Equus II shareholder resolution

TIAA-CREF, the world’s largest retirement fund has long professed to be a “concerned” investor and a leader in corporate governance. Yet, TIAA-CREF does not appear to practice itself many of the same good corporate governance practices it advocates publicly, such as transparency and accountability.

For years, member-participants have requested CREF to disclose how it has advanced its claim of promoting good governance in portfolio companies. Yet, CREF has consistently kept them and the public in the dark. Their stated response to requests for more open and accountable communications has been “it’s not required.”

This year is no exception. Although never communicated publicly, CREF is to be commended for seeming to agree with some of our recommendations for improved transparency and accountability to be voted on at the 2003 annual meeting. Yet, recommending a vote against our proposal because of its “timing and form” shows CREF’s continuing blindness to these keystone governance principles.

CREF also has not agreed with our important and widely respected recommendations to elect trustees annually instead of on a staggered basis, to assign Board responsibility for overseeing the ethical culture of the organization, and to encourage greater member-participant involvement. According to a senior member of CREF’s management, its Board of Trustees is hand-picked to provide the necessary blend of perspectives desired by management.

For the past five years, we have requested accountability information from CREF. Last year, our formal resolution again chided CREF for its failure to itself abide by the principles of good governance it and other blue-ribbon groups publicly proclaim. We requested a report from CREF on how they applied their stated investment principles and voted their proxies on member-participants’ behalf. This proposal received yes votes from of 18.7 percent of votes cast, a good response for the initial year of a proposal.

In last year’s proxy, CREF promised to “continue to provide participants with meaningful information about CREF’s proxy voting policies and processes.” Yet, member-participants have received no communications concerning these matters. In fact, the outdated 2001 annual letter by John Biggs, Chairman, President, and CEO, continues to appear on TIAA-CREF’s website rather than any statement of insights into the plans and strategies of Chairman, President, and CEO, Herb Allison, who was appointed a full year ago.

A particularly striking lack of transparency is CREF’s avoidance of any public disclosure of the annual remuneration of its senior management. Reporting the compensation package of its Chairman, President, and CEO this year for the first time, as stated in the October 13 issue of Business Week, would be a good beginning. But unless extended to the remuneration of other senior executives, this still will not address the continuing practice of maintaining secrecy concerning matters that should be regularly reported to CREF member-participants and the public.

TIAA-CREF should itself practice good governance rather than risking its reputation as a governance advocate will become merely a public relations exercise.

Dr. Verschoor is Research Professor in the School of Accountancy at DePaul University, Research Scholar in the Center for Business Ethics at Bentley College, and Fellow of the Corporate Governance Center at Kennesaw State University. He can be reached at cverscho@condor.depaul.edu or 847 381-8115.

Mr. Viederman is Cofounder, Initiative for Fiduciary Responsibility and Retired President, Jessie Smith Noyes Foundation.