Archives: May 2001

Colorado Covered

Colorado Public Employees’ Retirement Association has embraced covered call selling as a way of “having your cake and eating it too,” according to Norman G. Benedict, deputy executive director for investments at the $31 billion fund. The hedging strategy designed to limit downside risk allows them to hold 80% in equities with the sam risk of a normal equity allocation of 65%. The obvious drawback to covered calls is the limit they also impose on upside gains but in today’s volatile market, that’s a risk more might be willing to take. Ohio and Wisconsin pension funds are apparently looking into the possibilities. (Pensions & Investments, “Colorado’s use of call strategy covers its 80% equities allocation,” 5/14/01)

Great Opportunity!

The Center for Working Capital is a nonprofit corporation based in Washington, DC, with a current staff of five. The Center is looking for an executive director to oversee all activities of the organization. This person will report to the Board of Directors.

The Center for Working Capital focuses on five program areas:

1. Pension fund trustee education and training programs;
2. Developing the capacity of trustees to be active fiduciaries;
3. Trustee information sharing through a quarterly newsletter and a website;
4. Developing the capacity of trustees to be effective participants in the global capital markets; and
5. Supporting capital stewardship initiatives by assisting trustees with such issues as corporate governance.

Responsibilities of the executive director will include:

  • Providing a vision for working capital
  • Managing staff and overseeing work product
  • Coordinating trustee training and education activities through seminars, conferences and information programs
  • Coordinating a team of consultants, investment managers, financial advisors and legal service providers to advise the Center on approaches to capital stewardship
  • Developing and implementing a fundraising plan; and
  • Developing effective forms of accountability for service providers.

The ideal candidate should have:

  • A broad and deep knowledge about issues related to pensions and capital investment;
  • Previous experience developing curricula for and implementing adult education programs;
  • A proven record on managing non-profit organizations, including successful fundraising, building staff, working with a board of directors, and coordinating communications initiatives;
  • Successful experience collaborating with unions, government and companies on pension and benefits issues and with pension and benefits fund trustees and service providers;
  • An understanding of the role of worker partnerships, collective bargaining and organized labor in creating investment value for beneficiaries; and
  • An advanced degree with minimum of five years experience managing an agency.


The compensation for the Executive Director will include a salary comparable to executive directors of not-for-profits of a similar size and an excellent benefits package.

To apply
Please send your resume to Bill Patterson, Director of the Office of Investment, AFL-CIO, 815 16th Street, NW, Washington, DC 20006 or fax it to (202) 508-6992, or e-mail it The closing date for applications is June 11, 2001. Once you get the job, get in touch with me at so that we can collaborate.

News from the Corporate Monitoring Project

Mark Latham and company have put out Newsletter #11. Support for the “Shareowners’ Alternative Voting Information (SAVI)” proposal to let shareowners choose an independent proxy advisor was mixed this year. Mr. Latham represented me at the Equus II shareholder’s meeting and we won approximately 17.8% of the vote. As far as I know, this was without major institutional backing. However, at Gillette Latham’s proposal only picked up 2.4% of the vote, including the 1,842,391 cast by CalPERS. Both firms lost about 40-45% of their value during the last two years. You’d think both groups of shareholders would be equally receptive to innovative ideas for recovery.

I was disappointed to learn that Latham’s proposal to let shareowners vote to choose the auditor, instead of just rubber-stamping the Board’s choice, was killed by the SEC as an ordinary business decision. Clearly, the importance of auditor independence was raised by no less than the chair of the SEC itself. According to Arthur Levitt, shareholders could be compromised if audit partners are concerned about losing lucrative consulting business.

Maybe next year. In the meantime, I highly recommend subscribing to Mr. Latham’s informative newsletter and keeping up on the Project’s latest activities.

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Emerging Trends

Half of Americans log onto the Internet on a daily basis. Increasingly, we want a say in how “our” corporations are governed. Just as sharing information with employees led to a managerial revolution that generated wealth, informed investors are also adding value.

As in any revolution, there are casualties. This year, eRaider related Allied Owners Action Fund folded and iBullhorn was still-born. However, more funds are posting their votes and the AFL-CIO is grading money mangers. Sites like allow readers to research issues and to communicate directly with corporate investor relations officers. The Wall Street Journal’s Portfolio feature is sure to follow suit. Rational shareholder apathy is fading because activism via the Internet is inexpensive and easy.

