Baring Asset Management, a unit of ING Group, has appointed David Brennan chairman and chief executive, effective July 1.Brennan has been with the company for 14 years and has been chief executive of the Investment Management Group for the past five years. He was appointed deputy chairman in 2001, according to Dow Jones.Brennan succeeds John Bolsover who will retire at the end of June.Peter Wolton will replace Brennan as chief executive of the Investment Management Group.3Plansponsor.comUK: Stakeholder Pension Revolution Fails to Ignite
The UK’s stakeholder pension program, touted as the solution to the nation’s savings shortfall, is failing to live up to the government’s expectations, a study has shown.The government had hoped that half of the UK’s five million low-income earners, who have no access to employer sponsored plans, would take advantage of the stakeholder pension plans, which charge lower management fees.However, according to the Association of British Insurers (ABI), only 619 million flowed into the new plans by the end of 2001, nowhere close to the estimated savings shortfall of 27 billion per year. The figures, gathered from the 47 of the 50 stakeholder plan providers, showed that around 750,000 people had bought a stakeholder pension by the end of February, and contributed 81 per month to the plan on average The minimum contribution is 20 a month and the maximum is 3,600 per annum.These numbers are inflated by two factors:retirement savers, who are transferring money from existing plans into stakeholder plans to take advantage of the lower fees workers, who are contributing through an employer-based plan. Small businesses that don’t provide retirement plans to their employees must arrange stakeholder pensions for them.About 320,000 employers were now making stakeholder pensions available to their staff, falling short of the government’s target of 350,000, according to the ABI.The ABI also noted that while limited data was available on the income levels of stakeholder investors, the data that were available showed that most were earning between 10,000 and 30,000 per year. The government had aimed to attract those earning 9,000 and 18,000.The stakeholder pension plan however, has not been a total disaster. After being introduced in a difficult year for investing, it has forced changes in the industry, placing downward pressure on management fees and forcing consolidation. There is also the expectation that the government may make employers’ contributions to stakeholder plans compulsory.3Plansponsor.comEnron Lawyers Baulk at State Street Fees
A much ballyhooed agreement brokered by the US Department (DoL) to install new management over Enron’s retirement plans is apparently unravelling. According to a Houston Chronicle report, Enron lawyers complained to US Bankruptcy Judge Arthur Gonzalez that the company should not be required to pay $2.7 million yearly to hire State Street Bank and Trust to oversee its three retirement programs. Together, the plans have about $1 billion in assets.Enron attorney Brian Rosen said the company didn’t want to be “taxed” by being responsible for State Street’s fees. Gonzalez ruled that the plan members should foot State Street’s bill (see Judge Overrides DOL, State Street Agreement on Enron) and that the Boston-based State Street should continue managing the plans until the issue is resolved. State Street Ponders ResponseRoseman told Gonzalez that State Street has to decide whether it will stay in the deal if the plans end up paying the company’s fees. Enron’s sudden turnaround comes after the company signed a DoL agreement to bring in State Street to replace Enron’s existing pension committee. For their part, DoL officials urged a swift end to the controversy. DoL lawyer Timothy Hauser said an undue delay would only further hurt Enron employees and former workers who already have lost thousands of dollars in retirement funds when Enron imploded. If Enron sticks to its position of departing the State Street deal, DoL may sue the company to force the appointment of a new pension manager. UBS to Compensate US Pension Fund
