Archives: October 2001

Code Compliance Listed on Italian Stock Exchange Site

The Italian Stock Exchange site now includes information concerning the level of compliance with the Exchange’s voluntary corporate governance code. Unicredito SpA and Banca di Roma SpA are currently among the country’s most transparent firms with detailed annual or financial reports. Bulgari SpA was at the other end, ignoring most to the code’s recommendations and operating without a compensation committee, an internal audit committee, or any clear rules to determine how directors are chosen or how shareholder meetings are governed. The voluntary rules were adopted in 1998 to attract both foreign and domestic investors.

UK Pension Plan Reporting Incomplete

A survey by Friends of the Earth, London, indicates that more followup is needed to ensure recently enacted disclosures have an impact. Since 7/2000 UK pension plans have been obligated to publish a “Statement of Investment Principles” concerning the extent to which social, environmental and ethical considerations are taken into account when making investment decisions.

FOE surveyed the UK’s largest 100 plans but 35 either refused to participate or didn’t provide enough detail to properly evaluate. FOE found the majority of statements to be “vague or ambiguous,” with responsibility for implementation often passed to money managers without guidance or monitoring plans. (The same is true of studies of US funds who are charged with ensuring that proxies are voted in the best interest of beneficiaries.)

It appears that many funds are simply complying with the new legislation with the least amount of effort and commitment possible. Those plans that did include social, environmental, ethical and corporate governance issues often failed to include accountability mechanisms allowing trustees to monitor fund managers. Less than 1/3 of funds surveyed were able to show how they reported back their actions.

“It is clear that pension funds will have to significantly increase resources in the area of monitoring…to ensure the effective implementation of socially responsible investment objectives…,” the report said. (Large U.K. plans get failing grade on social responsibility concerns,Pensions&Investments, 10/1/01)

Proxy Solicitation at CREF

The College Retirement Equities Fund will hold its annual meeting at 10 a.m. on November 13, 2001. The event will take place at the company’s headquarters at 730 Third Avenue in New York City.

The annual meeting gives CREF participants the opportunity to elect or reelect trustees and vote on participant proposals presented in the proxy statement. TIAA trustees are selected by the TIAA Board of Overseers, but the annual balloting process allows participants to express their preferences for current nominees and recommend future candidates. Mailing of CREF and TIAA election materials to participants began on October 12. Eligible participants have until noon on November 13 to cast their votes.

The TIAA-CREF coalition for responsible investment plans an interesting twist by seeking to rally support by those in attendance and by proxy solicitation.

FIRST: Those who can attend the meeting are encouraged to attend a pre-meeting on Monday evening, November 12 in New York City. RSVP to Neil Wollman, no later than Monday, October 29, 2001.

SECOND: The group has appealed to those who are unable to attend to lend their proxy to another CREF activist so that they may legitimately attend the Annual Meeting. Kelle Louaillierat Infact is coordinating the paperwork and that effort.

Sheryl Pressler and Hypocrisy

Not long ago I got a call from Barry Burr ofPensions&Investments asking what I thought of Sheryl Pressler’s almost $8 million severance package from Lend Lease Corp. Pressler had been Chief Investment Officer at CalPERS prior to her stint at Lend Lease’s US unit, Lend Lease Real Estate Investments. I’m often critical of both high corporate severance pay packages and CalPERS, so Mr. Burr might well have expected something more than “no comment.”

Of course $8 million is a lot to pay when giving someone the sack, but apparently Ms. Pressler had a good law firm representing her in negotiating her entrance and exit packages. Jones Day Reavis & Pogue is the same firm that now employees her former general counsel at CalPERS, Richard Koppes, one of the major brains behind CalPERS’ successful corporate governance strategy. I thought to myself that Pressler’s package was outrageous but what else is new?

Now comes an editorial by Mr. Burr in the October 15th edition of P&I, right next to one on the 911 attack on the World Trade Center. Burr chides institutional shareholder activists from hypocrisy because of their lack of response to the large Pressler pay-out after only a year due in part to her refusal to take another assignment.

