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Thank you for inviting me here today. On behalf of my NYSE Euronext colleagues, it’s a privilege to be addressing the CRO Summit. Our organization is proud to be aligned with this Association—both in our practices and as a new member of the organization.
I will openly admit that I am not an expert on corporate responsibility. Instead, I am a recovering regulator, having left the Federal government in July after seven years as commissioner and chairman of the Commodity Futures Trading Commission, the agency that oversees trading on the nation’s futures exchanges. As the head futures regulator, I spent many days in this city, which is home to one of the largest exchange-traded derivatives market with the CME just down the street.
In the role of CFTC Chairman, I testified nearly 20 times before Congress as oil prices rose to record levels last summer and worked with other members of the President’s Working Group on Financial Markets last fall to prevent financial contagion in the wake of the Lehman Brothers collapse. This crisis has shown that significant regulatory changes are desperately needed to protect the public and markets from such calamities.
But before I turn to regulatory reform, I first want to discuss the role of corporate responsibility in the context of my own experience. Just as exchanges like the NYSE must serve the dual role of regulating its markets and serving its shareholders, for-profit companies can serve both their shareholders and to better the societal fabric in which they operate. Corporate responsibility is not an oxymoron. Corporate responsibility adds value to companies over the long run, benefiting both shareholders and the surroundings in which they operate.
Today’s event takes on an important role given the state of the economy, financial markets and the corporate sector. Today, I want to discuss how sustainability and corporate responsibility serve as differentiators in our capital markets. I’ll provide a NYSE Euronext view on our CR efforts, and the role we play as advocates for issuers and investors. And I’ll spend a few minutes on our financial markets, specifically the drive toward regulatory reforms as we claw our way out of the financial crisis.
To start, I would like to address the topic that’s fundamental to our economy, financial markets and corporate responsibility as we mark the first anniversary of the financial crisis. That topic is trust.
Every dollar bill printed has the word “trust” emblazoned on the back. Without trust, money is just colored paper. Without trust, financial markets fail to operate as lenders worry that loans will not be paid. Without trust, entrepreneurs are not willing to take risks and innovation halts. Without trust, the public loses faith in financial institutions and the government that exists to serve them. Corporate responsibility cannot exist without a foundation of trust and the NYSE stands ready to step up as a leader in restoring this public trust in our financial markets.
One year after the crisis triggered a deep, worldwide recession, the stock market is up almost 50% from its low in March, consumer confidence is on the rise, housing prices have stabilized, and financial institutions are paying back their TARP funds.
While high unemployment and shallow credit markets persist, the many signs of progress suggest dramatic actions taken by regulators, lawmakers and the corporate sector appear to be working. These accomplishments are noteworthy, but the anniversary provides an even more important opportunity to refocus on the necessary work that remains unfinished.
The public, while perhaps heartened by the recent market rally, remains deeply distrustful of Wall Street. In a Gallup poll conducted this summer, fewer than one-in-four Americans expressed confidence in the nation’s financial institutions.
As you know, it takes years to build investor trust and only a moment to waste it away. As I tell my children all the time, trust is fragile and it doesn’t take much to destroy it.
But how do we build back confidence in our financial institutions so that Americans are willing to take risks and grow our economy?
Our CEO, Duncan Niederauer, has made this his mission and has identified three areas on which to focus: accountability, transparency and smart oversight.
If financial institutions are not accountable for their actions, how can Americans trust them to make good decisions? If institutions and markets are not transparent about their dealings, how can trust be restored? If Wall Street is not willing to accept appropriate oversight—what Duncan has termed “smart regulation,” what have we learned from this crisis?
As the recovery takes hold, we have a unique opportunity to build a better financial system. As part of this process we should examine both financial regulation and corporate governance.
This should not mean we need to over-react or government should legislate in our Board Rooms. Rather it should be a renewed focus on business integrity, ethics and responsibility. Financial institutions must accept responsibility and focus on rebuilding a better business model that is both profitable and sustainable. In an age shaped by “bigger, better, faster” technology, it turns out that our oldest values of trust, integrity and accountability remain at the core of all successful businesses.
Accountability:
On this theme of improving accountability, corporate governance is again at center stage. It has never been more important to our financial system and remains a strong focus for NYSE Euronext.
NYSE plays a critical role in shaping the manner in which companies make decisions, including decisions on corporate responsibility. Our listings and compliance standards remain the most stringent of any global exchange group.
When you strip away the bells and whistles of NYSE Euronext, our core function is to centralize information—primarily prices—in one transparent and open venue and allow the public to utilize these prices to make informed decisions—whether it is an investor buying a share of stock or a company raising capital to expand its business. The centralizing and sharing of information is what we do best.