UBS PaineWebber will pay $10.3 million to the City of Nashville to settle a dispute over the amount of the firm’s fees as exclusive investment consultant to Nashville’s pension fund.Government officials had also complained that UBS PaineWebber understated the risks of the investments it recommended and misled them about its recommended investment strategies. The fund ended its relationship with PaineWebber in 2000.The cornerstone of the deal – that PaineWebber would be paid based on the number of portfolio trades – became a key part of the dispute. Many in the investment community charge that such a compensation arrangement gives an advisor too great an incentive to advise unnecessarily frequent trades.The lion’s share of the settlement will go to the $1.4 billion fund, which covers city employees. The remainder will pay legal fees.”We felt they were overcompensated, we felt the agreements were not clear, and we thought we could have gotten a better deal,” said Karl Dean, director of law at the legal department of the Metropolitan Government of Nashville and Davidson County, Tennessee. Fund Made Money Nashville officials may have had problems with PaineWebber’s fees and some of its consulting, but the fact remains that the city’s pension fund made money with PaineWebber’s advice. For the five years ended December 1999, for example, the fund had an average annual gain of 18.47%.But a KPMG April 200 audit maintained that PaineWebber’s fee arrangement was poisoned with potential conflicts and built up too many trading commissions. The audit also concluded that PaineWebber had misrepresented the consequences of some of its advice.CriticismBecause of the fund’s unusual fee and commission arrangement, PaineWebber earned excessively high fees on its trades, KPMG concluded. For the year ended June 30, 1999, consulting fees were $788,747, compared with fees for similar public funds of $92,000 to $163,000 in 1998. PaineWebber also kept the pension fund in the dark about its individual managers’ returns and risks in the portfolio, according to the KPMG review.A PaineWebber spokesman said: “The Nashville Metro Board pension fund had an outstanding record of performance while UBS PaineWebber was a consultant to the fund. UBS PaineWebber strongly disagrees with the one-sided criticisms and conclusions in the KPMG report. Although we believe that our compensation was reasonable, we decided to resolve this matter amicably.”3Plansponsor.comBond Funds Lag Equity Funds in First Quarter
US bond funds edged up by 0.28% in the first quarter of the year, lagging behind the 0.36% return of stock funds, as investors digested the early signs of an economic rebound reflected in recent data releases.Fixed income funds, which represent a combined $2.5 trillion, slipped by 0.42% in March on interest rate concerns, trimming gains made in January and February, when funds increased by 0.39% and 0.42% respectively as investors sought refuge from stocks beaten down by the wave of accounting scandals.According to data from Lipper, Inc, the average fund rose 0.28% over the quarter, after rising by 0.93% in the final quarter of 2001.Target Maturity, Treasury, Junk BondsIn March, target maturity funds, which hold longer-dated securities and move in tandem with long-term Treasuries, were the worst performers, receding by 5.01%, after a 1.41% gain in the previous month. Over the quarter, target maturity funds dropped 2.37%.The pattern was the same among US Treasury and government funds, which fell by 2.01% and 3.13% over the month, after increasing by 1.01% and 0.95% in February. Meanwhile high yield, or junk bond funds rebounded in March, increasing by 1.97% gain after dipping 1.38% in February. Over the quarter, they were up 0.99%, a meager gain in comparison to the 5.31% increase posted in the previous quarter. Among fixed income funds, emerging market funds led the pack, ballooning 6.94% over the quarter, after a 8.59% gain in the final quarter of 2001.3Plansponsor.comWM Mercer Becomes Mercer HR
Only cynics will have checked the date on the announcement by consulting firm William M. Mercer that it would be changing its name to Mercer Human Resource Consulting. (It comes a week too late for All Fools’ Day.) But even they will be relieved that the fifty-seven-year-old consulting firm, owned since 1959 by Marsh & McLennnan, has not paid a branding consultancy a six figure sum for an Hellenic-sounding neologism.What the name change really signifies is the commoditisation of what most custodians would name as the core business of the consultant: choosing fund managers on behalf of plan sponsors. In reality, consultants now make their fattest margins advising corporate clients on the full range of employee benefits. Over the past decade, Mercer has extended its consulting capabilities into virtually every area of human resources, largely by acquisition. Over the last twenty years, the firm has devoured Sedgwick Noble Lowndes, Corporate Resources Group, MPA Limited and Duncan C. Fraser & Co. in the United Kingdom, Europe, and Asia; John Eriksen & Partners, Campbell & Cook, and E.S. Knight in Australia and New Zealand; and Meidinger, Inc., A.S. Hansen, Foster Higgins, and SCA Consulting in the US.David Barford, Chairman and Chief Executive of Mercer in the UK – where the firm employs more than 3,700 staff in 17 offices – confirms that the name change is designed to reflect the consequent alteration in the revenue base. “The name Mercer Human Resource Consulting encompasses the full range of resources that we, as a global company, can bring to bear on behalf of our clients,” he says. “Mercer’s strong growth in human resource consulting reflects the increasing recognition that, by investing in their people, organisations can improve performance and profitability.”In conjunction with introducing its new identity, Mercer is launching www.mercerHR.com, a website offering do-it-yourself tools for HR professionals and products that users can purchase online. The investment consulting business, Mercer Investment Consulting, will be relegated to a single section on the new site ( www.mercerIC.com).Putnam’s Turpin Joins Old Mutual
