Archives: February 1999

Jerry Adams is sure to stir controversy with his recent statement: “I personally do not think that the corporate governance movement and particularly the PERS program has had any positive impact on the retirement benefits of active and retired members of California retirement systems.”

Mr. Adams recently retired from the California Legislative Counsel’s Office and was chief counsel at CalPERS when they took up the corporate governance banner. Adams was the first CalPERS representative to publicly address corporate governance and its relationship to the interests of public retirement systems. In May 1984 he delivered a statement at the annual meeting of the Texaco Corporation in Dallas, Texas. Later, Adams prepared the bylaws for the Council of Institutional Investors. In an interview which appears in the January edition of The Public Retirement Journal, Adams expressed his opinion that:

A decade of record investment returns and low inflation has resulted in dramatically reduced employer contribution rates in most retirement systems, including PERS?but I have not seen or heard of comparable improvements in the retirement benefits of active or retired members of California public retirement systems during that period?I’m particularly dissatisfied with the PERS program. In my opinion, the PERS Board’s micro management of the investment program and its emphasis on corporate governance issues diverted Board, staff, public and even legislative attention, from the basic needs of the PERS membership. (For a copy of the article, call 916-455-7322 or 916-456-5282)

Adams thinks it is “appalling” that PERS only provides retirement benefits to 20-30% of CalPERS members and believes that if the Board had paid attention to “core values,” members “would have done much better.”

Let’s consider just one CalPERS Board member. Robert F. Carlson has been on the Board for 28 years and is seeking reelection this year by System retirees. Looking at theSpeeches and Commentary section of CalPERS’ newShareowner Forum, we see that Mr. Carlson has been busy delivering essentially the same speech on corporate governance in Como, Italy; Chicago; New York; and Paris. At the same time he has opposed efforts to end the practice of board members accepting gifts from those doing business with the System and he “also serves as trustee of nine investment companies in the Franklin-Templeton Group of Funds. ”

While I believe the CalPERS program on corporate governance has improved the accountability of corporations to their shareholders and has contributed to increasing shareholder wealth, I too question how accountable the CalPERS Board has been to its own members. According to the Sacramento Bee, the Board has lowered the State’s contribution rate 8 times in the last 11 years. However, their efforts to improve benefits for CalPERS members do not appear to have been nearly so great. Perhaps the statements of Mr. Adams will serve as a wake-up call to the members of retirement systems everywhere to ensure their systems are administered on their behalf.

TIAA-CREF Expands Its Corporate Governance Program: B.A. “Dolph” Bridgewater joins as a senior consultant, and Kenneth Bertsch as a new full-time director for corporate governance yielding six professionals in TIAA-CREF’s corporate governance program.

Bridgewater is the recently retired Chairman and CEO of Brown Group, Inc. in St. Louis. He serves as director and has chaired various committees at FMC Corp. and EEX Corp., and formerly served on the boards of McDonnell Douglas, NationsBank, and Celanese. Bridgewater is also a trustee of Washington University in St. Louis and was a member of the Board of Visitors of the Harvard Business School.

Bertsch spent 14 years with the Investor Responsibility Research Center (IRRC), most recently as Director of Communications. Previously, he served as director of corporate governance.

TIAA-CREF’s corporate governance program serves two major roles. First, it develops strategies to address timely corporate governance issues such as board independence, executive compensation, and anti-takeover devices. This can ultimately lead to filing of proxy resolutions, although TIAA-CREF prefers to and has produced necessary changes in companies’ practices and policies through constructive dialogue. Second, TIAA-CREF’s corporate assessment program reviews the performance of boards and management of companies in which the organization holds investments, in terms of maximizing shareholder value. During the current proxy season, TIAA-CREF has filed shareholder resolutions on board independence and “dead-hand” poison pills.

For more information, contact Tom Pinto, TIAA-CREF Press Relations Officer, 212-916-5986.

Back to the topGovernance highlights the 45 provisions of the new Combined Code and a new guide put out by the ICSA. “It is likely to be at least a year before a broad consensus emerges between companies, institutional investors and other professional groups and regulators as to what actually constitutes best practice for Combined Code Statements.” The January issue also includes an interview with Bob Monks who talks about the recent merger of LENS and HLAM. Monks apparently moved to London last summer and now spends about 2/3 of his time in the UK and 1/3 in the US. His motivation? “To combine the immense creativity liberated through a corporate system with a set of values and accountability to make the corporate power congenial to a free society.”