Nearly 36 million jobs from the U.S. economy flow through the 6500 listed companies on our exchanges. The NYSE can play a critical role in facilitating change by helping focus the vision, energies and resources of these companies in one direction. If we can serve as the premier exchange for securities in the world, why can’t we serve as the central market for the views of our listed companies as we seek to make constructive societal change?
One of the ways we seek to utilize this collective wisdom is in the area of corporate governance. On September 1, NYSE formed an independent advisory committee to examine U.S. corporate governance and the overall proxy process.
This advisory commission will take a comprehensive look at strengthening U.S. best practices for corporate governance and the proxy process. Members comprise of experts in all aspects of corporate governance. We will also collect perspectives from those of public companies, shareholders and institutional and individual investors.
The first meeting was last week and we look forward to sharing recommendations with policymakers and other interested constituents to foster a comprehensive approach to corporate governance. As we seek to improve accountability in the board room, this step is an important one that will draw from the best and the brightest as we seek to find a better proxy process.
Transparency:
Transparency also lies at the heart of good governance, regulation and corporate responsibility.
A few weeks ago, President Obama came to Wall Street to outline some of the fundamental weaknesses in our financial regulatory structure and an underlying lack of market transparency that helped precipitate the financial crisis. NYSE Euronext supports the Administration’s proposal on financial reform that will bring large segments of the financial markets out of the darkness and into the sunshine.
Until we fix underlying problems in our financial system, Main Street will remain skeptical of financial markets and corporate America , and the economy will have a much tougher road to full recovery.
Our financial services industry is the largest and most sophisticated in the world. Yet the crisis made it painfully clear that our existing financial regulatory structure is rife with perilous gaps and confusing overlaps.
We need a regulatory system that does not allow loopholes to exist, whether for new financial products or existing companies doing business in unregulated areas.
Our current patchwork regulatory system does not place any single regulator in charge of taking an over-arching view of systemic risk in the financial system. Furthermore, significant segments of our financial marketplace remain murky and insufficiently transparent.
Today’s derivatives market is still impenetrably complex, with most transactions taking place on opaque over-the-counter markets rather than open, regulated exchanges or clearinghouses with transparent reporting.
Earlier this year, Secretary Geithner rightly proposed bringing certain standardized derivatives out of the shadows and trading them in the open on exchanges and clearinghouses, just as we do equities. Unfortunately, that idea has so far stalled but it’s not too late to jump start these important reforms. I am thankful that Chairman Frank of the House Financial Services Committee released his legislation last Friday and plans to move it toward passage in the coming weeks.
Smart Regulation
Smart regulation is also important in restoring trust. As we tackle this regulatory overhaul, we must remember that reform should not mean over-regulation or punitive rules that simply villainize Wall Street and the corporate sectors, and thereby damage a prime engine of our nation’s prosperity. Rather, “smart” regulation should be the aim of these discussions with risk being the primary thermostat on how much or how little regulation to administer. With properly calibrated regulations, government oversight and market discipline will work to punish excessively risky financial decisions and reward those that add value to the economy.
During the past year, the right steps were taken to avoid catastrophe. Now we need a renewed focus on the critical remaining tasks of building a stronger, more durable financial regulatory structure – one that can keep pace with innovation, rather than constantly struggling to catch up.
The crisis created a once-in-a-generation opportunity to modernize our outdated financial regulatory structure. We cannot let this opportunity pass. The trust of the public rides on our collective efforts and we cannot let them down and this exchange looks forward to working with the Administration and Congress in building a “smart” regulatory system that is both transparent and accountable to the American people.
Advocacy Role
Turning now to our advocacy role, NYSE Euronext is uniquely positioned to serve as a voice for the collective wisdom of its issuer community and in this age of digital information, this is something that we have only just begun to tap into.
We’ve polled our listed company leadership on matters such as the short-sale rule and executive compensation, and have shared those results on Capitol Hill and with regulators and the media.
This past summer, we conducted a survey of our listed companies, asking their opinion on corporate governance reform. We found that a vast majority of our listed companies are very concerned about federal legislation reaching too far into the board room.
We also conduct an Annual CEO Survey whose results we released this past summer. On the topic of Corporate Responsibility, public company CEOs believed that CR has taken on a new level of importance. Among other things, the CEOs stated that the most important corporate responsibility task is ensuring all labor practices are ethical across their organization, followed by formalizing policies related to corporate responsibility.
Furthermore, they believed that the economy has affected which CR actions CEOs think are most important. To them, ‘green’ practices and increased charitable giving has fallen down the list, while formalizing positions and policies for CR has increased in importance.
NYSE Euronext and Corporate Responsibility
Simply put, NYSE Euronext is highly committed to Corporate Responsibility. We are proud to be a new member of CROA, and thrilled at the partnership opportunities that exist.
Our goal is to be on the leading edge of the corporate responsibility movement, which includes adopting best-in-class practices internally as well as supporting the CROA’s professional standards for public companies.