The former manager of Putnam Investments’ defined contribution business, has been named vice president and chief operating officer of the US asset management group of Old Mutual plc.Thomas Turpin, 41, led Putnam’s defined contribution client service, sales, investment servicing, product management, marketing and 401(k) rollover areas until several months ago when the defined contribution area was moved under the aegis of John Brown, who is also responsible for Putnam’s defined benefit business.Turpin had been at Putnam since 1993.Before Putnam, Turpin had held several executive positions with The Boston Company – primarily in the Master Trust and Custody Division – from 1982 to 1993. In addition to Turpin, Old Mutual also tapped Kevin Hunt, formerly of Morgan Stanley, as its executive vice president and director of sales, marketing, and product development.The appointments for the two Boston-based positions were effective Friday.3Plansponsor.comPlan Sponsor Survey Confirms Under-Funding Trend
Slumping markets and looming liabilities combined to put the squeeze on pension plan funding levels last year, according to PLAN SPONSOR’s 2002 Defined Benefit survey.While last year’s data found 57% of plans were overfunded, the latest data show that dipping to 48%. Despite enjoying better market returns, on average, than their larger kin, smaller plans were much more likely to coming up short on the funding side. More than 31% of respondents with less than $10 million in assets are only 80% to 94% funded, while, among larger plans, 75% of those with between $1 billion and $10 billion in assets are overfunded and 80% of those with more than $10 billion. Weak equity markets explain part of the dropoff in funding, but plan sponsors also blame the historically low yields of the 30-year Treasury bond that is used in the funding calculation. The low rates of return translate to artificially high funding requirements. Against respondents’ average long-term actuarial target return of 8.7%, returns for our plan sponsor sample are paltry, particularly when coupled with last year’s meager return of 4.1%. However, sponsors seemed more complacent this year about manager performance, with nearly a quarter reviewing manager performance just once a year, versus 16% conducting annual reviews a year earlier. More sponsors were meeting with managers just once a year, as well-through fewer were content to hold such meetings as necessary. Funding GapsIn total, 50.7% of plan sponsors made contributions to their pension plans within the last year, down from 62% a year ago. Despite the overall gap in funding – or perhaps because of it – smaller plans were more likely to have made a contribution within the last year. More than two-thirds (68.75%) of plans with less than $10 million in assets under management had done so, compared to:37.5% of plans with $500 million to $999 million in assets 36% of plans with $1 billion to $9 billion in assets 40% of plans with more than $10 billion.Future Tense?As for the future, no less than 62% of almost 400 fund officials responding to our survey in January told us that they planned to make contributions to their defined benefit plans within the next 12 months-the same percentage that planned to make such contributions over the course of 2001. Among plans with less than $10 million in assets, three-quarters intend to pour in money this year, up from the 69% who planned to make funding contributions last year.Keeping TrackThe share of respondents who rely on the expertise of investment consultants dipped just slightly to roughly 78% versus 81% a year earlier – and a slim majority (59%) of sponsors require their managers to be AIMR compliant with their performance reporting. Roughly a third of plans with less than $200 million in assets – didn’t know. Still, most pension funds also increasingly measure their performance against their peer universe. Some 79% measure their performance this way, up from 77% in the previous survey. Smaller plans are less likely to do so – only 69% of plans with less than $10 million in assets engage such benchmarks versus 80% of plans with more than $10 billion in assets. 3Plansponsor.comAtriax Defeated in Forex Wars
