Monthly Archives: February 2023

BERLIN — In an earlier life as a reporter in Moscow, I once knocked on the door of an apartment listed as the home address of the boss of company that, our year-long investigation showed, was involved in an elaborate scheme to siphon billions of dollars out of Russia’s state railways through rigged tenders.

To my surprise, the man who opened the door wore only his underwear. He confirmed that his identity had been used to register the shell company. But he wasn’t a businessman; he was a chauffeur. The real owner, he told us, was his boss, one of the bankers we suspected of masterminding the scam. “Mr. Underpants,” as we called him, was amazed that it had taken so long for anyone to take an interest.

Mr. Underpants leapt immediately to mind when, nearly a decade on, I learned that a sulfurous academic dispute had erupted over whether foreign companies really are bailing out of Russia in response to President Vladimir Putin’s invasion of Ukraine and subsequent international sanctions.

Attempting to verify corporate activity in Russia — a land that would give the murkiest offshore haven a run for its money — struck me as a fool’s errand. Company operations are habitually hidden in clouds of lies, false paperwork and bureaucratic errors. What a company says it does in Russia can bear precious little resemblance to reality.

So, who are the rival university camps trying to determine whether there really is a corporate exodus from Russia?

In the green corner (under the olive banner of the University of St. Gallen in Switzerland) we have economist Simon Evenett and Niccolò Pisani of the IMD business school in Lausanne. On January 13, they released a working paper which found that less than 9 percent of Western companies (only 120 firms all told) had divested from Russia. Styling themselves as cutting through the hype of corporate self-congratulation, the Swiss-based duo said their “findings challenge the narrative that there is a vast exodus of Western firms leaving the market.”

Nearly 4,000 miles away in New Haven, Connecticut, the Swiss statement triggered uproar in Yale (the blue corner). Jeffrey A. Sonnenfeld, from the university’s school of management, took the St. Gallen/IMD findings as an affront to his team’s efforts. After all, the headline figure from a list compiled by Yale of corporate retreat from Russia is that 1,300 multinationals have either quit or are doing so. In a series of attacks, most of which can’t be repeated here, Sonnenfeld accused Evenett and Pisani of misrepresenting and fabricating data.

Responding, the deans of IMD and St. Gallen issued a statement on January 20 saying they were “appalled” at the way Sonnenfeld had called the rigor and veracity of their colleagues’ work into question. “We reject this unfounded and slanderous allegation in the strongest possible terms,” they wrote.

Sonnenfeld doubled down, saying the Swiss team was dangerously fueling “Putin’s false narrative” that companies had never left and Russia’s economy was resilient.

That led the Swiss universities again to protest against Sonnenfeld’s criticism and deny political bias, saying that Evenett and Pisani have “had to defend themselves against unsubstantiated attacks and intimidation attempts by Jeff Sonnenfeld following the publication of their recent study.”

How the hell did it all get so acrimonious?

Let’s go back a year.

The good fight

Within weeks of the February 24 invasion, Sonnenfeld was attracting fulsome coverage in the U.S. press over a campaign he had launched to urge big business to pull out of Russia. His team at Yale had, by mid-March, compiled a list of 300 firms saying they would leave that, the Washington Post reported, had gone “viral.”

Making the case for ethical business leadership has been Sonnenfeld’s stock in trade for over 40 years. To give his full job titles, he’s the Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management at the Yale School of Management, as well as founder and president of the Chief Executive Leadership Institute, a nonprofit focused on CEO leadership and corporate governance.

And, judging by his own comments, Sonnenfeld is convinced of the importance of his campaign in persuading international business leaders to leave Russia: “So many CEOs wanted to be seen as doing the right thing,” Sonnenfeld told the Post. “It was a rare unity of patriotic mission, personal values, genuine concern for world peace, and corporate self-interest.”

Fast forward to November, and Sonnenfeld is basking in the glow of being declared an enemy of the Russian state, having been added to a list of 25 U.S. policymakers and academics barred from the country. First Lady Jill Biden topped the list, but Sonnenfeld was named in sixth place which, as he told Bloomberg, put him “higher than [Senate minority leader] Mitch McConnell.”

Apparently less impressed, the Swiss team had by then drafted a first working paper, dated October 18, challenging Sonnenfeld’s claims of a “corporate exodus” from Russia. This paper, which was not published, was circulated by the authors for review. After receiving a copy (which was uploaded to a Yale server), Sonnenfeld went on the attack.

Apples and oranges

Before we dive in, let’s take a step back and look at what the Yale and Swiss teams are trying to do.

Sonnenfeld is working with the Kyiv School of Economics (KSE), which launched a collaborative effort to track whether companies are leaving Russia by monitoring open sources, such as regulatory filings and news reports, supported where possible through independent confirmation.

Kyiv keeps score on its Leave Russia site, which at the time of writing said that, of 3,096 companies reviewed, 196 had already exited and a further 1,163 had suspended operations.

Evenett and Pisani are setting a far higher bar, seeking an answer to the binary question of whether a company has actually ditched its equity. It’s not enough to announce you are suspending operations, you have to fully divest your subsidiary and assets such as factories or stores. This is, of course, tough. Can you find a buyer? Will the Russians block your sale?

The duo focuses only on companies based in the G7 or the European Union that own subsidiaries in Russia. Just doing business in Russia doesn’t count; control is necessary. To verify this, they used a business database called ORBIS, which contains records of 400 million companies worldwide.

