Archives from August 2001

Survey Finds “Enormous Potential” for Growth in Religious Investing

A national opinion survey sponsored by MMA Praxis Mutual Funds found that of the more than 1,000 investors surveyed nationwide by Opinion Research International in late June, 36% said they incorporated their faith with their finances at least part of the time. An additional 20% said they would do so if they knew how. Four out of five survey respondents said they didn’t know religious-oriented mutual funds existed. The majority of these investors said they would be inclined to invest in religious funds once they learned more about them.

Out of 15, 573 open-ended mutual funds in the US, 43 have a religious orientation, according to Lipper Inc. With 8 out of 10 respondents describing themselves as religious or spiritual, there appears to be room for considerable growth. The top five corporate ethical issues were the same for religious and non-religious investors:

  • product safety,
  • involvement in sweatshops,
  • environmental impact,
  • labor relations, and
  • equal employment opportunity

However, religious investors are somewhat more likely to avoid investments in traditional “sin” industries such as alcohol, gambling, and tobacco, as well as companies producing abortion-related products. (Putting Their Faith in Investment Choices, LATimes, 8/30)

ISS to Set Corporate Governance Quotient

Institutional Shareholder Services, a proxy advisor, is putting the final touches on a newly developed corporate governance rating system, targeted to begin early next year. The corporate governance quotient, CGQ, will give clients one number, ranging from 0 to 100, which will reflect ISS’ judgement as to know “how good a corporate governance performer a company is,” according to Patrick McGurn, director of corporate programs at ISS.

The raw score will reflect 50 measures, 40% of which are derived from board issues and practices. Beginning with the Russell 3000, ISS plans to include all 10,000 US public companies that ISS follows. ISS expects the ratings will be used as an investment screening device or in deciding which way to vote in close merger contests.

Phyllis Plitch of Dow Jones Newswires notes, “those governance laggards who want to start getting in shape may want to think about taking steps like establishing a corporate governance committee, setting up a structure for independent directors to meet outside the presence of company insiders and asking shareholders for their approval before lowering the strike price of underwater executive stock options – all point boosters.”

Beta tests, involving several hundred companies, showed a strong correlation between financial performance and the measures to be used in the CQG. Personally, I see it as the ideal base for a corporate governance mutual fund that would keep most of its investments in a CQG index, but would use a relatively small portion of its funds for active targeted investments aimed at converting laggards to the fold. (Proxy Adviser To Rate Companies On Investor Friendliness, 8/21, Dow Jones Newswires)

Financial Literacy Quiz

Each month Ralph Ward’s Boardroom INSIDER provides a wealth of information to help create better boards and directors. Ralph depends on subscribers to keep his business going so I can’t reproduce most of what he says here but often there are a few tidbits I just can’t help passing on. One such item is a quiz on financial literacy put together by Financial Executives International. The 24-question test will take you about 15 to 30 minutes. No, you won’t get a certificate suitable for framing but you will have some idea if you need to brush up. Ralph does a lot by the numbers. This month’s issue includes 5 boardroom yardsticks, 5 lures for tempting CFOs onto your audit committee, and 5 ways boards drive CEOs nuts. You’ll find information that’s quick and to the point.

Seedling Technologies Takes a Run at

Seedling Technologies Corporation announced that is has initiated legal proceedings in Nevada in order to present a new slate of Directors to the shareholders of Nettaxi has seen its stock decline 99.5% since its peak in April of 1999. According to Seedling, has failed to hold annual shareholder meetings for the past three years, and its current Board of Directors is anything but independent. (Seedling Initiates Shareholder Vote To Oust Incumbent Board Of Directors)

Mobias to Focus on Corporate Governance Issues

Over the last 5 years, Templeton Emerging Markets has returned a compound negative 33.89%, while the S&P 500 has returned 95.08% in the same period. According to the Wall Street Journal, Mark Mobius realizes poor returns are a result of poor corporate governance in emerging markets. Although weak regulations and legal systems make fighting questionable governance practices expensive and usually unrewarding, Mobius is cutting the number of firms in his portfolio so that he has less incentive to follow the Wall Street Rule. He’s also thrown out a house rule prohibiting investments of more than 10% in any given firm. Limiting themselves to small stakes didn’t guarantee they would be able to get rid of them” during a selloff.