Having done no research on the matter, I may be completely off base, but I’d speculate that although TIAA-CREF, Lens and the various state pensions that Mr. Burr chides may use Lend Lease’s services, few have substantive investments in the firm itself. The Council of Institutional Investors and its members are generally critical of executive compensation at companies in their portfolio because excesses tend to drive down the value of their holdings.

It didn’t surprise me that Pressler didn’t work out at Lend Lease. CalPERS is a much different animal. Its portfolio generally tracks the market because such a large percent of its equities are essentially indexed. Doing well at CalPERS may mean moving the market through corporate governance activism, rather than picking good investments or timing the market.

For additional insight on those who manage investment managers take a look at the latest McKinsey Quarterly (2001/4). Based on a survey of 3,320 people working in the asset management industry, they found that only 38% of respondents feel their companies recruit better staff than do their competitors. “Most of the respondents think that their managers have effective processes for evaluating their performance but don’t use that information to develop and reward potential high performers or to move out low performers.” “Asset managers could manage their talent more effectively for less than they spend now on managing it poorly—in the eyes of their employees, at least.”

If Mr. Burr wants to look at pension funds and cry hypocrisy I’d advise him to look no further than the CalPERS Board. His editorial points to their alleged violation of state law when they raised the salary of 10 internal portfolio managers. Even clearer was the fact that raising their own salaries violated the law. I have requested a determination by the Office of Administrative Law and State Controller Kathleen Connell included that action in her recent lawsuit. Both may takeseveral additional months for a decision.

Even better, take a look at the current election at CalPERS. If Burr did, he would be the only member of the press doing so, even though 1.2 million members are eligible to vote and CalPERS Board members wield enormous power. The press has taken absolutely no interest. Want to write about hypocrisy? Incumbent Charles Valdes, currently seeking reelection, brags of his financial acumen and that “your fund will be safe” if he is reelected. What he doesn’t mention, and neither does the press, is that during the time he chaired the CalPERS Investment Committee he also declared personal bankruptcy twice, 24 members of the Legislature called for his resignation, and he represented public employees but failed to pay state and local taxes for approximately seven years.

CalPERS is widely known as a proponent of good corporate governance and more open corporate elections, yet Mr. Valdes voted with a majority of the Board for rules which, according to the Sacramento Bee “risk creation of a permanent board: unaccountable, untouchable and isolated from the people who elect it” (Calpers Muzzles Critics). They want corporate board members to avoid conflicts of interest, yet, this Board member and others routinely accepted gifts from CalPERS contractors.

(Note: In the interest of disclosing potential conflicts of interest, the Editor of Corporate Governance, James McRitchie, is running for the CalPERS Board against the incumbent.)

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Sidney Abrams Appointed to CalPERS Board

California Governor Gray Davis named Abrams to serve as the insurance industry representative on the California Public Employees Retirement Board. His term expires in January 2005. Abrams is an actuary with more than 30 years of experience providing services to Taft-Hartley pension (joint union/management) and other employee benefit plans. (press release)

SRI Funds Edge Out Competition

According to Morningstar, 35% of the socially responsible mutual funds (19 out of 54) they track earned either four or five stars, compared with 32.5% of all mutual funds. (Social Investment Forum News)

Reuel Khoza to Focus on Corporate Governance

South Africa’s new president of the Institute of Directors says “Good corporate governance creates an attractive climate for foreign direct investment. If investors do not know what to expect, their interest is dampened. My objective is to make corporate governance the thing for local companies to subscribe to not just for the major organizations but also for medium-sized and small businesses.” Mr. Khoza is also chairman of Eskom and Co-ordinated Network Investments, and a director of Standard Bank.

“I have been involved with Judge Mervyn King in hosting events to exchange points of view with other members of the commonwealth. Now, with the review of the King commission (final report due mid-February), there will be new challenges. Lately the thrust has been for the triple bottom line, involving the social, environmental and economic or financial aspects of business. I aim to push to the fore with this.”

Khoza, a long-time member of the institute and its deputy president for the past three years, says he will promote corporate governance in the Southern African Development Community and Europe. “I aim to be more than just the figurehead for the institute,” he says.