Online foreign exchange trading platform Atriax announced Friday that it would close, citing failed merger negotiations with rival platform FXall. And now Citicorp is expected to join FXall, according to Reuters, citing market sources.3Plansponsor.comGoldman’s Paulson Rejects Insider Trading Allegation
Goldman Sachs could be charged with securities fraud in the wake of its role in releasing information about the US Treausury’s decision to suspend issuance of the 30-year Treasury bond last fall.The news triggered the biggest bond market rally in 14 years as traders scrambled to snap up bonds both before and after the news was made public.According to published reports, the Securities and Exchange Commission (SEC) will send a notice to the investment bank, saying it plans to recommend filing civil charges about the Treasury leak. According to a source familiar with the situation, once the notice is filed, Goldman will have the opportunity to present its case as to why it shouldn’t be charged. Early EditionsThe information release stumbled through a couple of mishaps during its October 31 communication, not the least of which was an electronic glitch that resulted in the publication of the announcement on the Treasury web site 17 minutes before the slated embargo time of 10 a.m. ET. However, even before that an internal Treasury review found a member of its debt advisory panel and a principal at a New Jersey analysis firm had already heard about the news, according to CBSMarketWatch. Realizing the gaffe, Treasury made the official announcement at 9:49 a.m. Additionally, Washington-based consultant Pete Davis, present at an under-wraps press conference, conceded afterward that he had called clients before the end of the embargo, offering them details of the upcoming change in practice. The SEC has also informed Davis that he may be charged, according to Dow Jones, citing people familiar with the matter.Client ‘Tell‘Davis has named a few of the clients who received the information, but while Goldman is a client, they weren’t on Davis’ list. However, Goldman has acknowledged that it received the tip at about 9:30 a.m. that morning, according to Dow Jones. Davis says that while he informed clients, he told them it was embargoed pending the department’s official announcement. But according to Dow Jones, some securities lawyers say if Goldman wasn’t told that the information was embargoed and wasn’t supposed to be trading on it, the firm may not have engaged in improper activity.3Plansponsor.comDeutsche Bank Blow as Investors Group Quits Scudder
Investors Group has served a notice to terminate its agreement with Zurich Scudder Investments as to their sub-advisory role with several funds in the wake of Zurich Scudder’s acquisition by Deutsche Bank. The funds, with combined assets of some $330 million, include IG Scudder U.S. Allocation Fund, IG Scudder Emerging Markets Growth Fund, IG Scudder European Growth Fund and IG Scudder Canadian All Cap Fund. Scudder had been sub-advisor since 1999. Mackenzie Financial Corporation also served notice of termination of its relationship with Zurich Scudder Investments, affecting the subadvisory relationship with 11 Mackenzie funds with approximately $506 million under management.3Plansponsor.com2002 Prime Brokerage Survey Results
The results from Global Custodian’s 2002 Prime Brokerage Survey are in, and as the industry changes, so too do the results of the survey. More and more hedge funds have broadened their relationships to include multiple prime brokers, and thus a greater level of comparability is emerging. In the smaller fund market, ABN AMRO remains very strong, despite ownership changes, winning seven excellence awards. Banc of America, which received the most responses in the survey, improved its showing, and is beginning to be seen among larger plans too – the firm won five excellence awards. Morgan Stanley was notably strong in 2002, particularly in the area of funds over $500 million in assets; Goldman too had a good showing, notably in the international arena, where it won excellence awards in five out of the six categories. In the international space, Barclays Capital remained a standout. Bear Stearns had a solid year, with some slippage but much less than its competitors would have the world believe. Deutsche Bank is now a force to be reckoned with, as is CSFB and Lehman Brothers, particularly in the financing arena. The survey results make clear what is becoming increasingly evident in the field – the world of prime brokerage has become exceptionally competitive, and the differentiator, going forward, will be not so much traditional strengths (in areas like securities lending, for example, there has been a levelling of product offerings), but the ability of firms to reinvest and to customize and provide added-value services to clients.