The first thought to hold onto here, then, is that the scope and methodology of the Yale and Swiss projects are quite different — arguably they are talking about apples and oranges. Yale’s apple cart comprises foreign companies doing business in Russia, regardless of whether they have a subsidiary there. The Swiss orange tree is made up of fewer than half as many foreign companies that own Russian subsidiaries, and are themselves headquartered in countries that have imposed sanctions against the Kremlin.

So, while IKEA gets an ‘A’ grade on the Yale list for shutting its furniture stores and letting 10,000 Russian staff go, it hasn’t made the clean equity break needed to get on the St. Gallen/IMD leavers’ list. The company says “the process of scaling down the business is ongoing.” If you simply have to have those self-assembly bookshelves, they and other IKEA furnishings are available online.

The second thing to keep in mind is that ORBIS aggregates records in Russia, a country where people are willing to serve as nominee directors in return for a cash handout — even a bottle of vodka. Names are often mistranslated when local companies are established — transliteration from Russian to English is very much a matter of opinion — but this can also be a deliberate ruse to throw due diligence sleuths off the trail.

Which takes us back to the top of this story: I’ve done in-depth Russian corporate investigations and still have the indelible memory of those underpants (they were navy blue briefs) to show for it.

Stacking up the evidence

The most obvious issue with the Yale method is that it places a lot of emphasis on what foreign companies say about whether they are pulling out of Russia.

There is an important moral suasion element at play here. Yale’s list is an effective way to name and shame those companies like Unilever and Mondelez — all that Milka chocolate — that admit they are staying in Russia.

But what the supposed good kids — who say they are pulling out — are really up to is a murkier business. Even if a company is an A-grade performer on the Yale list, that does not mean that Russia’s economy is starved of those goods during wartime. There can be many reasons for this. Some companies will rush out a pledge to leave, then dawdle. Others will redirect goods to Russia through middlemen in, say, Turkey, Dubai or China. Some goods will be illegally smuggled. Some companies will have stocks that last a long time. Others might hire my old friend Mr. Underpants to create an invisible corporate structure.

A stroll through downtown Moscow reveals the challenges. Many luxury brands have conspicuously shut up shop but goods from several companies on the Yale A list and B list (companies that have suspended activities in Russia) were still easy to find on one, totally random, shopping trip. The latest Samsung laptops, TVs and phones were readily available, and the shop reported no supply problems. Swatch watches, Jägermeister liquor and Dr. Oetker foods were all also on sale at the historic GUM emporium across Red Square from the Kremlin.

All the companies involved insisted they had ended business in Russia, but acknowledged the difficulties of continued sales. Swatch said the watches available would have to be from old stocks or “a retailer over which the company has no control.” Dr. Oetker said: “To what extent individual trading companies are still selling stocks of our products there is beyond our knowledge.” Jägermeister said: “Unfortunately we cannot prevent our products being purchased by third parties and sold on in Russia without our consent or permission.” Samsung Electronics said it had suspended Russia sales but continued “to actively monitor this complex situation to determine our next steps.”

The larger problem emerging is that sanctions are turning neighboring countries into “trading hubs” that allow key foreign goods to continue to reach the Russian market, cushioning the economic impact.

Full departure can also be ultra slow for Yale’s A-listers. Heineken announced in March 2022 it was leaving Russia but it is still running while it is “working hard to transfer our business to a viable buyer in very challenging circumstances.” It was also easy to find a Black & Decker power drill for sale online from a Russian site. The U.S. company said: “We plan to cease commerce by the end of Q2 of this year following the liquidation of our excess and obsolete inventory in Russia. We will maintain a legal entity to conduct any remaining administrative activities associated with the wind down.”

And those are just consumer goods that are easy to find! Western and Ukrainian security services are naturally more preoccupied about engineering components for Putin’s war machine still being available through tight-lipped foreign companies. Good luck trying to track their continued sales …

Who’s for real?

Faced with this gray zone, St. Gallen/IMD sought to draw up a more black-and-white methodology.

To reach their conclusions, Evenett and Pisani downloaded a list of 36,000 Russian companies from ORBIS that reported at least $1 million in sales in one of the last five years. Filtering out locally owned businesses and duplicate entries whittled down the number of owners of the Russian companies that are themselves headquartered in the G7 or EU to a master list of 1,404 entities. As of the end of November, the authors conclude, 120 companies — or 8.5 percent of the total — had left.

The Swiss team was slow, however, to release its list of 1,404 companies and, once Sonnenfeld gained access to it, he had a field day. He immediately pointed out that it was peppered with names of Russian businesses and businessmen, whom ORBIS identified as being formally domiciled in an EU or G7 country. Sonnenfeld fulminated that St. Gallen/IMD were producing a list of how few Russian companies were quitting Russia, rather than how few Western companies were doing so.

“That hundreds of Russian oligarchs and Russian companies constitute THEIR dataset of ‘1,404 western companies’ is egregious data misrepresentation,” Sonnenfeld wrote in one of several emails to POLITICO challenging the Swiss findings.

Fair criticism? Well, Sonnenfeld’s example of Yandex, the Russian Google, on the list of 1,404 is a good one. Naturally, that’s a big Russian company that isn’t going to leave Russia.

On the other hand, its presence on the list is explicable as it is based in the Netherlands, and is reported to be seeking Putin’s approval to sell its Russian units. “Of course, a large share of Yandex customers and staff are Russian or based in Russia. However, the company has offices in seven countries, including Switzerland, Israel, the U.S., China, and others. What criteria should we use to decide if it is Russian or not for the purpose of our analysis?” St. Gallen/IMD said in a statement.