Corporate Board Member, a journal for corporate directors and boards, has formed an Academic Council to participate in identifying emerging trends in corporate governance and issues impacting today’s corporate boardrooms. The council – made up of the leading academic authorities on board governance representing the country’s most prestigious universities and graduate programs – will convene for its first set of roundtable discussions in Boston, Massachusetts on May 30.

Members of the Academic Council include William T. Allen, professor of law and director for the Center for Law and Business, Stern School of Business, New York University; Duke K. Bristow, financial economist, Anderson Graduate School of Management, University of California, Los Angeles; B. Espen Eckbo, director of the Center for Corporate Governance, Tuck School of Business, Dartmouth College; Charles M. Elson, chair of corporate governance, Center for Corporate Governance, University of Delaware; Steven N. Kaplan, professor of entrepreneurship and finance, University of Chicago Graduate School of Business; Paul D. Lapides, director of the Corporate Governance Center, Coles College of Business, Kennesaw State University; and Jay W. Lorsch, professor of human relations and former senior associate dean and chair of the Executive Education Program, Harvard Business School.

Peter D. Crist, of Korn/Ferry International, and Richard M. Steinberg, of PricewaterhouseCoopers, the largest global professional services organization, will co-chair the Academic Council and facilitate the two upcoming roundtables.

“Our goal for the council is to identify emerging trends in America’s boardrooms through council roundtables, interviews, and selected research,” says Corporate Board Member COO TK Kerstetter. “Our belief is that directors, officers, educators, and students can benefit as we create a more focused approach to this cottage industry commonly referred to as governance.”

The dialogue of the council’s May roundtable discussions will be highlighted in a Corporate Board Member supplement titled “Emerging Trends in Corporate Governance.” CEOs, chairmen, and presidents of every publicly traded company on the Nasdaq, AMEX, and NYSE will receive the supplement. In addition, the proceedings of the roundtables will be published in their entirety on Web Resource Center.

Willamette Employees Silenced

On 5/7 the Wall Street Journal Interactive Edition reported that employees of Willamette Industries Inc. have shut down a Web site that opposed an ongoing hostile bid for Willamette being made by Weyerhauser Co. According to the report, the US Securities and Exchange Commission informed a representative of the employee group that the group would have to file a Form 14D-9 with the Commission if it wished to keep the site up. The group reportedly decided to close the Web site when it learned that legal fees for such a filing could be “as high as $50,000.” Volume 2, Issue 33 of CyberSecuritiesLaw Tribune (Week of May 21, 2001)

Proxy Monitor Supports Dissident Slate at Willamette Industries

New York-based Proxy Monitor, a leading proxy voting advisor to institutional investors, announced today that it is recommending clients vote for the dissident slate of director nominees brought forth by Weyerhaeuser Co. at Willamette Industries, Inc. (NYSE: WLL) annual meeting. The slate of directors is scheduled to come to a vote at the meeting on June 7, 2001.

Weyerhaeuser has made numerous attempts to negotiate a merger and in doing so has made a couple of tender offers including the most recent on May 10, 2001, offering a price of $50 per share. The Willamette board rejected the $5.5 billion offer as a gross under-valuation of the company.

Proxy Monitor said in its recommendation to clients:

“One has to wonder whether the Willamette board would accept ANY offer from Weyerhaeuser, or any other suitor for that matter. Management has consistently refused to negotiate with Weyerhaeuser, has not given any indication of a price it might accept, and has not looked for other buyers…While there is certain to be discord in the boardroom if Weyerhaeuser’s nominees are successful, Willamette shareholders must ask themselves if they wish the present board to continue to represent their interests. We think not.”

Will the West Face a Boardroom “Trade Deficit?”

Booming Western economies take great pride in the powerful success their economic structure provides and even feel a bit smug, sure that they have nothing to fear from those young economies of Asia. Such hubris nearly led to trade disaster a few decades ago — but a replay could now be underway in a vital new arena — good corporate governance.