SEE THE COMPLETE RESULTS FROM THE SURVEY HERE.CTOs Convinced IT Spending Is Picking Up
A poll conducted for last month’s CIO Magazine found that chief technology officers have turned “decidedly positive.” The projected growth of IT budgets for the next 12 months is 7.7 percent- its highest level since March 2001 – with nearly six out of ten companies reporting a significant applications backlog. “While we will be watching for confirmation from future months, this could be the first concrete evidence that corporate IT spending is starting to pickup,” according to Chris Mortenson, Managing Director, Global Equity Research for Deutsche Banc Alex. Brown, co-creators of the survey.The CIO Magazine “Tech Poll” provides technology and business executives, economists, and policymakers with a tool to gauge technology growth trends and to assess their impact on the overall economy. The Poll panellists are asked to answer questions on overall current and projected IT budgets on a monthly basis. Also covered are future spending plans for IT hardware, software, services, and Internet initiatives. The results of March’s Poll, which was conducted from March 14-21, are detailed below.CIO Magazine Technology Growth IndicatorsThe CIO Magazine Tech Poll results are used to construct the CIO Magazine Tech Future Growth Index (TFGI) which projects IT activity over the next 12- months.(1) In March, the TFGI was 2.8, compared to 1.2 in February. This marks the highest expected level of IT activity since August 2001. (Table 1 providing historical data and selected charts is accessible at http://www.cio.com/info/releases/040102_release.htmlOverall IT Budget and CostsDuring March 2002, the CIO Magazine Tech Poll panel projected IT budgets will grow by 7.7% over the next 12 months, up substantially from February’s 3.2%, — and its highest level since March 2001. In addition, the panel reports IT budgets grew an average of only 0.8% over the previous 12 months, down slightly from the February estimate of 1.0%, and off sharply from 14% in February 2001.(2).It SectorsWhen asked about spending in eight specific IT categories, the average number of panelists planning to increase spending was flat from the previous month at 39% in March, while those planning to decrease spending fell to 17.4% from 21.2%(3). Security Software continues to be the strongest sector in the poll with nearly 55% of respondents planning to increase spending while only 4% plan to decrease spending.Infrastructure Software. Infrastructure Software experienced the largest increase in expected spending amongst the specific IT categories. Among the panelists, 38.5% plan to spend more compared to 32.4% in February, with only 12.8% planning to cut spending, down from 20.9% a month earlier. (Table 1 at http://www.cio.com/info/releases/040102_release.htmlComputer Hardware. Computer Hardware had the greatest decline in anticipated decreased spending. Among the panellists, 78.9% plan to spend the same amount or more compared to 69% in February, with only 21.1% planning to cut spending, down from 30% a month earlier.Compensation Costs and Labor Market Conditions. IT compensation costs (including salaries, benefits, and bonuses excluding stock options) reportedly rose by an average of 2.9% in the 12 months ending in March, up from 2.4% reported in February, and down from 9% a year ago. 9% of respondents reported IT professionals were hard to find and retain, up slightly from 8.0% last month and down from 40% a year ago.Internet Budgets and BusinessInternet Budget Plans. CIO Magazine Tech Poll panellists report that they expect to spend 15.6% of their IT budgets on developing business over the Internet (B2B2C) during the next 12 months. This is up slightly from 15% reported for the previous 12 months. In addition, 36.5% of the panellists plan to increase spending on eBusiness software during the next 12 months versus only 15.4% who plan to cut back.Internet Revenues. Overall, panellists expect to generate 11.4% of their revenues from Internet activity (B2B2C) over the next 12 months, compared to 8.5% during the previous 12 months. This is down from last month’s estimates of 12.1% and 9.1% respectively.Internet Purchases. On average, panellists expect to purchase 18.7% of their materials, supplies and parts over the Internet, up from an estimated 14.8% over the past 12 months.Special QuestionsPrior and Current Quarter Comparison. When asked to compare IT spending during the first quarter of 2002 to the fourth quarter of 2001, adjusting as best as possible for seasonality, 34% said spending in the first quarter would be higher or significantly higher (up from 29% in February), while 27% said it would be lower (down from 30% in February). The remaining 39% have unchanged plans (compared to 41% in February). (Table 2 presents the results of the special questions).Pickup in IT Spending. Among panellists, 37.4% say IT spending either never slowed or already has picked us (vs. 32.2% in February) with 15.7% claiming to have already seen a spending pickup (vs. 10.6% in February). Interestingly, only 51.7% expect to see an IT