G30 Members Discuss Critical Concerns For American Corporations
March 25, 2005
By Karen Epper Hoffman
Interest rates may rise and fall. Trade policies may shift. Administrations change. But over nearly the past three decades, one thing that has remained continuous in the hurly-burly changing landscape of international economics has been the influence of the Group of Thirty.
The Group of Thirty Consultative Group on International Economic and Monetary Affairs Inc., a collection of 30 of the most senior representatives from the public and private sectors of the financial world and universities, is something of a high-powered global economic think tank. While its members are quick to underscore that this organization is not chartered to set public policy, or even advocate for it, its research and recommendations on subjects as varied as financial reporting and managing derivatives risk have set the tone for the way that many companies, here and abroad, view these issues.
"What makes the G30 unique is that is has very senior people there," says Gerd Hausler, counselor and director for the International Capital Markets Department for the International Monetary Fund and former Governor for Germany's Bundesbank. "It recruits members from the central banks and private companies [to get them] sitting together and mulling ideas at a high level."
Several members of the Group of Thirty—all prominent members of the economic community in their own right—will be presenting at the Global Corporate Treasurers Forum from May 11 through 13 in San Francisco, hosted by the Association for Financial Professionals. They include Mr. Hausler, as well as Geoffrey Bell, president of Geoffrey Bell & Co., and former Governor for the Bank of England and the founder of the Group of Thirty, Toyoo Gyohten, former Vice Minister for Japan's Ministry of Finance, and Roger W. Ferguson, Jr., vice chairman of the U.S. Federal Reserve System.
"The idea of '30' was to have a good cross-section of people from around the world," says Mr. Bell, who was asked initially by representatives of the Rockefeller Foundation to start the group, "but not so many that you couldn’t have a good discussion."
Established in 1978, the group’s members meet in plenary sessions twice a year, typically bringing in guests to discuss a wide range of topical economic and financial developments in the world. The Group of Thirty also often hosts seminars and symposia to stimulate thinking on these issues in the broader financial community. But the group's impact is perhaps best felt through its occasional papers and study group reports, which are developed by committees reviewing subjects the Group of Thirty believe warrant a more careful look. When it comes to selecting topics to review and study, Mr. Bell says the group tries to select issues with global relevance and importance, and areas where their research can be picked up and elaborated on by others.
Just what subjects have warranted a closer look by the group recently?
Last year, the group issued a paper on "External Transparency in Trade Policy," which focused on trade policies at a national level and the implications for the future of the World Trade Organization.
In 2003, the Group of Thirty released a study group report on global clearing and settlement, which included 20 recommendations that "constitute a plan of action" for market participants and are aimed at creating a strengthened, interoperable global network, mitigating risk and improving governance, according to a synopsis and summary at the group's web site. The clearing and settlement report points to the rapid growth and "profound technical and structural change" in the market, most markedly in U.S. activity in foreign securities, set against the backdrop of a post-9/11 world where "global clearing and settlement arrangements are vulnerable to physical disruption."
Mr. Bell cites the global clearing and settlement report as one of the group's recent publications that has commanded a lot of attention from various corners of the world. "We're a small group," he quips, "but we bat above our weight."
In light of the recent Enron and WorldCom scandals and the oft-cited "Americanization" of cultures and corporations around the globe, it's not surprising that the group's collective eye has also turned in recent years to the issues of "enhancing public confidence in financial reporting" and "American capitalism and global convergence." Both of these were the subjects of reports released by the group in 2003.
But perhaps the group's best-known and most influential work to-date, Mr. Bell points up, is the group's series of reports on derivatives from 1993 and 1994. Overseen by Paul Volcker, chairman of the group's board of trustees and former chairman of the U.S. Federal Reserve, and Sir Dennis Weatherstone, former chairman of J.P. Morgan & Co., the work was "regarded as a seminal piece" on managing derivatives risk. Long before the Baring Securities crisis turned the spotlight on such dicey and largely unregulated financial dealings, the Group of Thirty's "Derivatives: Practices and Principles" helped shape the emerging area of financial risk management by recommending, for example, that derivatives dealers assess their risk by both stress testing and looking at the "value-at-risk"—a new term the report coined to characterize the probability of market risk for a trading portfolio.
"The impact of certain pieces of work is very, very important," Mr. Bell says. "We sold thousands of copies of [the derivatives report] and it became the bible for many corporations about how they deal with derivatives."
Just how the group chooses which timely and critical economic topics to turn its attentions to is often, in part, says Mr. Bell, a reflection of the chairman of the group itself. For example, under the leadership of the group's first chairman, former central banker Johannes Witteveen in the late 1970s and early 1980s, the Group of Thirty tended to look at broader macro-economic issues. Whereas, later, when Lord Gordon Richardson, retired chairman of the Bank of England, took the reins of the group, the research topics tended more toward the interests of "practical banking," as Mr. Bell put it. Under Mr. Volcker, who began his tenure as chairman in the mid-1990s, there's been a definite focus on exchange rates and capital flow.
Next up, Messrs. Hausler and Bell say the group is planning to tackle the issue of reinsurance—a topic that is sure to draw the attention of many corporations given recent scandals involving the use of this financial instrument. The U.S. Securities and Exchange Commission and New York Attorney General Eliot Spitzer have been investigating the possible misuse of financial reinsurance—used by insurance companies to diminish risks—at several companies, including American International Group.
As for what follows for the Group of Thirty, Mr. Bell says "as long as we can keep having very bright people having ideas, we'll keep meeting to discuss them."
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