Khoza is the Institute’s first black president and Carol Scott, executive chairwoman of Imperial’s car rental and touring division and of Tourvest, is the first woman to be appointed a vice president of the body.

The latest membership figures show a female membership of 12%, while black membership is at 15%. (10/22, Africa News Service)

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Symposium on Corporate Governance in the Banking and Financial Services Industries

Few public policy issues have moved to center stage as quickly as corporate governance. Shareholders, creditors, regulators, and academics are all examining decision making in corporate and other organizational forms and, in some cases, are proposing changes to governance structures to enhance efficiency and accountability. In the banking and financial services industries, governance and board oversight received close attention during the turbulent late 1980s. A recurring theme among the interested parties is that poor governance played an important role in many serious problems. With this issue in mind, the Federal Reserve Bank of New York, the Journal of Financial Intermediation, and the Salomon Center and Department of Finance at New York University’s Stern School of Business have organized a symposium to foster a better understanding of managerial decision making and sound corporate governance practices in financial institutions.

The sponsors cordially invite you to attend the symposium, to be held at the Kaufman Management Education Center of New York University’s Stern School of Business on November 8-9, 2001. There is no registration fee for attending the symposium. Seating, however, is limited and therefore, you must register in order to attend the symposium.

Liabilities Up, Assets Down

Pension liabilities went up 26% in 2000 and assets dropped 2.5%, resulting in a drain of about 28.5%. This year, liabilities are up 2.8%, while assets are down 12.5%, resulting in a drain of 15.3%. As a result, pension funds with funding less than 140% two years ago may now be facing a deficit. Rob Arnott, of Quadrant LP, believes pension funds can no longer assume 8-10% returns. “I’d be leary of return assumptions of more than 6% to 7%,” he said. (Pension plans face tougher times as funding levels dip, Pensions&Investments, 10/1/01)

FSBA Wins Under PSLA

The Florida State Board of Administration (“FSBA”), the employee pension fund for Florida State and County employees, announced a $61 million settlement against Vesta Insurance Group.

This action, under the Private Securities Litigation Act of 1995, was brought as a class action on behalf of Vesta investors. Vesta has also agreed that a majority of its Board will be independent directors, that it will appoint audit, nominating and compensation committees comprised entirely of independent directors and that its audit committee would comply with the recommendations of the Securities and Exchange Commission’s blue ribbon panel on the effectiveness of audit committees.

Boardroom Analysis

The Boardroom Analysis Online Resources Database (BAORD) is a relatively new site intended as a resource for academics, analysts, activists – anyone with a general interest in issues of corporate governance and corporate social responsibility. It indexes hundreds of resource “providers” that make a contribution of one kind or another to this broad field.

Resource “providers” qualify for inclusion into BAORD if their sites make available documents, publications, databases, directories, events notifications, projects, online discussions, commentary, reference lists – anything that facilitates the research or information-finding process.

BAORD categorizes resources to facilitate focused searches. Search criteria can be set by the user via a simple web-based search form. The user can further narrow their search by using keywords or simply by selecting from a directory of “providers.”

If a potential “provider” would like to be included in BAORD or if an existing provider would like to make changes their listing this can also be done at the BAORD site. All submissions are moderated for appropriateness and authenticity.

This is a free resource and in order to keep it current and useful resource providers are encouraged to review listings.

Simon Deakin Named Robert Monks Professor of Corporate Governance at Cambridge University

Simon Deakin as the inaugural holder of the Robert Monks Professor of Corporate Governance. Professor Deakin joins the Judge Institute of Management from the University’s law faculty where he has been a lecturer for the last ten years. He is a leading expert in corporate governance and has published widely on the subject through a variety of research projects on inter-firm contracting, hostile takeover bids, the duties of company directors and the role of ‘stakeholders’ in corporate restructuring and insolvency.

The professorship has been established in perpetuity thanks to a donation of $4M from Mr Dennis Kozlowski of Tyco International. Press release. Robert Monks has already funded a research center at the Judge Institute. We look forward to great work coming out of the Judge Institute at Cambridge.