Answering Sonnenfeld’s specific criticism that its list was skewed by the inclusion of Russian-owned companies, the Swiss team noted that it had modified its criteria to exclude companies based in Cyprus, a favored location for Russian entrepreneurs thanks to its status as an EU member country and its business-friendly tax and legal environment. Yet even after doing so, its conclusions remained similar.

Double knockout

Sonnenfeld, in his campaign to discredit the Swiss findings, has demanded that media, including POLITICO, retract their coverage of Evenett and Pisani’s work. He took to Fortune magazine to call their publication “a fake pro-Putin list of Western companies still doing business in Russia.”

Although he believes Evenett and Pisani’s “less than 9 percent” figure for corporates divesting equity is not credible, he bluntly declined, when asked, to provide a figure of his own.

Instead, he has concentrated on marshaling an old boys’ network — including the odd ex-ambassador — to bolster his cause. Richard Edelman, head of the eponymous public relations outfit, weighed in with an email to POLITICO: “This is pretty bad[.] Obvious Russian disinformation[.] Would you consider a retraction?” he wrote in punctuation-free English. “I know Sonnenfeld well,” he said, adding the two had been classmates in college and business school.

Who you were at school with hardly gets to the heart of what companies are doing in Russia, and what the net effect is on the Russian economy.

The greater pity is that this clash, which falls miles short of the most basic standards of civil academic discourse, does a disservice to the just cause of pressuring big business into dissociating itself from Putin’s murderous regime.

And, at the end of the day, estimates of the number of companies that have fully left Russia are in the same ballpark: The Kyiv School of Economics puts it at less than 200; the Swiss team at 120.

To a neutral outsider, it would look like Sonnenfeld and his mortal enemies are actually pulling in the same direction, trying to work out whether companies are really quitting. Yet both methodologies are problematic. What companies and databases say offers an imprecise answer to the strategic question: What foreign goods and services are available to Russians? Does a year of war mean no Samsung phones? No. Does it mean Heineken has sold out? Not yet, no.

This has now been submerged in a battle royal between Sonnenfeld and the Swiss researchers.

Appalled at his attacks on their work, St. Gallen and IMD finally sent a cease-and-desist letter to Sonnenfeld.

Yale Provost Scott Strobel is trying to calm the waters. In a letter dated February 6 and seen by POLITICO, he argued that academic freedom protected the speech of its faculty members. “The advancement of knowledge is best served when scholars engage in an open and robust dialogue as they seek accurate data and its best interpretation,” Strobel wrote. “This dialogue should be carried out in a respectful manner that is free from ad hominem attacks.”

With reporting by Sarah Anne Aarup, Nicolas Camut, Wilhelmine Preussen and Charlie Duxbury.

Douglas Busvine is Trade and Agriculture Editor at POLITICO Europe. He was posted with Reuters to Moscow from 2004-08 and from 2011-14.

The ATRAM Group continues to position itself as a leader of change. Facilitating action across the business community, the company announced its most recent collaborations with UNICEF Philippines and Good Food Community.

“At ATRAM, we are fully appreciative of the privileged position we have in influencing how companies can do better. Not just growing earnings and the business, but in making lives better for everyone,” shares Phillip Hagedorn, President of ATRAM Trust Corporation and CEO, asset and wealth Management.

“In the last three years, we have been shaping the business with an integral direction towards the United Nations’ Sustainability and Development Goals.”

Building upon more than a decade of experience and client service, the group developed the ATRAM Philippine Sustainable Development and Growth Fund. Launched in 2021, the fund is the first of its kind in the Philippine market. It features a portfolio of firms that are selected based on ATRAM’s proprietary SDG scoring methodology, which measures the sustainability and social responsibility of companies in their business models.

Building Sustainable Partnerships

Showcasing ATRAM’s commitment to develop sustainable businesses, and to empower social enterprises and non-profit organizations, ATRAM announced new collaborations as part of its Corporate Social Responsibility program.

These include UNICEF Philippines, whose mandate is to protect and promote the rights of the world’s most vulnerable children, and Good Food Community, which helps gather conscientious eaters who wish to help Filipino farmers. The announcement was made during ATRAM’s annual Thanksgiving Celebration held last December 2022 at the Palacio de Memoria. Other collaborations include Tesoro’s Handicrafts, whose local ornaments helped bring the event space to life.

Maida Salcedo, UNICEF Philippines’ Major Donor Fundraising Officer shares, “When UNICEF first met ATRAM, I was struck by their commitment to clients. We understand that with success comes a great desire to learn more about how wealth can contribute to nation-building.”

For Mabi David, Good Food Co.’s Advocacy and Partners Lead, partnerships are essential to transform the country’s food system into one that benefits and cares for everyone. “We collaborate with different organizations in sharing knowledge and centering farmers and eaters. A Pamayanihan subscription invites us to bring the people who feed us daily back into the forefront of our consciousness, in as much as we remain in theirs as they continue to grow, harvest, and prepare food for all of us.”

This news follows the launch of ATRAM’s CSR program in cooperation with the Ramon Aboitiz Foundation, Inc. (RAFI) in 2022, and their continued work with the Private Education Retirement Annuity Association (PERAA). “We are not only looking at sustainability from an investment theme but also looking at integrating it into our business practices,” adds Hagedorn. 