ISS reports that UK Trade and Industry Secretary, Stephen Byers, is speaking out against “fat cat” pay packages for top executives. He is said to be examining proposals that would either require annual shareholder approval of executive remuneration or require all directors to be elected annually. The newly established Combined Code asks that directors stand every 3 years. Byers may seek to have the changes incorporated into the London Stock Exchange listing rules.

ISS also reports the Rev. Leon Sullivan, now with theInternational Foundation for Education and Self Help, is working with the State Department to design a corporate code of conduct re corruption.

IRRC reports on a Korn Ferry study that found compliance with the 1995 Vienot report has risen among France’s top 40 companies from 37% in 1996 to 87%. Almost 90% have set up audit committees, more board members are independent and no director sits on more than 6 boards.

Median pay levels for mutual fund directors were up 12% to an estimated annual pay of $103,000 for large companies. That may be too much for four meetings a year, according to a study by InvestmentNews. Some directors “may be more beholden to the fund managers who appoint them to new funds than to the shareholders they represent,”InvestmentNews reports. Securities and Exchange Commission Chairman Arthur Levitt opens hearings this week aimed at improving the current system of fund governance. see also statement from Investment Company Institute President Matthew P. Fink regarding the Securities and Exchange Commission roundtable on the role of independent investment company directors.

Direct Stock Market to Provide Free Live Webcast Coverage of Galef II Symposium on Corporate Governance beginning at 8 a.m. (PST), Feb. 24th.

New Mexico Public Employees Retirement Association board expenses questioned. Rep. Max Coll, D-Santa Fe, has introduced a bill that would restrict the value of gifts, including trips, that the 12 board members, or employees, could accept from vendors to $50, or an annual total of $150. The bill would also prohibit acceptance of such gifts given through a third party. Board meeting agendas in 1998 and 1999 show requests for board member travel to seminars in: Hong Kong; Capetown; San Francisco; San Diego; and Phoenix. All of the trips were to be paid for by nonprofit institutions that conduct investment education seminars. (Albuquerque Journal, 2/19)

CalPERS reported total assets of $150.6 billion as of the end of 1998 and an investment return of 18.5% for the year, up from $128.2 billion. CalSTRS had a return of 17.5% as assets increased to $93.4 billion from $79.47 billion at the end of 1997. Both funds did better than the Dow Jones Industrial Average, which gained 16.1%, but failed to match the S&P 500’s return of 26.7% or the Nasdaq composite index’s 25.7%. (Sacramento Bee, 2/19)

Back to the topMary O’Sullivan sees the biggest risk now faced by the German system of corporate governance is that German labor and finance will insist on pursuing their own independent strategies to extract returns from industrial enterprises and the system will dissipate into a “stakeholder economy” in which different interest groups fight for their claims to corporate returns without any concern for whether these returns are sustainable. (Corporate Governance in Germany, Levy Institute Public Policy Brief No. 49.)

Korn/Ferry International has issued their 25th Annual Board of Director’s Study. Their 5 year forecast finds performance evaluations of the CEO will become common with individual director evaluations increasing more slowly. Written corporate governance policies are becoming more common, as are meetings of independent directors without the CEO present. Few se a split chair/CEO coming but independent outside directors continue to gain over insiders. Pension benefit plans for directors continue to be phased out and stock ownership continues to grow.