Accountability of Institutional Investors

CalPERS and TIAA-CREF are widely known as advocates of good corporate governance, but what about their own governance?

I have often called the CalPERS Board into question on this site and am currently engaged in running for the Board of Administration. (For more on the election, see the CalPERSand PERSWatch sites) The incumbent, Charles P. Valdes, wants to continue to represent CalPERS’ 1.2 million members, even though he didn’t pay “$6,000 in federal income tax; $54,856 in state income taxes, interest and penalties; $23,808 in county property taxes, interest and penalties; and $18,254 in delinquent mortgage payments, according to court documents. Valdes has not paid property taxes on his house in Carmichael since 1989 and is nearly six years delinquent in paying for garbage collection, sewer and storm drainage, according to county records.” (Member of PERS Board Faces Financial Difficulty; Debts Include More Than $84,000 in Taxes, 8/9/97, Sacramento Bee)

If having a tax evader represent public employees is not ironic enough, Mr. Valdes also chaired the CalPERS Investment Committee while declaring bankruptcy twice. Valdes voted for rules which “risk creation of a permanent board: unaccountable, untouchable and isolated from the people who elect it.” (Calpers Muzzles Critics, 5/25/99, Sacramento Bee Editorial) He and others on the Board accept gifts from CalPERS contractors and have voted to ignore various California laws, claiming their constitutional authority exempts them from public notice and other rulemaking requirements, as well as from statutory limits on their own salaries, even though the overextension of their authority has been discredited in Sacramento County Superior Court. (Kathleen Connell for Controller et al. v. CalPERS Board of Administration, case no. 98CS01749) (CalPERS board votes itself big pay increase, 9/21/00, Sacramento Bee) Further, as a result of his ethnic slurs, 24 members of the California Legislature have called for his resignation. (Resignation of CalPERS Official Urged, 10/27/99, Sacramento Bee)

The list goes on and on. Yet, since he has been endorsed by the California State Employees Association, has all the advantages of incumbency and because the elections traditionally receive no press coverage, he is likely to be reelected. In California we need to not only reform the CalPERS election process (some reforms that I worked on will take effect next year) but some of our unions as well. At least the CalPERS structure provides for direct nomination and election of almost half its board by members of the System. I’ve frequently reported here on the efforts of Abby Fuller, Neil Wollman and others involved in the Social Choice for Social Change: Campaign for a New TIAA-CREF. Recently, I received the following article from David E. Ortman, Executive Director of the Northwest Corporate Accountability Project, which calls into question TIAA-CREF’s Corporate Governance policy and attributes some of its failings to TIAA-CREFs own governance structure.

TIAA-CREF’s Policy Statement On Corporate Governance Disappoints Shareholders

In March 2000, TIAA-CREF posted its latest Policy Statement on Corporate Governance. What is surprising is how weak it is. If TIAA-CREF is complying with its own policy there is little to praise because the bar is set so low.

For example, TIAA-CREF does not oppose “independent” directors working on contract for the corporation. TIAA-CREF does not support shareholder resolutions concerning separation of the positions of CEO and chairman. Otherwise, TIAA-CREF’s own CEO, Chairman of the Board, and President John Biggs couldn’t wear so many hats. TIAA-CREF does not support the formation of shareholder advisory committees, the requirement that candidates for the board be nominated by shareholders, or a requirement that directors must attend a specific percentage of board meetings, unless the board supports such measures. TIAA-CREF’s policy says that staggered election of directors can provide legitimate benefits to the board.

As much a concern is what TIAA-CREF’s policy does not say. Under “Fiduciary Oversight” nothing is said about the current controversy of auditors also working as consultants for the corporation. Under “Global Standards of Corporate Governance” nothing is said about avoiding bribery in international dealings. Under “Social Responsibility Issues” there is no specific reference to an environmental audit. Also, in the Appendix on “Executive Contracts” TIAA-CREF opposes any outright ban on “golden parachute” severance agreements.

Don’t TIAA-CREF participants deserve better?

