC as No. 7.
Lots of crooks -- and unwitting but misinformed taxpayers -- illegally claim the credit. Many of those whom the credit was designed to aid lack the tax sophistication or the dollars necessary to hire a professional to claim those dollars.
Failing to report domestic workers
Even if you don't want to be a Supreme Court justice or the U.S. attorney general, you still have to pay the payroll taxes on your nanny, housecleaner or in-home caregiver.
Sorry, it's the law. If you pay $1,500 or more in 2007 (same as 2006) to any one household employee, you're going to have to withhold, and match, both Social Security (6.2%) and Medicare (1.45%) taxes. You must file Schedule H to compute and report the liability.
Video on MSN Money
Hidden ways to cut your taxes
Congress renewed some breaks too late to make the forms. Here's how to find out what you're entitled to.
You'll owe federal unemployment taxes if you pay wages of $1,000 or more in any calendar quarter to household employees. You may also owe state employment and disability taxes.
If you pay certain related parties, or employees under age 18 who qualify, you may escape liability. See Publication 926 for details.
Failing to report all income
You can't avoid reporting all of your income just because you don't get a W-2 form or a 1099. Not all income is reported on 1099s. That doesn't excuse you from having to pay tax on it. The fact that there's no reporting to the IRS doesn't prevent the agency from auditing your receipts and reconciling your bank deposits with your reported income.
Unreported income can lead to civil and criminal sanctions. I don't care how lucky you feel. The potential consequences aren't worth the risk.
Failing to check for the alternative minimum tax
The AMT, or "awfully mean tax," was created to catch high-income taxpayers who used allowable deductions and credits to wipe out too much tax liability. It's an alternative computation of your tax, with different deductions, add-backs and flat rates.
You pay the higher of your regular tax or that computed under the AMT.
Unfortunately, because it hasn't been updated to reflect inflation since the original bill was passed, the AMT has been projected to hit about 19 million families in 2007, including 64% of households earning $100,000 to $200,000.
You might not think you're a victim, at least until you get that letter from the IRS with penalties and interest. The IRS has an AMT estimation calculator on its Web site, but, to be sure, run through Form 6251.
12 Diseases That Altered History
It's often taught that the course of history hinges upon great battles, both in war and among competing ideas. The stars are a few powerful individuals—presidents, monarchs, dictators—whose actions can shift a society's development one way or another. But some influential actors are nasty and ruthless—and microscopic. In his book Twelve Diseases That Changed Our World, Irwin Sherman, a professor emeritus of biology at the University of CaliforniaRiverside, describes how bacteria, parasites, and viruses have swept through cities and devastated populations, felled great leaders and thinkers, and in their wake transformed politics, public health, and economies. U.S.News & World Report spoke with Sherman about how 12 key diseases—smallpox, tuberculosis, syphilis, AIDS, influenza, bubonic plague, cholera, malaria, yellow fever, two noninfectious diseases (hemophilia and porphyria), and the plant disease behind the Irish Potato Famine—have altered history.
Smallpox. It's the only infectious disease that has been eradicated through vaccination. The medical science of vaccination was a direct result of the devastating effects of smallpox. Essentially, studies of immunity and vaccines emerged from studies of smallpox. That gives hope that other diseases, too, will be eradicated by similar means.
Tuberculosis. The struggle against TB stimulated some of the first quests for antibiotics. The disease most likely promoted pasteurization, which heats and kills TB and other pathogens that can contaminate milk. The infectious nature of tuberculosis also prompted the building of sanitariums, where people could be isolated and treated.
Syphilis. Once treated with heavy metals like mercury, which had devastating effects on patients, syphilis inspired the discovery of chemotherapeutic agents. The sexually transmitted disease prompted chemotherapy pioneer Paul Ehrlich to look for what he called a magic bullet, which turned out to be the drug salvorsan. The history of many drugs can be traced to Ehrlich's work with dye materials that stained not only fabrics but organisms as well, spurring him to look for drugs that could bind to and kill parasites.