Mobius wants to own companies “where we can get on the board and where we can vote” or where they can help those with sympathetic views act as their watchdogs. (Wall Street Journal, “Templeton Fund Manager Takes Aim At Corporate Governance Problems,” 8/9/01) We wish Mr. Mobius well in his strategy and believe it is a good one. The often quoted McKinsey study (search Three surveys on corporate governance, The McKinsey Quarterly, 2000 Number 4 Asia) found that while investors say they would pay 18% more for the shares of a well-governed UK or US company, they would be willing to pay a 27% premium for a well-governed company in Indonesia. There is more room for improvement in emerging market countries where the quality of financial disclosures and shareholder rights protections are poor. Identify companies in such markets that meet international standards and other investors will follow with additional investments.

Additional Coverage of Proxy Monitor’s Purchase of ISS

“They are the Dear Abby and Ann Landers of the arcane world of proxy advice, and now they’re teaming up to write one column,” wrote The Wall Street Journal. (Is Anyone Left to Give Advice After This Deal? 7/26) Proxy Monitor, which began in 1989, serves about 150 clients and was joined in the buy-out by Warburg Pincus and Hermes Pensions Management. Founded by Robert A.G. Monks in 1985, ISS boasts more than 700 institutional and corporate clients in North America, Europe, and Asia with assets in the trillions. ISS issues voting recommendations for more than 9,000 U.S. and 10,000 non-U.S. shareholder meetings each year.

It is rumored that Thomson Financial received $45 million for ISS. Others who may have been interested in purchasing ISS included the Investor Responsibility Research Center (IRRC) and Automatic Data Processing. Proxy Monitor and ISS will apparently maintain their respective voting guidelines, and each will continue to provide sometimes conflicting voting advice based on those guidelines. (see Proxy Monitor Buys ISS,, 8/13) James Heard, CEO of Proxy Monitor and former CEO of ISS said the deal will allow the companies to expand faster into Europe and Asia, where governance issues are increasingly taking center stage.

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Monks Editorial in Barron’s

A guest editorial by Robert A.G. Monks, author of The New Global Investors, cites a study by Innovest that found the stock price of the more environmentally friendly top half of surveyed firms outperformed the bottom half by 21.8% in global forest products, 15.9% in U.S. chemicals, 17.2% in U.S. petroleum and 12.4% in U.S. electric utilities. He also cites a June 2000 survey by McKinsey & Co, which showed that institutional investors are willing to pay a premium of 18% to 27% for companies whose directors own stock and have no ties to management. (Profiting Responsibly: Companies can do well by being good, 8/6)

Monks calls on institutional investors to require the companies they invest in to:

  • Fully disclose all of their impacts on society.
  • Reveal how much they spend on involvement in the elective, administrative and regulatory public processes.
  • Obey the law, which itself should not have been improperly influenced by corporate power.

Guidance for Corporate Secretaries

The American Society of Corporate Secretaries has published a new report, Responsibilities of the Corporate Secretary’s Office. The report includes detailed data and analysis on the duties performed by corporate secretaries and their staffs, based on a 2001 member survey. (2001) ($95) Call 212.681.2000.

EDGAR Hyperlinks

Although EDGAR does not publish hyperlinks outside the system, “if a filer includes impermissible hyperlinks in a filing, the linked material will not become part of the official filing for purposes of determining whether the disclosure requirements are satisfied. The linked material will, however, be subject to the civil liability and antifraud provisions of the federal securities laws.” See Final Rule: Rulemaking for EDGAR System. As explained previously in SEC Interpretation: Use of Electronic Media, you’re basically liable for whatever you link to in a filing. “In the context of a document required to be filed or delivered under the federal securities laws, we believe that when an issuer embeds a hyperlink to a web site within the document, the issuer should always be deemed to be adopting the hyperlinked information.”

In fact, as explained by Eileen Smith Ewing in July’s The Corporate Counsellor, you can not only be liable for misinformation found on the third-party site you link to, but also for any misinformation found on other, more remote web sites hyperlinked to the third-party web site. Lesson: don’t link outside your own documents.

