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Vol
4: Issue No.1 : January, 2004 |
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| Hony.
Editor |
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Dr.
Bindi Mehta
(Director,
Research at ICSI - CCRT, Formerly, Chief economist, CRISIL)
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| NYSE
members okay governance changes |
New
York Stock Exchange (NYSE) members approved governance changes
and a slate of eight directors proposed by interim NYSE chairman
John Reed, the NYSE said.
The
plan set forth by John Reed, the NYSE’s interim Chairman &
CEO, is the result of the developments that have buffeted
the exchange over the past two months, when former chairman
and CEO Richard Grasso was forced out, amid controversy over
his $188m pay package.
The
NYSE said its 1,366 seat holders had approved the planned
division of its current board – one set of eight independent
individuals who will oversee regulatory and compensation matters
and another set of eight who will be responsible for the NYSE’s
market structure issues. Mr. Reed’s plan is subject to approval
by federal regulators, who are expected to review it in full
next month.
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| SEC
to propose new fund rules amid Spitzer criticism |
The
Securities and Exchange Commission (SEC) will propose restrictions
on trading in the $7-trillion mutual fund industry by the end
of November and consider new rules on funds’ governance as lawmakers,
investors and state regulators criticize the agency’s oversight.
Regulators
are considering the most sweeping overhaul of mutual fund
rules since the 1940 law that set up the industry. The New
York Attorney General, Mr. Eliot Spitzer uncovered evidence
that favoured investors were allowed to make improper trades
that diluted the returns of others.
Three
committees in Congress have called hearings into what the
Senate Banking Committee Chairman, Mr. Richard Shelby, called
the fund industry’s ‘growing scandal’. Among the changes the
SEC is considering, are new governance standards for mutual
funds, including a requirement that the chairman of the board
be an outsider. In testimony on Monday in the Senate, Mr.
Spitzer will call for similar governance reforms, a person
familiar with the situation said.
“There
should be an independent chairman of the fund board,” Mr.
Goldschmid said. “We need a fund governance where those independent
directors, which constitute a majority in almost all funds,
are active and scrutinizing conflicts of interest with particular
care”. Regulators are seeking to stop two types of trading
abuses – ‘market timing’ and ‘late trading’.
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| Corporate
governance Italian-style |
The collapse
of the Parmalat food empire amid billions of euros of debts
reveals a troubling aspect about Italian capitalism - the
lack of effective financial control over its family-owned
companies.
At the same time, the small business sector and the financial
system that serves it, with its origins in Renaissance Florence,
has been the bedrock of the economy of central and northern
Italy.
A family business in Italy does not necessarily mean a small
business. Fininvest, the company owned by Prime Minister Silvio
Berlusconi, the country's wealthiest man, is essentially a
family business on a grand scale.
So was Parmalat, which became one of Europe's biggest agribusinesses
with about 36,000 employees in 30 countries.
Italy's small business sector has traditionally depended to
a large extent on trust. That is why it was such a shock when
Parmalat collapsed over a bank deposit in the Cayman Islands
that apparently did not exist.
The house of cards collapsed Enron-style when banks refused
to advance any more cash, handing over the firm to Enrico
Bondi, an expert in rescuing failed companies.
Former directors of Parmalat, who have begun to sing to magistrates
in Milan, are unveiling an incredible tale of false bank balances
and transfers of huge sums of money to companies set up in
tax havens by the Tanzi family.
Once a showcase of Italian capitalism, Parmalat is now insolvent.
Acting fast to limit the damage, the government passed emergency
legislation on bankruptcies and said it would seek an exemption
from strict European Union rules against aiding companies
in trouble.
Despite these measures, disquiet prevails about the health
of Italy's small business sector. Parmalat is not the first
such company to get into trouble and it may not be the last.
It is not only the businesses themselves that have come under
question, but the entire system of controlling company accounts
- including the accountancy firms, the banks, the stockmarket
regulator known as Consob, and the central bank.