Recognizing the value of community building, the event also served as a venue for key ATRAM Stakeholders to express their gratitude for their clients’ gift of trust.

“Making Lives Better, that’s our mission, both for you, our clients, and the community in general. But it really takes a village to do what we do,” shares Michael Ferrer, ATRAM Group’s Chief Executive Officer. “Thank you for joining us in our mission of Making Lives Better for the broader community and country.”

Investing in Sustainability

Since its inception, the ATRAM Philippine Sustainable Development and Growth Fund has outperformed the PSEi by 9.57% as of December 31, 2022, addressing the desires of socially responsible investors to combine a positive financial return with an equally positive contribution to the environment and society.

This year, the group also aims to publish the first ATRAM Philippine Sustainability Report to highlight the efforts of local companies toward the support and integration of the UNSDGs into their businesses. Other things to look forward to are more Global Feeder Funds that put sustainability front and center. 

It would be one thing if the US economy were declining while the rest of the world was growing in ways that may help the US. But that’s not the case. The rest of the world is also declining. We’re amid a global recession, a rare state of affairs.

China, the world’s second-largest economy, recently reported second-quarter GDP growth at an annual rate of 0.4%. That’s extremely close to 0%, a far cry from China’s 30-year average of 10% growth and more recent performance of annualised growth in the 5% range.

The fact is, China is certainly in a recession. The Chinese consistently lie about their economic statistics and overstate performance. If they’re willing to admit to 0.4% growth, it’s almost certainly the case that actual growth is negative. At the same time, youth unemployment in China hit 19%, a level associated with economic depression.

The zero-COVID fiasco

This Chinese performance can be attributed in part to the ridiculous zero-COVID policy of Chairman Xi Jinping. The quest for zero outbreaks of COVID might as well be a quest for zero colds and sniffles. It can’t be done. But Xi did lock down Shanghai (26 million people), Beijing (22 million people), and other major cities on a repeated and seemingly random basis in recent months — and continues to do so.

This policy will not be relaxed soon. It will certainly continue at least through the 20^th National Party Congress this fall (when Xi will be made de facto president for life) and possibly beyond. [Note: This was originally published in August 2022.] Xi does not want to rock the pandemic or political boats before the party congress.

Still, that’s not the only drag on growth in China. If China is the ‘factory to the world’, it follows that if the world slows down, the factory will slow down. That appears to be happening as slower growth (or recession) in the US and Europe reduces demand for Chinese exports.

The US and China go their separate ways

The final nail in the coffin is that China and the US are in the midst of a historic decoupling. This is globalisation in reverse, or at least a new form of globalisation.

US firms are closing certain operations in China and making new investments in favour of moving capacity back to the US, or at least to friendly countries such as Canada, Australia, and India. This movement goes by the name of ‘friend-shoring’ and will be a major headwind to further growth in China.

Japan, the world’s third-largest economy, is not much better off. Data shows that Japan is entering a new recession — its ninth recession since the super bubble burst in 1990. Central Bank Governor Haruhiko Kuroda will not raise interest rates to fight inflation or defend the yen. He’s leaving office in mid-2023 and looks forward to a comfortable post-official world of board seats, think tank positions, and other remunerative honours. He doesn’t want to jeopardise that scenario with a policy blunder in the home stretch. So he will do nothing.

This leaves Japan facing both inflation and slower growth, a condition called ‘stagflation’, which is also confronting the US. Japan’s bilateral trading relationship with China is as important to Japan as its trading relationship with the US. The Chinese slowdown has a contagion effect in Japan as capital inflows to China dry up.

Russia could turn off Europe’s gas

Germany, the world’s fourth-largest economy, may be in worse shape than China and Japan by late this year. In addition to the global slowdown affecting major exporters like Germany, there are negative factors unique to Germany. It’s in the crosshairs of Russia’s efforts to sustain its position in Ukraine by cutting off supplies of natural gas to Western Europe and Germany in particular.

Russia has had little difficulty shifting exports of oil and natural gas to willing buyers, including India and China. There are some logistical challenges, and Russia has resorted to discounted pricing, but the flow of energy from Russia continues, and the flow of hard currency to Russia at a rate of US$21 billion per month also continues.

This gives Russia the option to cut off energy supplies to Western Europe without damaging its economy. Russia has cleverly done this by reducing natural gas flows gradually instead of all at once. It has also offered a series of excuses for reducing gas flows, including ‘maintenance’ on a key turbine/compressor component on the Nord Stream 1 pipeline. (The Nord Stream 2 pipeline is complete but has never received authority to begin operations, which also suits Russia’s plans.)

Putin’s strategy is to force Germany to deplete its natural gas reserves during good weather. When the cold weather hits, Germany will be out of reserves and will not receive more gas from Russia. At that point, Germany will have to shut down manufacturing, ration what little natural gas may be available, and ask consumers to turn thermostats down. Hot showers will be limited to five minutes or less. Germans will wear fleeces and heavy sweaters indoors. It’s a sad state of affairs for a major economy, but it’s how things turn out when ideologues in office support corrupt regimes such as Ukraine against mega-energy powers such as Russia.

One can wish the Germans well, but from the US’s perspective, the situation in Germany is just one more leg kicked out from under the table supporting global growth. Global contraction is the new normal.

