ICCR: Top U.S. Banks Get Average Or Below-Average Scores On Key Shareholder Concerns

Bank of America, Bank of New York Mellon, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo Ranked on Exec Compensation, Risk Management, Responsible Lending & Political Contributions.

NEW YORK, Nov. 20, 2013 /PRNewswire-USNewswire/ -- Five years after the crisis that rocked the financial world, seven leading U.S. banks scored a disappointing 60 or fewer out of 100 possible points in a benchmarking study released today by the Interfaith Center on Corporate Responsibility (ICCR), which represents 300 institutional investors with $100 billion in assets under management.  The top banks were evaluated in terms of four key shareholder concerns:  executive compensation, risk management, responsible lending and investing, and political contributions.

The financial institutions included in the ICCR report are:    Goldman Sachs (60, which scored highest on responsible lending and investment and tied for highest on political contribution practices); Bank of New York (59.02, which scored highest on risk management and tied for highest on political contribution practices); JP Morgan Chase (56.5, which tied for highest on political contribution practices); Morgan Stanley (55.40); Bank of America (55.35); Citi (54.90, which tied for highest on political contribution practices): and Wells Fargo (50.73, which scored highest on executive compensation practices.).  

For the report's full ranking results and process overseen by ICCR and Sustainalytics, go to http://www.iccr.org/publications/2013ICCR_BankReport.pdf on the Web.

Rev. Séamus Finn, director, Justice, Peace and Integrity of Creation for the Missionary Oblates of Mary Immaculate and ICCR board vice chair, said:  "Five years after the U.S. financial meltdown, some of the banks are beginning to address their risk management protocols, but have much more work to do when it comes to responsible lending and investment. Overall disclosures are also weak, particularly related to both executive compensation and political contributions.    What we see in these findings is a somewhat timid group of banks clustered in the average-to-below-average range with no single institution distinguishing itself as a leader for shareholders in the post-financial crisis era."

Laurence Loubieres, director, Advisory Services, Sustainalytics: "Without a doubt, the 2007-2008 financial crisis triggered marked changes in the industry, notably Dodd Frank regulations that call for improved transparency as well as strengthened risk management and compliance protocols. However, recurring controversies and legacy issues continue to raise investor concerns over the effectiveness of how these reforms are being implemented by the industry. Banks, therefore, need to demonstrate that reforms are not just good on paper, but that they are fully integrated across all business lines throughout the company. Specifically, to demonstrate their authentic commitment to structural reforms, banks need to enhance disclosure on their implementation and regularly report on progress."

Sr. Barbara Aires, coordinator, Corporate Responsibility, Sisters of Charity of St. Elizabeth, NJ., said:  "As a faith-based and values-driven coalition of investors who recognize the social purpose of the sector and are, therefore, concerned with the stability of global markets, risk management was one of the four themes we surveyed to gauge a bank's ability to withstand financial and non-financial pressures, and to ensure that shareholders and society do not bear the burden of inadequate risk management policies. We found that while banks report some enhancements in their enterprise risk management, to date we have little or no evidence of the effectiveness of these reforms. We were further concerned by the banks' lack of transparency around high-risk trading such as dark pool operations which are conducted anonymously and high frequency trading which can disrupt market stability through the speed and volume of orders executed within seconds."

David Moore, director, Investments, American Baptist Home Mission Society, said:  "The broader goal here was to gain insights into the strengths and weaknesses of the overall sector in the wake of the 2007-2008 financial crisis and, more specifically, to benchmark individual bank performance versus their peers to help guide investor engagement strategies going forward.  The themes addressed by the study reflect the priorities of ICCR members who wish to underscore the overarching social purpose of the financial services sector – promoting the access and availability of capital to advance the common good. That the sector has lost sight of this purpose and of their corporate responsibility has become abundantly clear in these post-crisis years."

ICCR commended banks such as Citi, Morgan Stanley and Goldman Sachs for meeting with the scorecard team very early on in the process and providing answers to many of the questions posed.