The government has announced its intention of reorganising
the system to bring it in line with practices elsewhere, but
is not expected to get around to the task for some time.
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TIAA-CREF
Challenged Over Issues of
Corporate Governance and Social Responsibility |
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As issues of corporate governance continue
to rock Wall Street firms, the nation's largest pension fund
is once again coming under fire. At the CREF annual meeting,
advocacy groups are joining shareholders to demand that TIAA-CREF
-- the $300 billion pension fund for educators and researchers
-- take advantage of the holiday spirit and become more accountable.
As demonstrators picket outside TIAA-CREF headquarters with
banners, placards, holiday attire, and live music, shareholders
will speak-out inside the CREF annual shareholders' meeting.
Recent exposure of TIAA-CREF Chair and CEO Herbert Allison's
2003 pay package of at least $9.5 million is fueling calls for
the pension fund to improve its corporate governance.
Three
shareholder resolutions on corporate governance are on the agenda
for the meeting. The resolutions urge the pension fund to: require
that different people hold the positions of CEO and Chair of
the Board; re-establish the independent committee that nominated
some trustees; and adopt the governance recommendations of the
Conference Board's "blue ribbon" commission. Resolutions
proposing that CREF divest from tobacco and gold mining corporations
are also on the ballot. The annual meeting was moved from mid-November
to December 15th because of mistakes made in sending out ballot
and proxy information.
"For
a group that is indeed a leader in corporate governance reform,
TIAA-CREF is amazingly weak and contradictory in a number of
areas in their own governance. The resolutions point out some
of these areas. Someone has to watch this watch-dog," says
Neil Wollman, Senior Fellow and Professor at Manchester College.
Pressure
groups are also asking TIAA-CREF to do the following: (1) drop
its stock in Philip Morris/Altria, the world's largest tobacco
corporation; (2) remove Nike and Wal-Mart from the fund's portfolio
due to their notorious sweatshop abuses; (3) divest of British
Petroleum because of this company's involvement in egregious
human rights violations associated with gas extraction in Chinese-occupied
Tibet; (4) take action on Unocal, a company in its stock portfolio
that is invested in Burma, which has one of the world's worst
human rights records; and (5) demand that Costco close its illegal
warehouses in Cuernavaca, Mexico, or divest because of human
rights and environmental abuses. Also, after eliminating their
past holdings, TIAA-CREF needs to vow no new purchases of World
Bank bonds.
In
its Policy Statement on Corporate Governance, TIAA-CREF says
they factor social concerns into all investment decisions and
that doing so builds long term shareholder value ("TIAA-CREF:
A Concerned Investor"). The policy states that companies
should be concerned with "environmental impact...the corporation's
communities and constituencies...deliberate and knowing exploitation
of any non-shareholder constituencies," yet they won't
reveal how they do so.
"It
is, quite simply, unacceptable for TIAA-CREF to continue to
invest teachers' pension funds in some of the world's most abusive
corporations. Providing alternatives does not end TIAA-CREF's
complicity in the abhorrent practices of corporations like Philip
Morris/Altria, Nike, Unocal, Costco and BP," says Patti
Lynn, Campaign Director for the national corporate accountability
organization Infact. "There is no better time than the
holiday season to have a change of heart and institute policies
that will save lives and protect workers and the environment."
One
group has pushed for years for the financial giant to invest,
instead, in institutions that make a positive difference in
peoples' lives. Former CEO John Biggs had said that he would
support the creation of a new retirement fund that moved in
that direction, but that there was a need to show financial
interest from shareholders. To date, shareholders have pledged
over $17 million to such a possible fund-but TIAA-CREF still
resists. Howard
Zinn, noted historian, says, "I hope that more and more
people will insist that TIAA-CREF funds be invested in socially
responsible ways." University of Pittsburgh Professor Dennis
Brutus, the anti-apartheid campaigner who spent time in prison
with Nelson Mandela for opposing the racist apartheid government
in South Africa, says, "Not only interest, but the interests
of the people must be borne in mind when making sound and moral
decisions."
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