All the best,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

Scarcely reported by mainstream press outlets, at the very end of 2022 President Biden signed into law the huge fiscal year 2023 $1.7 trillion spending bill in which tucked away were provisions for Washington to establish a new mechanism to assess the extent to which U.S. firms’ investments abroad engender national security risks at home.

Marrying the now-familiar—but for years considered esoteric—national security screening procedure the Treasury-chaired interagency Committee on Foreign Investment in the U.S. (CFIUS) uses for judging inbound foreign investment transactions consummated on American soil, the U.S. is slated to become the first major Western country to assess domestic national security risks stemming from the nation’s firms’ outbound foreign investment transactions.

There is little question that the maturation and extensive complexity of the world’s cross-border supply chains have fundamentally altered the threat environment endemic to international commerce. This is epitomized by the plethora of such networks winding their way into and out of China—the most populous country on earth, commonly referred to as “the global factory,” and overseen by the nation’s strongman, Xi Jinping, who recently was elected to an unprecedented third five-year term as General Secretary of the China’s Communist Party.

The challenge for policymakers in the West is how best to mitigate potential concomitant national security risks effectuated back home as their businesses, imbued with the capitalistic fervor to compete not only with Chinese firms on their own turf but also with one another in the world’s second largest economy to inure benefits to their domestic consumers, workers, and shareholders.

The tension between operating a business according to the dictates of capitalism in today’s global marketplace and abiding by allegiance to your “home” country flag cannot be overstated. Defining and implementing a policy regime of “economic patriotism” that dissipates that tension is hardly a needle that is easy for the world’s advanced democracies to thread. At the most fundamental level, depending on how it is attempted, it risks making the advanced democracies adopt China’s playbook rather than the other way around.

How Did We Get Here?

It is little secret that the new provisions enacted by Biden, which were largely hatched on a bipartisan basis on Capitol Hill but with at least tacit approval by the White House, are mostly aimed at curbing—and possibly unwinding—U.S. firms’ investment in China in “sensitive” sectors, although the law does not preclude its application in other geographies. Under the statute, the Treasury Department and Department of Commerce were mandated to prescribe the implementing regulations.

Even less of a secret has been strong opposition to the emerging regime by U.S. international companies, private equity firms, and banks. They hardly relish being restricted from investing in or possibly being mandated to exit from China. Adding further salt to these wounds is that unless other Western government adopt similar restrictions, U.S. firms believe they will be put at a global competitive disadvantage in China vis a vis their peers. Much of the hatching of the idea behind such a regime took place a few years ago in deliberations by The U.S.-China Economic and Security Review Commission, an entity that was created by Congress in 2000.

While not always explicitly mentioned, the concept underlying the new legislation is to create incentives for U.S. businesses who otherwise source inputs abroad in countries whose pursuit of commercial objectives erode the competitiveness and national security of the U.S. to embrace a doctrine of “economic patriotism.” On its face, it is hard to disagree with the notion of refraining from abetting the economic fortunes of nations whose goals—sometimes made quite explicit—are to undermine those of ours.

Macro-Operational Considerations

As is almost always the case in making international economic policy in today’s complex system of interrelated markets—interrelated both horizontally (competitor to competitor) and vertically (supplier to buyer)—the question becomes how best to operationalize such concepts in way that we do not inflict net costs on ourselves.

The term net is critical here, just as what is meant by costs. But the principle is straightforward: if supply chains are reoriented to other locales (for example, outside of China) where production costs turn out to be higher, resulting in an increase in “total delivered costs” to U.S. consumers, are we as a nation willing to pay that “surcharge”? Obviously the answer to that question turns on what value we assign to any improvement in our national security engendered by that shift.

Suffice it to say, not only is it a complex calculation to make—fraught with having to make complex, intangible assumptions—but different Americans will likely make different valuations on the incremental national security benefit that results. Needless to say, this is not an argument against having such a policy.

There are of course many other costs and benefits that would come into play here. To state one of the most obvious, if there are net economic benefits accruing to Americans by having a market-driven economic system where businesspeople make supply chain decisions, how much risk do we want to absorb by relying on others to make such determinations? Again, this is not to suggest a specific answer to this question is wrong or right. It is simply to point out that these are not trivial issues with which to contend. And it will likely be hard to have a great deal of confidence in ensuring that the answers proffered are not error-free.

As a veteran international policymaker on economic and business matters, I wish those of us in the field had more confidence in that trade!

Micro-Operational Considerations

Apart from these overarching operational issues in determining the extent to which a doctrine of economic patriotism is feasible, there are also factors at a more micro level that must be considered.

The operations of CFIUS with respect to assessing risks to US national security from inbound investments in our country is one thing. We have access to data through US enforcement agencies on the ground at home as to the underlying identities of foreign entities doing business here or that have applied to do so.

That is a very different picture than what one faces in many foreign countries outside the Western advanced nations, especially in emerging markets like China, where the quality of data can be very low and such data are open to government manipulation. The result is that determining who is, and who is not, the beneficial owner of many of the entities with whom U.S. and other foreign entities might co-invest is fraught with errors. (I say this as someone who has worked on the ground in China for several decades, especially on corporate governance issues.)

Moreover, the notion that the Chinese or other foreign governments in emerging markets would welcome—or not interfere with—U.S. or other Western regulators in-country to engage in the type of due diligence done at home in assessing the national security issues attendant to transactions is a bit fanciful.

Finally, it would be naïve for Western regulators making such in-country assessments to not attribute a positive value to the benefits engendered in such countries precisely because Western investors are participating in the local economy. All other things equal, it may well be the case that such positive spillover effects actually reduce national security threats to Western countries in their own home markets.