HIV/AIDS. "You can't talk about infectious diseases without discussing AIDS," Sherman declares. While today's chemotherapy cocktails—when available—are effective at reducing the number of AIDS-related deaths, it's a disease that also can be controlled by what he calls the most difficult intervention: behavioral control. "It's also a disease that is modern and yet has its parallels with the past in the kind of reactions that populations have when there's an unforeseen epidemic," he says.
Influenza. Few diseases have had such widespread effects on the number of deaths in the modern world as the flu, which remains a major threat worldwide despite the existence of vaccines against it. The disease very likely influenced the course of World War I by sickening and killing soldiers and straining military healthcare systems. Some have suggested that President Wilson's negotiations during the Treaty of Versailles were affected by the influenza infection he had at the time.
Bubonic plague. Quarantine—the isolation of infected or potentially infected people as a way to stem the spread of disease—developed from Europeans' long and storied history with bubonic plague. Sherman notes parallels between popular reactions to the plague in medieval times and reactions to HIV/AIDS in the modern era. Fear and ignorance, anxiety, prejudice, isolation, and panic can all result from not understanding the nature of a disease, he says.
Cholera. Spread via paltry or nonexistent sewage systems and lack of clean water, cholera was—and still is—rampant in many parts of the world. But improvements in sanitation have reduced cholera's impact in a number of regions. The power of epidemiology allowed 19th-century English physician John Snow to deduce that the disease was present in the water, even though the bacterium wasn't identified until many years later.
Malaria. One of the most lethal infectious diseases in history, malaria causes over 300 million cases worldwide and up to 3 million deaths a year. It's one of the earliest examples of the importance of controlling vectors—animal or insect carriers (in this case, mosquitoes)—in preventing the transmission of disease. One of the reasons Europeans managed to colonize Africa, according to Sherman, was that they utilized quinine, an antimalarial drug derived from the bark of the cinchona tree.
Yellow fever. Although vanquished in some countries, this mosquito-borne disease hasn't been eradicated and probably never will be, says Sherman. The disease influenced the building of the Panama Canal, the Louisiana Purchase, and, in fact, the pre-World War II development of the southern United States. "The stereotypes of the lazy, drawling southerner and the energetic, bright northerner were typical characterizations due to disease or the absence of disease," Sherman says. "In the North, mosquitoes couldn't survive overwintering, so there wasn't yellow fever. In the South, on the other hand, you had a population that was either decimated or debilitated by the disease."
Hemophilia and porphyria. As genetic blood disorders, hemophilia and porphyria had serious effects on the crowned heads of Europe. According to Sherman, the rise of Spanish dictator Francisco Franco can be traced to the lack of an heir to the throne because of hemophilia. Another example is the collapse of the Romanov dynasty in Russia, which was due to hemophilia in the family. The czar was debilitated and couldn't take over, setting the stage for the rise of the Bolsheviks.
Many of the British monarchs were unable to manage their kingdoms because of porphyria, which can cause a variety of mental problems, like hallucination, paranoia, and anxiety. Some describe George III's treatment of his American subjects, which helped to trigger the American Revolution, as being in part affected by his porphyric attacks.
Potato blight (cause of the Irish Potato Famine). Sherman expanded the range of maladies to indicate to readers that diseases affect not only humans but also sometimes what we eat. Potato blight had a profound impact because it devastated a staple food that fed much of Ireland in the mid-1800s. Other plant diseases could have similarly far-reaching consequences today, says Sherman. Many agricultural economies focus on a particular crop, so a single disease could be a big threat—and a major historic force. The Irish famine influenced America by generating an influx of Irish immigrants to U.S. cities; those newcomers expanded the Democratic Party, participated in the development of labor unions, and molded the nation's character in numerous other ways.
Smallpox. It's the only infectious disease that has been eradicated through vaccination. The medical science of vaccination was a direct result of the devastating effects of smallpox. Essentially, studies of immunity and vaccines emerged from studies of smallpox. That gives hope that other diseases, too, will be eradicated by similar means.
Tuberculosis. The struggle against TB stimulated some of the first quests for antibiotics. The disease most likely promoted pasteurization, which heats and kills TB and other pathogens that can contaminate milk. The infectious nature of tuberculosis also prompted the building of sanitariums, where people could be isolated and treated.