Working with CROA on a global level will help raise the bar for professional practices in governance, risk, compliance, sustainability, environment, social responsibility and philanthropy.
As companies face the challenges of globalization, they become increasingly aware that Corporate Responsibility can be of direct economic value. Although the prime responsibility of a company is to generate profits and produce shareholder value, companies can be successful in contributing to other social and environmental objectives by integrating CR into their core business strategies and their operations without mitigating their core business.
That’s precisely what we are doing at NYSE Euronext. Several of our company’s goals touch upon the concepts of corporate responsibility, including:
- Building corporate identity.
- Attracting and keeping highly competent staff
- Establishing a trustworthy relationship with stakeholders
- Building sustainable relations with customers and all business partners
- Improving effectiveness and involvement with local communities.
Our efforts will be local and global, in the U.S. and Europe , and in other corners of the world that our business touches. Corporate Responsibility is and will be an integral part of our culture as a company and community. And we’ll not go it alone, as we’re committed to working with partners from our listed company ranks as well as our vendors and market users.
Among our priorities is Financial Literacy and Entrepreneurship. Improving our education system is critically important to the future of our children, growth and prosperity. We must ensure that our young people are equipped with the necessary skills to compete in the global marketplace and succeed in life.
Building on our own educational programs for children and adults, we have partnered with groups such as Viacom and the Gates Foundation in their “Get Schooled” initiative, which aims to generate greater awareness and engagement in addressing the nation’s education crisis and to offer practical resources and support to students.
In addition, we have partnered with Visa on two financial literacy games, “Financial Soccer” and the Stock Market Game, which aim to teach kids and adults alike about the importance of saving and the tools available to make smart financial decisions. Next month, we’ll be hosting Mentoring Madness at the NYSE as part of Global Entrepreneurship Week where we’ll again give young people a first hand look at what it takes to create and fund new ideas and innovation.
Our commitment to CR extends to technology and operations. Currently, we re building two large facilities—one in the greater New York City area occupying 398,000 sq. ft. and the other outside London at 315,000 sq. ft. Both will be operational by mid-year 2010.
They are key components of our roadmap for growth, realizing cost efficiencies and providing greater, faster access to our markets in Europe and the U.S.
Moreover, these state-of-the-art data facilities will meet all recognized facilities and operational guidelines, being highly reliable, energy efficient and environmentally friendly.
For instance, during a significant period of the year, the mechanical cooling systems can be powered down, and the facility will be environmentally condition by leveraging outdoor air temperatures. There will be automatic lighting control systems that are utilized for energy management. We will also employ the necessary carbon monitoring and reporting needed to participate in the Carbon Disclosure Project.
And in our greater New York area site—approximately 60% of the 28-acre site will remain green space with a combination of natural foliage and the addition of 500 new trees.
These are just a few examples of the efforts we’re making to operate our data centers at optimal efficiency, including energy efficiency.
We’re also proud of having been named one of “The Greenest Big Companies in America” by Newsweek magazine last month, in large part recognition of the energy and operational efficiencies we’ve implemented throughout our company.
I would add that we have a strong corporate giving program, The NYSE Foundation, which has provided funding to many charities, causes, and needs. We have installed a company-wide volunteer initiative that creates opportunities to perform volunteer work in the communities in which we operate. In just the past few years, we have deployed more than 1,000 individual volunteers to work alongside community partners to help build homes, prepare and distribute food to the needy, and provide thousands of winter coats to people of all ages.
I will close by leaving you with one final thought. In these difficult times, corporate responsibility functions are often identified as expendable—that these efforts do not add to the company’s bottom-line. But this should not be the case. This is the moment in time when companies and leaders should be stepping up and making sure that all these efforts don’t fall by the wayside. Now is the time for businesses to demonstrate how they can help address the needs around us.
You have to set the tone from the top. Our CEO, Duncan Niederauer, has done just that. He’s been out in front on Corporate Responsibility publicly while privately pounding nails with Habitat for Humanity volunteers.
His view is that corporate responsibility is akin to our company’s values. It makes up the DNA of an institution. Without clear leadership and articulation from the top, the culture of organizations will not evolve and corporate responsibility will always remain a concern of convenience rather than necessity.
While it is imperative to try to formalize and institutionalize sustainability and responsibility within our corporations, it is important to remember that the values that make up this movement come—not from manuals and best practices—but from us—the corporate citizen. Corporate Responsibility cannot be just another corporate program or incremental initiative. It's a personal, meaningful and dare I say moral concern for us all. As corporate responsibility officers, you must take on the difficult role of leader, educator and company conscience in pursuit of these collective goals. I applaud your hard work and dedication in this area and encourage you to keep up the good work. Thank you for allowing me to provide you with some thoughts this morning.
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