Cameron and Bryce Jones were just 13 and 14 years old when they witnessed the Okanagan Mountain Park fire devastate their home city of Kelowna, British Columbia, in 2003. “The grounds behind my house were unrecognizable,” Bryce Jones recalls of the aftermath. “Previously an expansive and pristine forest, a place to wander and explore, was converted into a charred grassland, with virtually no living trees, but instead burned snags, where you could see kilometers into the distance the bare and exposed landscape. Twenty years later the forest still hasn’t returned.”

That destruction fueled an ambitious goal for the brothers: Plant one billion trees in Canada and across the world by 2028. With the help of technology, they’re well on their way to achieving that goal. Their startup Flash Forest deploys drones to shoot “seed pods” onto fire-damaged land to grow biodiverse, tree-rich landscapes.

With drones, the Flash Forest team can rapidly plant post-wildfire, where in many cases it’s too dangerous to send human planters. They also target mid- to high-severity fires, where entire forests have burned and natural regeneration is less likely to occur. “These forests struggle to regenerate naturally and need assistance to re-establish after a fire,” Jones says. “Unfortunately due to climate change we’re seeing more and more high-severity fires across the world.”

For Flash Forest plantings, a team brings drones to a forest site and pilots them above the tree canopy, 130 to 200 feet in the air. The drone deployers are automated, shooting seed pods at a strong enough velocity that they embed into the soil. Drones deploy five pods per second, covering a lot of ground in a matter of minutes. 

In addition to extensively modifying commercial drones to add seed-firing abilities, the company relies on aerial mapping software to ensure, Jones explains, “pods are not wasted in areas where trees won’t grow, such as water, rocks, logs, paths and tree crowns.” The seed pods themselves are a biological experiment in progress, a search for the most reliable recipe for healthy, large-scale reforestation. 

A team of plant scientists have designed over 100 recipes so far. Douglas fir, Western larch, Lodgepole pine, Ponderosa pine, White spruce, Black spruce and Jack pine are all in the mixes. “Our goal is to be the most biodiverse reforestation company,” Jones says. “We want to maximize the number of species we plant so we can rebuild forests, not just monocultures.” 

Pilot projects launched in spring 2021. Between April and June, the team planted over 300,000 seed pods — 19 different species at 13 sites across Canada — completing the largest drone reforestation project in Canadian history. 

By spring of 2022, the company refined its drone and software tech and partnered with federal and provincial governments, private landowners, forestry companies and First Nations communities to plant 150,000 trees on land they each own or manage. The company had fleets of three drones each planting 1,500 to 1,600 pods across public and private parcels in Ontario, British Columbia and Alberta. Flash Forest monitors and ensures the desired seedling density is reached across each site it visits, and checks on the health, growth rate and species distribution of seedlings after the plantings. 

“Now that our company is in the commercial operations phase,” says Jones, “we’ll be doing large-scale planting operations across British Columbia, Alberta and Ontario.” Flash Forest plans to deploy over one million seed pods this year.

Accelerating a crucial solution

The company’s origins go back to the Jones’ college days, when they partnered with friend Angelique Ahlström, a co-founder who is now chief strategy officer. The trio wanted to respond to rampant deforestation due to fires near their school, the University of Victoria in British Columbia.

Their work plays into an increasingly urgent climate change solution: A 2019 study suggests that, thanks to how much carbon trees can store, establishing one trillion new ones could decrease the amount of carbon dioxide in the atmosphere by 25 percent. Further, biodiversity plays a critical role in the enduring health of our forests and overall environment. 

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Community-led reforestation projects have shown positive results from India to Colombia, but much of that work depends on shovels in the ground. Flash Forest sees their high-tech approach as complementary to those efforts. “There’s over 20 billion trees lost each year, only about seven billion are replanted,” Jones says. “There’s a net loss of trees each year. We need tree planters everywhere to join the effort.” With 2021 one of the worst years for forest fires since the turn of the century, causing 9.3 million hectares of tree cover loss globally, manual planting cannot keep up. 

“Success means hitting the desired stocking standard,” Jones says, which the company calculates as 1,500 stems per hectare. “Second, success means maximizing biodiversity, so achieving successful germinations with all species planted and continually pushing to increase the number of species we plant is a factor of success.” 

Seeing plants emerge, Jones says, is “absolutely incredible and surreal — there’s nothing better than knowing that your daily efforts are going towards a good cause and making a better future.”

Flash Forest plans to rapidly scale by partnering with governments, private landowners, corporations and others to send out fleets of drones. In November, the Canadian government announced a $1.3 million contribution to the company as part of its 2 Billion Trees commitment — the first time in Canadian history that the government included drone reforestation as part of its federal climate change solution. 

To hit its goal of planting one billion trees by 2028, “the company needs to scale at a rate of about four times every year,” according to Jones. “We’re currently on track, but it will be a rapid scalability to get there.” A big component will be securing more partners, both governmental and private, and leveraging “corporate social responsibility” partners pledging to reforestation goals. 

In the next few years Flash Forest hopes to expand outside Canada, ideally testing small-scale projects across the Pacific Northwest. “We’re looking to work with private landowners who have been hit by wildfires so we can do trials of their site and then much larger, more efficient projects in 2024 onward,” Jones says. The company wants Pacific Northwest landowners who have been hit by forest fires in the last two years to get in touch.

