The coal habit is hard to kick – Valerie Karplus

MIT Sloan Asst. Prof. Valerie Karplus

MIT Sloan Asst. Prof. Valerie Karplus

From The Hill

Much has been made of the fact that growth in coal use around the world is stalling, but coal will not disappear anytime soon. While a wave of firms is exiting the coal-fired electricity sector across the global, coal is still poised to contribute to the fuel mix for a long time to come. This means that careful management of its remaining uses is more important than ever. Coal will remain important for two reasons.

First, it is still in high demand. The International Energy Agency projects that coal in power generation may drop to 36 percent by 2021, down from 41 percent in 2014, largely due to renewables and energy efficiency in China and the United States. However, this amounts to at best a flatlining, not a reduction, in demand. Second, coal has a role outside the power sector, in industrial and household demand. In developing countries, power and heat account for only 50 percent of coal use. The other 50 percent is directly burned by households or industries.

Statistics from the World Coal Association paint a clear picture of coal’s role in industrial activities, especially in construction industries that support infrastructure development. According to that group, the cement industry uses 200 kilograms of coal to produce one ton of cement, with 300 kilograms to 400 kilograms of cement needed to produce one cubic meter of concrete. Coal is also used in as an input to production of 70 percent of the world’s steel, as a raw material to make chemicals, and to make liquid fuel for transportation.

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Financial regulation calls for 20/20 vision – Antonio Weiss and Simon Johnson

MIT Sloan Professor Simon Johnson

Harvard Kennedy School Senior Fellow Antonio Weiss

From Bloomberg

One of the central pillars of financial reform, the Financial Stability Oversight Council (FSOC), is under political attack and at risk of coming undone.

In the past, the balkanized U.S. financial regulatory system has consistently failed to address risks that took root in its jurisdictional gaps. The FSOC was created to solve that problem, bringing regulators together to make sure they have the tools to protect the economy from financial crises. It is already making an important difference.

Unfortunately, earlier this month the House Financial Services Committee passed the Financial Choice Act (CHOICE Act), which threatens to reverse that progress. It would, for example, all but eliminate the FSOC’s ability to prevent the regrowth of an unsupervised shadow banking sector that might once again threaten our financial stability and economic resiliency. At the same time, the administration of President Donald Trump has signaled that it may use the council to pursue deregulation, rather than its core mandate of financial stability, and to reverse or limit its ability to designate systemically important non-banks for enhanced supervision. Meanwhile, MetLife Inc., the largest U.S. life insurer, recently asked the courts to delay ruling on an appeal filed by the Obama administration seeking to reinstate the firm’s designation as a systemically important institution requiring prudential oversight by the Federal Reserve.  The Trump administration has agreed to put the appeal on hold.

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Why GoPro needs to pick a model–John Carrier

MIT Sloan Sr. Lecturer John Carrier

MIT Sloan Senior Lecturer John Carrier

From Huffington Post

GoPro’s recent loss of $107.5 million is certainly dramatic. After all, last year it announced a profit of $16.8 million. However, it’s also a cautionary tale for all new companies that find themselves in a similarly precarious financial position after enjoying rapid financial success. When this happens, it’s time to take a hard look at the business model.

The big question the company should ask is whether it aspires to be more like Crocs, Chrysler, or Apple. These three companies have all found varying degrees of success through very different models. Each offers substantial pros and cons so it is important for GoPro to know its vision and find the right fit.

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Create a finance committee at every public company – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From CFO

Almost all boards of U.S. public companies now have three committees that meet immediately before every board meeting and report to the full board — audit, compensation, and nominating-governance. Committees have become the workhorses of the governance process: with their small size and expert support, they can do more in-depth analysis of complex topics than the full board of directors.

However, since the passage of the 2002 Sarbanes-Oxley Act, the duties of the audit committee, especially, have become so large and complex that it cannot seriously assess broader financial issues.

Audit committees continue to perform the traditional functions of appointing the company’s independent auditor and reviewing its financial statements. But audit committees now have a long list of other obligations — including oversight of complaints by whistle blowers and violations of ethics codes; approval of non-audit functions by auditors; and review of the management report and auditor attestation on internal controls. The audit committee also holds private sessions with both external and internal auditors as well as the chief financial officer and the head of compliance/risk.

In other words,  audit committees are overburdened by their increased obligations to oversee the details of the reporting and compliance processes. As a result, the audit committee no longer has enough time to seriously consider broader financial topics. If directors are going to have meaningful input into the broad financial issues faced by any public company, they need to form a finance committee with the time and expertise to address the issues.

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ICYMI: The #MITSloanExperts “Future of Financial Regulation” Twitter chat

MIT Sloan Prof. Deborah Lucas

Pensions & Investments Editor Amy Resnick

“Are new regulations creating new problems for the housing market?”

“Has the federal government now become the subprime market?”

“Could the financial crisis happen again any time soon?”

These were just a few of the questions tackled by Deborah Lucas, the Distinguished Professor of Finance at MIT’s Sloan School of Management and the Director of the MIT Golub Center for Finance and Policy, during the #MITSloanExperts Twitter chat on October 30.

Joined by host Amy Resnick, editor of Pensions & Investments, she asked Lucas questions about the future of financial regulation and housing market finance reform, as well as ideas for fostering stronger ties between the regulatory and the academic communities.

Did you miss the chat? That’s OK, but we’ve encapsulated everything in the Storify below.

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