NYSSA Ends Forum

The New York Society of Security Analysts (NYSSA) dissolved its corporate governance forum known for challenging the governance practices of such high profile firms as and Dun & Bradstreet. Society president Jeffery Evans said the decision came “in view of the possibility that the forums could be misinterpreted by individuals as platforms for the expression of their own personal opinions.” Evans also cited limited participation in the forums by NYSSA members. The Financial Times, 7/19/01, The Corporate Library

Results from TIAA-CREF Institute’s Forum on Pay for Performance

“In order to maximize investment performance, some institutional investment managers, such as TIAA-CREF, continually monitor the performance and policies of the companies in which they invest. A key governance issue at many public companies is compensation policy: the system of incentives and rewards that corporations use to encourage employees to act in shareholders’ interests.”

A recent TIAA-CREF Institute forum on compensation policies at public corporations provides important background information on compensation issues, demonstrates the need for a judicious and informed approach in the design and implementation of compensation programs, and highlights the consensus on several issues that arose at the forum. See Has Pay for Performance Gone Awry? Views from a Corporate Governance Forum.

The forum’s diverse audience included corporate officers and directors, academic and other researchers, compensation consultants, corporate human resources, personnel, institutional investors, regulators, and other practitioners. It was recognized that investors are concerned with the “heads I win, tails you lose ” arrangement of stock options grants, which company representatives argued the need to motivate in a tight labor market. The conference went beyond the executive suite and included a discussion of other general issues such as measuring the cost of options, repricing, as well as the role of the board.

The forum highlighted the widely recognized disconnect between pay and performance but also pointed to the apparent undervaluing of options by employees, relative to their potential cost to shareholders. Surprising to me, the wide ranging group did reach some consensus.

No, they didn’t agree to seek a reversal of the Business Roundtable’s 1994 victory which successfully lobbied the Senate to express its “sense” that the cost of options didn’t need to be included on company income statements. The Financial Accounting Standards Board seems to have been left out of the equation for now.

However, they did agree on 10 points, including that “development of ‘best practices’ from accounting, board, investor and company perspectives is essential” and that it would be desirable to level the accounting playing field “so that alternate forms of performance-based compensation are not disadvantaged relative to standard at-the-money options.”

I feel another task force coming on. “There may be a role for a task force of qualified representatives to focus on the elements of compensation policy and the pay-setting process.” Who will be included?

TIAA-CREF Institute has made an important contribution to establishing a dialogue on this important issue as TIAA-CREF continues their campaign to ensure that all stock-based plans for which executives and directors are eligible, and any plan that could result in significant dilution, will be submitted to shareholders for approval. See TIAA-CREF Policy Statement on Corporate Governance.


Olivia S. Mitchell, professor of insurance and risk management, and a member of the Bush Commission to Strengthen Social Security, explains individual accounts and where we may be headed in Social Security: You Do the Math.

News From the Foundation for Enterprise Development

Corey Rosen, Executive Director of the National Center for Employee Ownership, reviews Thomas Petzinger’s The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace. The corporate organism is better able to react to its increasingly complex environment than the mechanical model. According to Petzinger, there “came a great awakening, a sense that people are gifted with the instinct to innovate, collaborate, and economize; that through countless local actions, whether in corporations, communities, or entrepreneurial confederations, they create global order without central control.” Participation and ownership are key.

study by Martin J. Conyon and Richard B. Freeman finds that firms and establishments that use shared compensation tended to outperform other firms and establishments in productivity and financial performance.

The Future of Success

Robert Reich’s The Future of Success reflects on the changes in the work lives of Americans. The former U.S. Secretary of Labor describes how standardization gave way to personalization because computerized technologies allow narrowly targeted marketing. In an economy focused on constant growth, work never ends and social attachments are commodified. Reich apparently concludes that you can either be successful or have a life…but not both. We’re stuck working 350 more hours a year than the average European.

Yet Reich recognizes there is no such thing as a free market. Markets are social constructs made up of rules about property and contract and liability. Rules about bankruptcy, rules about reorganization, rules having to do with how the system is going to be run. Markets are human creations. It is our obligation to make it operate within just and moral boundaries.

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