If you have comments on Mr. Ortman’s observations, please send them directly to him at and cc me at

The “Get Out of the Bad, and Into the Good” campaign continues in New York City. As the nation’s largest pension fund, TIAA-CREF, a retirement fund mainly for educators, prides itself on being responsive to shareholders and a “concerned investor” on social responsibility matters. The fund, however, continues to hold large investments which put public health, factory workers, and citizens at risk. Why should life-giving pension money be invested in deadly tobacco, sweatshop labor, or an oil company tied to one of the most brutal dictatorships in the world? There are more positive ways to invest and still earn good returns. A broad-based coalition is calling for funds to be invested in affordable housing and in companies which are, for example, pioneering socially or environmentally responsible products or services. Contacts for further information: Main contact in NYC is Dave Wilson, 212–674-9499,; or national campaign organizer, Neil Wollman, 219-982-5346,

The coalition urges supporters to call John Biggs, CEO, 1-800-TIA-CREF (842-2733), ext. 4280.; or 212-490-9000. You’ll likely have to leave a message with his secretary, but do ask for a response. You can also email Mr. Biggs, as well at “Contact Us” or at

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Join eRaider’s Battle to Redefine Contested Elections

The NYSE has given eRaider a unique chance to make its case against broker votes in contested elections and they are asking for your help. Please visit their website and help them write their proposal. While many have been trying for years to do away with all broker votes, they have met with stiff opposition and have been unsuccessful thus far. eRaider is proposing a narrower but more winnable argument. They have asked the NYSE to re-consider how it designates elections. Currently there is a strict rule that for an election to be declared contested, dissidents must solicit each shareholder by mail. For any beneficial owner who is unsolicited and does not vote, the broker will be allowed to vote the shares and of course will vote them for management. Broker votes are the reason why proxy contests are expensive and weighted towards management. A recent stuy found that allowing broker votes added an average of 14.2% to management’s total.

eRaider had requested that the NYSE change the way it defines active solicitation to include the Internet and to drop the exclusive focus on each separate shareholder. In return, the staff at the NYSE has requested that we present a position paper on the subject. eRaider proposes changing the definition of “active solicitation” from mailing a letter to actively soliciting on the Internet. Those methods would include emailing owners, posting on all active message boards and maintaining a website with proxy material.

Come to their Shareholder Rights message board and post your thoughts about defining contested elections. They will submit their proposal on October 10, and are open to any ideas, suggestions or arguments. They want to convince the NYSE that they speak not just for an Internet activist fund, but also for a representative sample of serious stockholders that use the Internet.

You can be part of our proposal in three ways. If you agree with eRaider, just post your name and they’ll list it in the final document. If you don’t agree, argue and maybe they’ll change their proposal. Anyone is free to add a comment that they will include as an appendix to the proposal to show the NYSE the range of individual investor opinions. Comments must be signed with a real name and address; and emailed to eRaider

Corporate Governance Series by Council on Foreign Relations

Is capital market integration inducing global convergence on the so-called “Anglo-American” model of minority investor protections? What explains the variation in response to convergence among countries and between institutional practices? Who are the winners and losers from governance reforms, what types of resistance does this provoke, and what is the role of foreign governments in molding governance changes? Above all, what are the policy implications of corporate governance change for the United States government and its regulatory agencies? Is there a role for official intervention, or should this be left to market forces?

The Roundtable series will seek to answer these questions on two parallel tracks. One track will examine the role in global governance changes by actors such as institutional investors, financial professionals such as accountants and investment bankers, international financial organizations such as the IMF, World Bank, OECD, and BIS, and governments, including the European Union. The other track will analyze the pattern of governance change in specific countries and regions.

James Shinn and Peter Gourevitch are managing the Roundtable series. Jim Shinn is a Fellow at the CFR in New York. He spent 15 years in Silicon Valley, where he founded Dialogic, later acquired by Intel, and several other software firms. He has a BA from Princeton, an MBA from Harvard, and a PhD from Princeton. Peter Gourevitch is a Professor at the University of California San Diego, former dean of UCSD’s Graduate School of International Relations, and editor of International Organization. He has a BA from Oberlin and a PhD from Harvard, where he is spending 2001/02 as a Research Fellow at Harvard’s Center for European Studies.

