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Vol
4: Issue No.7 : July, 2004 |
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| Hony.
Editor |
| Dr.
Bindi Mehta
Professor
& Chairperson (Research & Publications)
Narsee Monjee Institute of Management Studies
(Deemed University) |
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| International
Events |
| US
Mutual Funds to have independent chairmen
from 2005
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Mutual
fund boards must have chairmen who
are "independent" of fund
portfolio managers, a deeply divided
US Securities and Exchange Commission
(SEC) has ruled, shaking the US $7.4
- trillion fund business. In a 3 v/s
2 decision, the SEC adopted a rule
likely to force thousands of mutual
funds to reorganise, after nine months
of scandals that have tested public
trust in an industry that handles
the investments of half of all US
households.
The
independence rule won't take effect
until late 2005. "This is the
capstone decision of the rules and
regulations we have put forward to
reform mutual funds”, said SEC Chairman
William Donaldson, after a SEC open
meeting where commissioners, on the
normally congenital penal, argued
forcefully.
The
SEC's vote also required that 75 %
of fund directors must be independent,
up from a 50 % minimum, and that directors
must be free to hire staff if they
wish. About 80 % of fund boards today
have chairmen who are also employed
by the fund management company. Critics
have said this poses conflicts by
placing too much responsibility for
investors' welfare, in the hands of
people, who profit by charging investors
fees and otherwise managing their
assets.
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| Multiple
board presence is still the norm in US |
The practice
of allowing powerful business executives to hold directorship
in half a dozen big companies at the same time was supposed
to become a thing of the past, after the major boardroom
scandals of recent years. However, multiple company directorships
is still alive, and talk that the concept will disappear
in a crackdown on potential conflicts of interest seems
to be little more than wishful thinking. According to US
governance analysis firm, The Corporate Library (TCL), shows
the average firm among the biggest 2,000 US companies still
shares directors with five other corporations and that some
firms share directors with 30 or more others. Indeed, research
by TCL's Jackie Cook shows 88.4 % of the firms are linked
to at least one other company in the top 2,000 through at
least one shared director. So, any notion that a company’s
directors form an impenetrable inner circle of confidantes
is perhaps contradicted by the prevalence of hundreds of
directors, who serve simultaneously at different firms.
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| US
lawmakers push SEC for “proxy access” |
Six Democrats
in the US House of Representatives have urged the Securities
and Exchange Commission (SEC) to adopt a rule that will boost
shareholders' power in corporate boardrooms. "Adoption
of this rule would prove to be a powerful tool in preventing
corporate fraud, as well as restoring beleaguered investor
confidence," said the letter to SEC chairman, William
Donaldson.
Almost nine months
ago the SEC voted 5-0 to propose a rule that will let shareholders
use official company ballots to nominate their own candidates
for board seats. Shareholders can nominate candidates now,
but their nominees are routinely excluded from corporate ballots
contained in annual proxy statements mailed to investors.
As a result, almost all directors elected to corporate boards
come from slated hand-picked by management.
The proposed "proxy
access" rule will give investors a better chance of getting
their own directors elected - a possibility that has prompted
a lobbying campaign by groups representing corporate managers
to torpedo the SEC proposal.
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| CalPERS
to withhold votes against AT & T directors |
CalPERS, the biggest
US pension fund has said that it will withhold its votes against
five boards members of long distance giant AT & T, extending
its campaign to protest corporate committees allowing auditors
to provide non-audit services. AT&T spokesperson Dan Lawler
declined to comment on CalPERS votes, but said that its an
issue they are aware of and believe they have dealt adequately.
CalPERS has cast votes against a number of board members for
a variety of reasons. The votes have proven largely symbolic
efforts.
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| Corporate
Governance Outsourcing? |
It is
reported that the Wellcome Trust, the largest UK charity,
has outsourced its corporate governance activities to Insight
Investment, the activist fund manager. Phil Davis writes “
insight will engage with senior management, promote governance
principles and urge changes at companies in Wellcome's £3bn
FTSE 350 portfolio. The assets will continue to be managed
by existing investment firms.
The move means that two of the UK's biggest pools of assets
have now outsourced their corporate governance activities.
Earlier this month, the British Coal Staff Superannuation
Scheme handed Hermes control of its £6bn equity portfolio
for governance matters. The shift to outsourcing would appear
to spring from sustained political pressure on trustees to
engage funds more fully in the governance process.”
(Source: Financial
Times, July 27 2004)
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