Ralph D. Ward, editor of the Boardroom INSIDER online newsletter, warns in the May issue that good governance standards (disclosure; shareholder laws; strong, independent boards) “probably offer nations and companies a stock price premium.” Western nations, especially the U.S. and the U.K, have long been the world leaders in offering these protections to global investors, but today, Ward notes, “Asian countries are making strong moves to build their own world-class corporate governance.”

For example, Hong Kong in March published a model governance code with excellent financial disclosure and board oversight. In January, new rules from Malaysia’s Kuala Lumpur stock exchange demanded continuing education for corporate directors, “something even the West hasn’t caught up with yet.” Surprisingly soon, Ward warns, “Western economies may find that the good governance rules that now swing world investment their way have become a global commodity.”

Exercise in Creative Writing

Phil Goldstein, of Opportunity Partners, continues his creative use of SEC filings in his battle with Lincoln National Convertible Securities Fund, Inc. His latest, DFAN14A “THIS IS THE LETTER LNV MANAGEMENT WILL NEVER SEND YOU!! (so I wrote it for them),” is so creative that we decided to republish the entire letter here. Further information can be obtained from
Phillip Goldstein
60 Heritage Drive
Pleasantville, NY 10570
(914) 747-5262 // Fax (914) 747-5258

Dear Shareholder:

I am writing to you on behalf of my fellow directors. We recently advised you that the Annual Meeting of Stockholders of Lincoln National Convertible Securities Fund (the “Fund”) has been postponed from May 18th to June 22nd to give shareholders “adequate time to consider important issues and developments in connection with this year’s proxy contest.” Because you may be wondering what the heck we were referring to, we have decided to come clean. Here’s what really happened.

When we originally told you that the incumbent directors were “duly elected” at last year’s meeting of stockholders by a “valid vote of the Fund’s shareholders” that was not really true. After a trial, a federal judge determined that (1) we breached our fiduciary duty to shareholders by conducting an illegal election last year (2) we violated the anti-fraud provision of the SEC’s proxy rules by failing to disclose how we staggered our own terms so that shareholders could not later de-stagger them. As a result, the judge ordered us to conduct another election for the two seats that were filled last year. The court’s opinion can be found at the following address:

Our lawyers have been trying to put a more favorable spin on this “development” but it is hard to find a euphemism for “violation of fiduciary duty.” One thing we have done is to fire the law firm that lost the case for us and hire another one to appeal the judge’s decision. If we had to spend our own hard-earned money, we would probably think long and hard about appealing. Being able to use shareholder money makes the decision much easier. So, despite what the judge said, please continue to trust us. By the way, we appreciate your financial support of our efforts to clear our tarnished names.

As long as we are `fessing up, here are some other things you should know. We hope our belated candor will induce you to vote for our nominees instead of Mr. Goldstein’s.

  • We still don’t know how much the litigation to prevent Mr. Goldstein from electing directors has cost and we don’t know what the final tab will be. OK, it could be millions of dollars. We just don’t know. Thankfully, the costs are being paid by shareholders and not coming out of our own pockets.
  • Mr. Goldstein has complained that we are targeting $190,000 of shareholder money for our solicitation expenses without obtaining SEC approval. We do not think we need SEC approval as long as we say our re-election is in your best interests. It is in your best interests that we get re-elected, isn’t it?
  • We were totally unprepared for the court’s decision. If we had promptly notified shareholders that we had breached our fiduciary duty and the annual meeting had taken place as scheduled on May 18th we might have lost the election. So, we passed a legal bylaw authorizing us (but not Goldstein) to postpone the meeting in order to give us time to plan our strategy after a crushing legal defeat. We apologize to any shareholders that showed up on May 18th for themeeting but it is not our fault. We just never imagined that we could lose in court.
  • We admit that we owe the investment advisor our jobs. We all serve on at least one other fund that it manages and we hold the directors’ meetings for both funds simultaneously. Also, we delegate much of the work to the advisor’s well-trained lawyers. So, how independent can we be? However, we do get a very nice paycheck for very little work. It is a pretty sweet deal. Please let us keep it.
  • The advisor benefits from keeping LNV a closed-end fund. Even though shareholder wealth would increase from open-ending, it might lead to lower management fees for the advisor. Goldstein is right about that. Hey, if you were in our shoes, would you oppose an advisor who can get you on more boards?
  • We have accused Mr. Goldstein’s nominees of being “hand-picked.” We now admit that it is a silly charge. How should a nominee be chosen? By a lottery?
  • We have also accused Mr. Goldstein of having a personal agenda, i.e., he wants to make money from his investment. We admit we also have an agenda. As a high level employee of the investment advisor, I want the investment advisor’s fees to be as high as possible. Open-ending the Fund would be contrary to that objective. There, I said it! I feel so much better.