Founded in 1921, the Council on Foreign Relations is a nonpartisan membership organization, research center, and publisher. It is dedicated to strengthening America’s role in and understanding of the world by better comprehending global trends and contributing ideas to U.S. Foreign Policy. For further information about the Council or the Roundtable Series, please contact Lisa Shields, the Director of Communications, or James Shinn.

South Africa’s First Corporate Governance Unit Trust

The Fraters Earth Equity Fund aims to influence corporate behavior by constructive engagement in the companies in which it invests. The fund will also has a socially responsible investment fund agenda but no restrictions imposed on the portfolio manager. According to James Frater, managing director of Frater Asset Management, “The release of the draft King II report on corporate governance, set to be implemented in January next year, has highlighted the need for broader reporting, not just purely financial disclosure.” “We fully support the call for reporting on social, environmental, health and ethical issues, or the so-called ‘triple bottom-line reporting’ as we acknowledge the relationship between good corporate citizenship and financial performance.”

The collapse of Leisurenet, Regal, Macmed, Paradigm, and other have demonstrated the need for better corporate governance monitoring by shareholders in South Africa. Corporate Footprint will provide Frater with an analysis of corporate citizenship practices to be used to guide investment decisions and engagement strategies. Practices to be monitored include transparency, accounting, community involvement, workforce engagement, AIDS awareness, empowerment, customer and supplier relations, and environmental concerns. Like more progressive funds in the US and EU, the Fraters Fund will publish their voting records on our web site.

“A typical resolution could call on the company to appoint additional independent directors, adopt an environmental management plan or declare its HIV/AIDS policies and strategies,” said cofounder Michael Leeman. Fraters, established in 1998, has managed the Futuregrowth Pure Fund unit trust, which has excluded tobacco, alcohol, gambling and financial services since July 2000 and earned a 38.5% return over the 12 months ending June 2001. (Africa News Service, 10/05/01)

Corporations Becoming More Dependent on Open Market Equity

Corporations have become increasingly dependent on open market equity to finance their expansions, according to The Conference Board. Governance activism is “shifting the economic clout to investors with equity stakes,” says Carolyn Kay Brancato, Director of The Conference Board’s Global Corporate Governance Research Center and co-author of the report.

International equity holdings by the largest US pension funds continue to show that a small group of activist investors among them can exert considerable leverage over corporations in these countries. The largest 25 US pension fund holders of international equity held $288.4 billion in international stocks as of September 30, 2000, accounting for roughly 16% of the $1.85 trillion foreign equity held by all US investors.

US and UK financial institutions held 57.2% and 57.7%, respectively in the largest 25 corporations. There is significant pressure to bring disclosure of information up to US standards. Regulators and/or stock exchanges are pushing companies to increase disclosure and transparency. Global equity markets are competing for capital, opening up traditionally close relationships between companies and institutional investors, especially banks, in countries such as the United Kingdom and Germany. As major blocks of shares are unwound in favor of broader equity participation, minority shareholders insist on improvements with regard to fair voting rights, access to proxies, and ability to provide input to management.

The attitude of management of a company toward corporate governance is a crucial factor. Does management view the board of directors as an asset, or as a barrier to overcome so that they can get on with the business of running the company? Is the board kept properly informed by management and, in turn, does the board keep investors informed so that they can act as responsible owners?

Also high on the list of investor wants are adequate auditing systems. Boards must establish procedures to ensure the reliability and independence of the auditing process, and to quickly come to terms with and correct any failures. “A striking development is the extent of communications among institutions around the world,” concludes Brancato. “Institutional investors abroad are able to give support to local investors and learn from them about the key issues in their particular markets. When possible, they also try to forge alliances with local investors to share knowledge and expertise, creating a world of global investors.”

Research Report 1297-01-RR, The Conference Board: What Do Institutional Investors Want? Calling The Conference Board’s Customer Service Department at (212) 339-0345 or visit The Conference Board’s website. Media can request a free copy by calling (212) 339-0231.

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