KEY FINDINGS

• Executive compensation.  "Clearer links between executive compensation levels and both financial and ESG performance need to be established.  In large part due to more robust requirements defined or anticipated after the passage  of Dodd-Frank, banks were relatively transparent with the compensation methodologies used in their regulatory filings; however, the link between remuneration to both financial and ESG performance needs further explanation. Most banks do not cap variable compensation and the few that do have a cap that falls significantly below best practice suggesting that bonuses will remain at levels perceived to be excessive. As investors, we seek information that explains the motivation behind the banks' remuneration policies and a better understanding of the steps that companies are taking vis-a-vis executive compensation to prevent inappropriate risk-taking and to promote financial stability".
• Risk management.  "Banks were eager to communicate on improved risk management processes but were less forthcoming on business practices currently attracting criticism such as activities in tax havens, dark pools or high frequency trading.  All banks reported significant enhancements in enterprise risk management (ERM) and processes; however, they failed to report how risks have been reduced or mitigated as a result of strengthened ERM systems or whether due diligence mechanisms really reduce credit risks and costs. Most of the banks surveyed are still exposed to significant regulatory scrutiny and/or litigation over ethical violations, pointing to either weak enforcement of risk management systems or difficulties in implementing internal controls across all business units that operate in variable external conditions. JPMorgan's London Whale controversy, for instance, indicates that while overall processes have improved on paper, implementation remains a challenge whose negative impact on shareholder values continues to be felt in late 2013."
• Responsible lending and investing.  "The banks surveyed are implementing initiatives in the areas of financial inclusion and sustainability but are lagging international standards in terms of responsible investment policies and practices … Overall reporting of responsible investment (RI) policies and practices remains weak. Despite balance sheets with a range of assets from cash to properties and commodities, not all of the banks have a responsible investment policy in place. The formal policies that have been adopted are neither detailed nor robust. Key sustainability issues which impact materiality and long-term risk, such as water and climate change impacts are not systematically taken into account in these companies' investment decisions. RI assets typically represent less than 2% of total assets under management."  
• Political contributions.  "Significant amounts of corporate funds are spent on lobbying activities but proactive and detailed public disclosure remains weak in this area. The banks' use of corporate treasury funds to influence policy and regulation is of great concern to responsible investors and disclosure on this measure should be improved. Even if most banks state that they do not contribute directly to political parties, greater detail is needed regarding lobbying spending at national vs. state levels, the implications of trade association memberships and their donations to tax-exempt organizations. Voluntary and public disclosure on political contributions and lobbying on companies' websites would serve as a safeguard against misuse of corporate assets and resources, and would ensure that corporate money is used to the benefit of a company and its shareholders. It would further ensure that that company boards and management have greater knowledge and understanding of the public policy activities of trade associations and other lobbying organizations."

METHODOLOGY

The ICCR bank score questionnaire was fielded in September 2012 and dialogues (in person meetings and or through conference calls) were held through February 2013 until the questionnaire was completed. ICCR members met/corresponded with the banks' senior management teams including chief risk officers, corporate secretaries, senior managers of consumer and asset management units, investor relations and CSR officers, among others. In addition to in-person meetings, members continued to gather data via company CSR reports, websites, regulatory filings such as 10-Ks and proxy circulars, through watchdog organizations such as the Center for Responsive Politics, the Tax Justice Network and news databases.  Each of the four key themes was broken down into a total of 29 key performance indicators (KPIs). For each indicator, different answer categories and corresponding raw scores were created to reflect the banks' responses on a scale of 0 to 100.

ABOUT ICCR

Currently celebrating its 43rd year, the Interfaith Center on Corporate Responsibility is the pioneer coalition of active shareholders who view the management of their investments as a catalyst for change.  Its 300 member organizations with over $100 billion in assets under management have an enduring record of corporate engagement that has demonstrated influence on policies promoting justice and sustainability in the world. To learn more about ICCR's history and current initiatives, go to www.iccr.org.

MEDIA CONTACTS:  Will Harwood, [email protected] or (703) 276-3255; and Alex Frank, [email protected] or (703) 276-3264.

EDITOR'S NOTE:  A streaming audio replay of this news event will be available as of 5 p.m. EST on November 20, 2013 at http://www.iccr.org.

SOURCE Interfaith Center on Corporate Responsibility, New York City