Finally, if you have any questions, we have good news. In accordance with our new open-door policy, you no longer have to talk to our proxy solicitors. We are now willing to speak to any shareholder. Please call the Fund’s secretary, David Connor, at (215) 255-8864 and ask to speak directly to me. (I still need someone to filter out crank calls.) In the meantime, I will try to find out what the Fund’s legal expenses are. Thank you for your continued support. Who cares about fiduciary duty anyway?
Very truly yours,

David K. Downes (aka Phil Goldstein)
President and Director of 33 Funds
Managed by the Investment Advisor

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Korn/Ferry Launches Board Services Practice in China

Korn/Ferry International (NYSE:KFY), the world’s leading recruitment firm, announced the launch of its Board Services Practice in “Greater China.” The new practice will focus on providing independent board of director searches and corporate governance counsel to clients in China under the leadership of Korn/Ferry Managing Director, Robin Sears.

Sears began his career with the firm in Tokyo in 1994 and has since worked at the CEO- and board-level for global clients in the telecommunications, private banking, insurance and professional services areas, and additionally led Korn/Ferry’s Advanced Technology Practice in Asia. Sears will continue to serve those clients as Managing Director, Asia/Pacific Client Services, based in Hong Kong.

“With China’s imminent entry into the WTO, and the increasing role of international institutional investors in Asian companies, requests for assistance with independent director searches and corporate governance counsel are increasing rapidly. We have a large global network of experienced director candidates and 28 years of corporate governance expertise that we would like to share with our Asian client base,” Sears said. (Business Wire, 5/21)

Delaware Supreme Court Rules in Favor of Preferred Shareholder Rights

Andrew Shapiro, President of San Francisco-based Lawndale Capital Management (phone 415-288-2330), announced a long-sought legal victory in Delaware Supreme Court against Agrium, Inc. (AGU) for former Nu-West Industries Preferred Shareholders. The Delaware Supreme Court affirmed an October 2000 Chancery Court ruling that dividends on Nu-West’s Preferred Stock accrued daily to the date the Preferred Stock was redeemed and against Agrium’s position that dividends accrued annually. Mr. Shapiro initiated this action in 1996 to enforce the Preferred Shareholders’ rights when Agrium management and directors attempted to deny shareholders what was rightfully owed.

As a result of the decision (Smith v. Nu-West et. al. C.A. NO. 15442), Agrium must pay the Preferred Shareholders an additional $10.43 per Preferred Share redeemed plus 10% compounded interest since the 1996 redemption date. The judgement combined with the interest is expected to cost Agrium, a Canadian fertilizer company, approximately US$1.6 million, far more than the original $1 million claim.

Mr. Shapiro, a corporate governance and shareholder rights advocate, commented, “The decision certainly sends a clear message that management and directors owe a fiduciary duty to both the preferred and common shareholders alike. The award of compounded interest should also reinforce that delay doesn’t pay.”

We’ve Moved

The offices of Corporate Governance have recently relocated to 9295 Yorkship Court, Elk Grove, CA 95758-7413. E-mail address for the editor remains We are sorry for recent disruptions and sparse postings. We hope to be fully up and running within a couple of weeks.