Syphilis. Once treated with heavy metals like mercury, which had devastating effects on patients, syphilis inspired the discovery of chemotherapeutic agents. The sexually transmitted disease prompted chemotherapy pioneer Paul Ehrlich to look for what he called a magic bullet, which turned out to be the drug salvorsan. The history of many drugs can be traced to Ehrlich's work with dye materials that stained not only fabrics but organisms as well, spurring him to look for drugs that could bind to and kill parasites.
HIV/AIDS. "You can't talk about infectious diseases without discussing AIDS," Sherman declares. While today's chemotherapy cocktails—when available—are effective at reducing the number of AIDS-related deaths, it's a disease that also can be controlled by what he calls the most difficult intervention: behavioral control. "It's also a disease that is modern and yet has its parallels with the past in the kind of reactions that populations have when there's an unforeseen epidemic," he says.
Influenza. Few diseases have had such widespread effects on the number of deaths in the modern world as the flu, which remains a major threat worldwide despite the existence of vaccines against it. The disease very likely influenced the course of World War I by sickening and killing soldiers and straining military healthcare systems. Some have suggested that President Wilson's negotiations during the Treaty of Versailles were affected by the influenza infection he had at the time.
Bubonic plague. Quarantine—the isolation of infected or potentially infected people as a way to stem the spread of disease—developed from Europeans' long and storied history with bubonic plague. Sherman notes parallels between popular reactions to the plague in medieval times and reactions to HIV/AIDS in the modern era. Fear and ignorance, anxiety, prejudice, isolation, and panic can all result from not understanding the nature of a disease, he says.
Cholera. Spread via paltry or nonexistent sewage systems and lack of clean water, cholera was—and still is—rampant in many parts of the world. But improvements in sanitation have reduced cholera's impact in a number of regions. The power of epidemiology allowed 19th-century English physician John Snow to deduce that the disease was present in the water, even though the bacterium wasn't identified until many years later.
Malaria. One of the most lethal infectious diseases in history, malaria causes over 300 million cases worldwide and up to 3 million deaths a year. It's one of the earliest examples of the importance of controlling vectors—animal or insect carriers (in this case, mosquitoes)—in preventing the transmission of disease. One of the reasons Europeans managed to colonize Africa, according to Sherman, was that they utilized quinine, an antimalarial drug derived from the bark of the cinchona tree.
Yellow fever. Although vanquished in some countries, this mosquito-borne disease hasn't been eradicated and probably never will be, says Sherman. The disease influenced the building of the Panama Canal, the Louisiana Purchase, and, in fact, the pre-World War II development of the southern United States. "The stereotypes of the lazy, drawling southerner and the energetic, bright northerner were typical characterizations due to disease or the absence of disease," Sherman says. "In the North, mosquitoes couldn't survive overwintering, so there wasn't yellow fever. In the South, on the other hand, you had a population that was either decimated or debilitated by the disease."
Hemophilia and porphyria. As genetic blood disorders, hemophilia and porphyria had serious effects on the crowned heads of Europe. According to Sherman, the rise of Spanish dictator Francisco Franco can be traced to the lack of an heir to the throne because of hemophilia. Another example is the collapse of the Romanov dynasty in Russia, which was due to hemophilia in the family. The czar was debilitated and couldn't take over, setting the stage for the rise of the Bolsheviks.
Many of the British monarchs were unable to manage their kingdoms because of porphyria, which can cause a variety of mental problems, like hallucination, paranoia, and anxiety. Some describe George III's treatment of his American subjects, which helped to trigger the American Revolution, as being in part affected by his porphyric attacks.
Potato blight (cause of the Irish Potato Famine). Sherman expanded the range of maladies to indicate to readers that diseases affect not only humans but also sometimes what we eat. Potato blight had a profound impact because it devastated a staple food that fed much of Ireland in the mid-1800s. Other plant diseases could have similarly far-reaching consequences today, says Sherman. Many agricultural economies focus on a particular crop, so a single disease could be a big threat—and a major historic force. The Irish famine influenced America by generating an influx of Irish immigrants to U.S. cities; those newcomers expanded the Democratic Party, participated in the development of labor unions, and molded the nation's character in numerous other ways.
Langganan:
Postingan (Atom)