“We want to be using our technology everywhere that it is needed, which is essentially every continent except Antarctica,” Jones says. “We’re willing and excited to go and support reforestation.”

After Roe v. Wade was overturned in June, patients seeking abortion care traveled to states where the practice was still legal. Some physicians say medical groups should do the same when planning conferences.

“In response to a new and potentially hazardous clinical environment … professional societies should not sponsor professional conferences in states that severely restrict access to abortion services,” authors Cary Gross, MD, a professor at Yale School of Medicine in New Haven, Conn.; Ezekiel Emanuel, PhD, MD, an oncologist and professor at the University of Pennsylvania in Philadelphia; and Katherine Kraschel, a health law and policy expert at the Yale School of Law, argue in a viewpoint piece published in JAMA Internal Medicine.

One of the arguments they make is that physicians who have practiced abortion care could potentially be prosecuted in certain states if they must travel for conferences. 

“It could be argued that considering state abortion laws when selecting meeting locations risks [politicizing] the role of professional societies. Healthcare societies, however, are already political actors, spending millions of dollars lobbying Congress annually. Moreover, abortion is already a political issue,” they write. “Rather than shying away from advocating for patients, medical societies should frame their efforts in the context of health and healthcare systems to ensure that abortion care is not marginalized in healthcare.”

On top of that, selecting meeting sites in locations that uphold “core values of the medical profession,” such as supporting patients’ well-being and access to vital care services, reflects better on the profession, they argue. They note this practice should follow the International AIDS Conference, which was not held in the U.S. until 2012 in protest of a ban on visas for individuals with HIV. 

Additionally, the authors argue that these groups should essentially vote with their money. The economic benefits brought to the locations hosting conferences should be taken into consideration and align with ethical consumerism.

Shares of AMC Entertainment (NYSE:AMC) surged 23% on Monday after a Delaware court announced it would delay the conversion of APE units into common stock. The theater chain is now barred from amending its certificate of incorporation until at least April 27.

These moves have obviously frustrated arbitrage traders. Share conversions are a normal course of business, and the APE/AMC spread should have theoretically vanished by March 14 if things went to plan. Corporate boards prefer meetings to look like weddings, where the right people are coached to say “I do” at the right time.

But this is the real world, a place where couples get cold feet and wedding chapels catch on fire. AMC shareholders seem to be gearing up for a messy legal battle, which could delay or entirely derail the APE deal. The convergence trade also involves short-selling AMC, a move that should make most hedge funds think twice. In the past fortnight alone, an unhedged short AMC position would have lost 75%.

Still, the widening gap between AMC and APE shares should eventually make the gamble worth the risk. And if you’re willing to take on more risk than the average arbitrage trader, then APE shares are becoming an enormous convergence trade… with a rather large wrinkle.

What Is the AMC/APE Convergence Trade?

The AMC/APE convergence trade essentially involves buying the lower-cost APE shares and shorting the higher-cost AMC ones. If management successfully converts the newer APE shares into the regular AMC version, traders walk away with a profit per share equal to the initial spread. In our case, that’s $8 – $1.80 = $6.20. It’s a form of arbitrage that has existed for decades, although usually with a far smaller gap.

There are, however, some issues with this arrangement. First, AMC’s stock is highly shorted, making hedging essential. Buying offsetting calls, known as “delta hedging,” would cost around $1.80 per share through July 2023, or $2.25 through January 2025. That would eat into potential returns, making the arbitrage opportunity less attractive.

Second, AMC’s low float makes the shares extremely expensive to short. Fee rates are as high as 200% per year, meaning it could cost as much as $5.30 to sustain the position through the end of Q2. If the APE conversion gets delayed beyond that point, the convergence trade collapses and arbitragers walk away with nothing.

And finally, synthetic convergence trade strategies are unattractive, thanks to AMC’s inflated price. July’s at-the-market put options cost around $4.50, and May ones are little better.

That means there’s only one clear way to profit from this gap:

Buy preferred APE shares and ignore the AMC common issue.

The Origins of the APE Trade

In August 2022, CEO Adam Aron hatched a cunning plan to raise more capital. By issuing shiny new preferred APE shares (rather than the dull AMC type), the theater chain’s boss could side-step the 524 million AMC share cap and generate a ton of cash from willing retail investors.

It was a win-win for the firm and its stakeholders. Retail investors could continue ignoring management’s pleas to vote for a share increase. (The Reddit crowd, after all, is notoriously poor at showing up for proxy meetings). And Mr. Aron could use APE’s proceeds to chip away at his company’s enormous $5.3 billion debt pile. Without that financial lifeline, AMC would be out of cash within 3-4 quarters.

This unspoken truce is now coming to a head. On Jan. 27, AMC announced plans to convert APE shares into ordinary AMC ones, turning its “unofficial” capital raise into a decidedly official one. The March 14 vote is all but guaranteed to approve the APE-to-AMC conversion since APE voting power now trumps AMC’s by a 1.25-to-1 ratio. Prearranged agreements with hedge fund Antara Capital and Computershare Trust further stack the chances in favor of conversion. Meanwhile, AMC shareholders have revolted, with one class-action suit calling Mr. Aron’s APE shares “an exercise in 3-D chess” that would “eviscerate” common stockholders.

This opens up an intriguing opportunity. With APE shares now trading for a tiny fraction of AMC ones, something will eventually have to give.

How About a Game of 3D Chess…

APE shares have consistently traded at a significant discount because of their unclear standing.