Minority Shareholder Treatment Improves

Mark Mobius, of Templeton Emerging Markets Fund finds that Asian companies are starting to improve their corporate governance and treatment of minority shareholders. Improvements are driven by a concern that institutions may invest elsewhere if shareholder rights are not protected. Two years ago, Mobius campaigned in Hong Kong against companies placing new shares without first offering them to all existing investors, to enable them to avoid their holdings being diluted. (Minority shareholders’ lot improving)

Limits to Activism

Animal rights activists, upset with animal testing at Huntingdon Life Sciences Group PLC have taken their campaign to brokerage firms who deal in their stock. Protesters marched into the offices of securities firms, disrupting business, and then demonstrated at the homes of executives to intimidate them to stop trading their stock. Their tactics have met with success. Schwab Europe announced it will bar its clients from dealing in Huntington securities. MSF, the union for skilled and professional people, gave its whole- hearted support to the Association of the British Pharmaceutical Industry (ABPI) in its threat to boycott financial institutions who give in to animal rights extremists. (see PR Newswire, 5/2) Even social investors Matthew Kiernan, of Innovest Strategic Value Investors, and Peter Kinder of KLD & Co., have criticized their tactics of personal intimidation.

The April 30th edition of Pensions and Investments carries an editorial, “Brokers, not soldiers,” which is critical of the intimidating tactics used at Huntingdon and sees parallels in those used by Social Choice for Social Change: Campaign for a new TIAA-CREF. We embrace their goal of getting TIAA-CREF to invest 5 to 10 percent of social choice account assets ($200-400 million) in companies that are models of social and environmental responsibility. Social Choice has not, as far as I know, disrupted business as brokerage firms, but they have taken their protest to the high-rise residence of John H. Biggs, its CEO. The borders of civility are not immediately apparent but we agree with P&I that brokers should not have to be soldiers and that they should demand protection from the police, rather than giving in to intimidation.

Champion of Civil Rights and African Affairs, Leon H. Sullivan Dies at Age 78

Reverend Leon H. Sullivan, convener of the 6th African-African American Summit and world leader on Africa and related issues has succumbed to leukemia, announced his daughter Hope Sullivan Rose.

“Reverend passed away at 8:30 p.m. (PST), yesterday, at Scottsdale Healthcare Osborn Hospital; he was surrounded by his family and friends and was at peace. We ask that everyone respect our family’s wishes and give us time to grieve privately. We have shared our father with the world; allow us one moment to remember him amongst ourselves.”

Reverend Sullivan is survived by his wife, the former Grace Banks, three children: Julie, Howard and Hope, seven grandchildren and admirers around the world. The family asks that donations be made to:

The International Foundation for Education and Self Help (IFESH)
5040 E. Shea Blvd. Ste. 260
Phoenix, AZ 85254

Global Corporate Governance Forum Seeks Program Manager

The Global Corporate Governance Forum, founded by the World Bank and the Organization for Economic Co-operation and Development (OECD) promotes global, regional and local initiatives aimed at improving the institutional framework and practices of corporate governance of middle and low income countries. The Forum’s main activities include:

  1. awareness raising and best practice dissemination;
  2. capacity building and technical assistance; and
  3. sponsoring research and analysis on the costs and benefits of corporate governance reforms in developing and transition markets.

The Forum is governed by a Steering Committee and operated day-to-day by a Secretariat. The Steering Committee defines and directs the strategy of the Forum and oversees the Secretariat. The Secretariat is responsible for carrying out the work program of the Forum and is led by a Program Manager who heads a small team of professional and administrative staff. Applications and expressions of interest should be forwarded by May 11th. For additional information, see the Forum’s announcement.

Will corporations trump nations?

William Greider, a columnist for The Nation, sees corporate governance of a different form in FTAA negotiations designed to expand NAFTA’s rules to cover the entire western hemisphere. Chapter 11 of NAFTA allows corporations to demand compensation if the profit-making potential of their ventures has been injured by government decisions.

Greider cites the familiar case of Methanex, which filed a $970 million claim against the United States after California banned gasoline additive, MTBE, after the EPA reported potential cancer risks and at least 10,000 groundwater sites were found polluted by the substance. As many as 15 cases have been launched to date, according to Greider but no one can be sure of the number, since there’s no requirement to inform the public. “The contesting parties choose the judges who will arbitrate, choose which issues and legal principles are to apply and also decide whether the public has any access to the proceedings.”

Unlike other trade agreements, NAFTA allows corporations to litigate on their own, without having to ask national governments to act on their behalf in global forums. This isn’t the corporate governance advocated here. While corporations should be accountable to investors, they shouldn’t trump the rights of nations to protect the environment, the rights of labor and their own cultural values.

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