LENS to seek two board seats at Juno Lighting after company fails to follow through with past promises to search for additional directors. New York City pension funds seek to establish independent nominating committees at several companies, including Cypress Semiconductor, The Pep Boys and Sybase. New York Society of Securities Analysts plans to use National Presto Industries as a guinea pig in an experiment to determine if investors can benefit from shareholder advocacy activities. (IRRC, Corporate Governance Highlights, 2/5/99)

BusinessWeek’s Jennifer Reingold applauds moves by the FASB to count repriced options as an expense and by the SEC to require General DataComm to include a proposal by SWIB in its proxy statement banning repricing without prior shareholder approval. At the same time her commentary, “Slimmer Rewards for a Job Poorly Done,” says the New York Stock Exchange should “go back to the drawing board” on any option plan that would dilute the owner’s stake without allowing them to vote. She reports on one firm that worked on 100 repricings as the 12/15/98 deadline set by the FASB approached. Shareholders are being taken seriously on this issue. Time to keep the pressure on. (2/15/99, BusinessWeek)

The recommendations of a Blue Ribbon Committee report, “Improving the Effectiveness of Corporate Audit Committees” should “improve the quality of the financial reporting required of publicly owned corporations,” according to William G. Bishop III, president of The Institute of Internal Auditors (IIA), but “do not adequately recognize that internal auditing is a critical resource for improving the effectiveness of corporate audit committees.” IIA testimony before the committee on Dec. 9th, 1998, and subsequent correspondence, included two key recommendations for audit committee “best practices” but neither was included: (1)Each audit committee should ensure that its organization has an adequately staffed, professional internal auditing function. (2)The internal auditor should provide the audit committee with an annual assessment of the effectiveness of the company’s system of internal controls – the process that supports good governance and accountability. (For more information on IAA contact Trish Harris, 407 830-7600, Ext. 227 or

CalPERS uploaded a new site devoted exclusively to corporate governance. CalPERS Shareowner Forum, can be found at Included is a searchable library of over 14,000 abstracts of corporate governance studies, essays, reports and papers on global issues, trends and views on corporate governance. We haven’t seen anything this good since LENS slimmed down their site. CalPERS is communcating its proxy intentions through this internet safe harbor. Let’s hope others follow their lead.

Back to the topAn editorial and a feature article in The Economist , January 16, 1999, point to the OECD’s convention which takes effect next month making bribery of foreign officials a crime. A lot of grey areas will remain but The Economist holds hope in further evidence that “freer countries will be cleaner countries…corruption is but one form of oppression.” The World Bank and the IMF are increasingly linking aid to “good governance.” Stanley Dubiel highlights their six-pronged approach in the December ISSueAlert. The emphasis is on monitoring by banks, accounting and disclosure improvements, enforcement, improving the framework, facilitating oversight by equity investors and data collection.

In the same ISSueAlert , Richard Ferlauto discusses labor’s campaign to target executive compensation. Average CEO compensation has risen from 206 times what the average worker earns to 326 times in the last two years. Ferlauto reports the ratios are 16/1 in Japan and 22/1 in Germany. “Sixteen percent of companies transferred one-fifth of their total market value to CEOs, up from 13 percent in 1997.” Workers are concerned that their companies aren’t putting the necessary investment into training and capital equipment, “while the value of their pension trust ets are diluted by option grants to CEOs.” Where is labor headed? According to Ferlauto, the emphasis will be on indexing those options, setting exercise price at a market premium, forward contracts with set strike dates, increased transparency, strong standards for board independence and by expanding equity compensation to all employees.

Investor Relations Business ( reports year 2000 compliance lawsuits have risen steadily in the last 30 months. They now total 40 and an avalanche is due starting January 1, 2000.

Sweeping Decision in Delaware Court Kills Dead Hand Provision, reads the headline in IRRC’s Corporate Governance Highlights. The court rejected Quickturn’s appeal, “consequently there can be no doubt that dead hand poison pills that restrict directors duties, even for a relatively short period of time, are invalid under Delaware law.” To do otherwise would be to deny the fundamental right of a newly elected board from discharging their management duties to the corporation and to shareholders. (1/8/99)

Oklahoma Supreme Court uphold the right of Fleming Cos. investors to pursue a binding bylaw proposal. Patrick McGurn of ISS is quoted as saying, “we’re going to see binding bylaw resolutions become the weapon of first choice for institutional activists.” (WSJ, 1/28/99)

The Proxy Monitor announced the first Web-based delivery service for proxy research and Year 2000 portfolio reporting. They also announced support of SWIB’s shareholder proposal meeting to prohibit option repricing without shareholder at General DataComm Industries Inc. (GDC-NYSE) through a bylaws provision. SWIB owns a little less than 10% of the company’s common stock.

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