On the APE’s side of the argument, Aron issued the preferred shares following the letter of the law. AMC’s registration state of Delaware has no clear limitations on preferred share voting rights, so issuing voting APE shares is perfectly legal in the state. Mr. Aron also had limited options in fundraising during the 2020 Covid-19 pandemic. If he failed to create the new share class, AMC would likely have folded the same way as Regal Cinema parent Cineworld (OTCMKTS:CNNWQ) did this year. And if that argument fails to impress the judge, the defense can point to the firm’s corporate governance guidelines, which prioritize the “long-term health and overall success of the business,” not shareholder voting rights.

On the other hand, the intent of Mr. Aron’s deal is more questionable. Regulators largely frown on the unilateral dilution of voting shares, which is why most preferred stock are issued with zero voting rights. Through this lens, AMC’s issuance of 642 million APE shares went against shareholder interest; management could have easily issued non-voting preferred stock. AMC’s management also never gave common shareholders a chance to reject the dilutive issuance. In July 2021, the firm withdrew its proposal to add 25 million shares to its count before a vote could happen.

That’s created a mess worthy of a Star Trek reference to 3D chess.

…Or Maybe Checkers Instead?

Arbitrage traders have history on their side. Around two-thirds of all shareholder lawsuits regarding fiduciary duty are dismissed, and much of the remainder are resolved through settlement. The APE/AMC gap is also startlingly large. Even if we assign a 25% chance that APE shares go to zero, our expected delta-hedged return remains well above 50%… if only the courts toss the injunction by April 27.

But such fancy footwork adds a great deal of risk. The courts could easily delay the APE/AMC conversion, spelling disaster for any AMC short position incurring the 200% fee rate. And the high price of put options makes synthetic routes equally unattractive.

So, perhaps a game of checkers is in order. While arbitrage traders play a complex tournament of hedging, ordinary investors will be better off playing the simple game of “buy the discounted APE shares.” In the best-case scenario, the APE/AMC marriage goes through and prices converge somewhere between $1.80 and $8. And in the worst-case scenario, the most you can lose is $1.80 per share.

Sounds like a decent win to me.

On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The recent baseline study conducted by the Employers Confederation of the Philippines (ECOP) on Philippine employers’ uptake of the UN Sustainable Development Goals (SDGs) showed that over half of the responding micro, small, and medium enterprises (MSMEs) are aware and actively contributing to the attainment of the individual goals.

Goals are a collection of seventeen (17) interlinked objectives designed to serve as a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. The SDGs emphasize the interconnected environmental, social, and economic aspects of sustainable development by putting sustainability at their center.

According to the report, the MSME respondents that are mostly from the manufacturing sector have high awareness and understanding on the SDGs that concern the “People” category, specifically Goal 3 – Good Health and Well-being, Goal 1 – No Poverty, Goal 2 – Zero Hunger, Goal 4-  Quality Education. Goal 8 on Decent Work and Economic Growth also ranked high in awareness.

In terms of relevance to business, survey results showed that respondents consider Goal 3 – Good Health and Well-being to be most relevant to their business, followed by Goal 8 – Decent Work and Economic Growth, and Goal 9 – Industry, Innovation, and Infrastructure. The high awareness and value placed on health and wellness underscores the impact that the COVID-19 pandemic has had on the business community and employee welfare worldwide.

The MSME respondents also shared their practices that contribute to the attainment of the SDGs, and these include employee and community health and wellness programs, clean-up drives along coastal areas, reforestation and tree-planting initiatives. In addition to these corporate social responsibility (CSR) activities, they also have internal policies on occupational safety and health, drug-free and smoking-free workplaces, use of renewable energy, and anti-air pollution initiatives. In implementing these initiatives, some respondents state that the primary motivator is the realization that business operations have a direct impact on the environment, and as such, employers are obligated to contribute to its preservation to ensure not just environmental sustainability, but also business sustainability as well.

In addition, the participating MSMEs also indicated that businesses stand to benefit from contributing to the SDGs, as it helps improve brand reputation and image, fosters compliance to labor standards, improves employee retention, support local communities through the creation of shared value, and facilitate business expansion through the fulfillment of buyer requirements. 

Latest statistics indicate that MSMEs compose 99.58% or over 1.07 million of the registered enterprises operating in the country. MSMEs also provide 62.66% of jobs nationwide and constitute 60% of all exporters in the Philippines, accounting for 25% of the total exports’ revenue. As the backbone of the Philippine economy, empowering MSMEs to contribute to the individual targets of the goals can accelerate the accomplishment of the SDG’s vision. Among other attributes, MSMEs are instrumental in creating employment and providing opportunities for marginalized groups, thus contributing to poverty alleviation, promoting more sustainable consumption and production patters, and a significant portion of MSMEs are also found to be women-owned/led.

However, MSMEs also bear the brunt of high compliance standards and costs. These act as burdens and deterrents for them to contribute further to sustainable development. As such, MSMEs need a policy environment that’s conducive for business recovery and expansion.  

ECOP, through a strategic partnership agreement with its sister organization in Denmark, the Confederation of Danish Industry (DI), will soon develop and launch a tool on SDG that will help smaller companies create value for both business and society. The tool aims to help look into both positive and negative impacts of each goal in each enterprise, as well as missed and new opportunities both inside and outside the current business model. The tool is to be called SDG Value Scan. The strategic partnership between ECOP and DI runs from 2022 through 2025.