spending pickup in 2Q02 and beyond down from 59.4% in February.Spending Factors. Weak profits continue to have an adverse impact on tech spending. This was cited by 35.7% of the panellists as the primary factor affecting IT spending plans in 2002. Another 34.2% see “tight financial conditions” as the primary factor adversely affecting IT spending plans, and 20.3% said that spending might be weak because there is sufficient IT capacity.State of Current Application Backlog. When asked how they would characterize their application backlog, 90.6% reported having an application backlog up from 87.3% in December, when the question was last asked. Indeed, 57.8% said the backlog was significant (up from 52.1% in December) a potentially positive indicator of future demand. However, only 13.4% (up from 12.7% in December) said they would increase spending in response.CIO Magazine Tech PollThe CIO Magazine Tech Poll was created by CIO Magazine in August 2000 in association with Deutsche Banc Alex. Brown and Dr. Ed Yardeni. The poll is proving to be an accurate indicator of technology spending trends. The latest poll was opened on Thursday, March 14, and closed on Thursday, March 21. An invitation to respond to the poll was distributed via e-mail to a panel of more than 2000 CIOs and 3,000 randomly selected CIO readers who match the job function criteria “CIO.”Demographics. In the March poll, there were 268 responses with 96% from North America. CIOs comprise 90% of the total, with CEOs, COOs and presidents accounting for 6% and “other” titles accounting for 5%. Very large firms with over 5,000 employees represent 16% of the results. A broad cross-section of industries is represented, including manufacturing (19.1%), finance (10%), technology services (10%), health care (8%), and state or local government (8%).The complete March CIO Magazine Tech Poll can be found at http://www.cio.com/info/releases/040102_release.html. Previous poll results can be found at http://www.cio.com/info/releases.
Following the withdrawal from the marketplace of Atriax ( Atriax Defeated in Forex Wars) FXall, the electronic foreign exchange trading platform, announced today that Citibank, Deutsche Bank and JPMorgan Chase – all founders of rival platform Atriax – have joined the trading platform as liquidity providers. Citibank had taken an equity stake in the company, bringing the total number of equity backers to 17. “We are delighted with this development. It consolidates the top foreign exchange providers into a single portal,” says Carolyn Blight, Managing Director, Investment Management at Pareto Partners. “This will be of clear benefit to clients and is exactly what we wanted. At Pareto Partners we have already traded with one of the new liquidity providers.””With the active participation of the three largest banks in foreign exchange, FXall will further accelerate customer adoption,” adds Jim Turley, Global Head of Foreign Exchange at Deutsche Bank. “We are very excited at the prospect of driving developments through our participation in FXall.”David Puth, Managing Director, Head of North American Rates at JPMorgan Chase agrees. “This is what the market has been looking for: broad and deep liquidity from all major liquidity providers in a fully automated solution. Customers are the clear winners in today’s announcement,” he says.”Over recent months clients have indicated a clear preference to access their major providers of FX in one place. In keeping with a long held commitment to respond to customer needs, Citibank is delighted to provide liquidity on the FXall platform, thus satisfying clients’ express wishes,” concludes Richard Moore, Head of Global Foreign Exchange at Citibank. “We are looking forward to working with our new partners to shape the ongoing electronic evolution of the FX market.”Phil Weisberg, CEO of FXall, said: “We are very pleased to welcome our new liquidity providers. This is great news for customers, and for the industry as a whole. We will now further accelerate our work with providers, partners and customers to extend the benefits of full automation to all market participants.”Monks on Corporate Governance After Enron and Global Crossing
In an address at the Stern School of Business in New York on March 26, 2002 Alan Greenspan, not for the first and hopefully not for the last time, gave the American people a clear and sensible analysis of an important and pressing problem. He was addressing the need to restore public trust in the governance of corporations in the aftermath of Enron and Global Crossing. He suggested that the basis for a reliable system of corporate governance is either, “the current CEO-dominant paradigm” or “the only credible alternative is for large- primarily institutional – shareholders to exert far more control over corporate affairs than they appear to be willing to exercise.” He chooses the “benevolent despot” – “[I]t seems clear that, if the CEO chooses to govern in the interests of shareholders, he or she can, by example and through oversight, induce corporate colleagues and outside auditors to behave in ways that produce de facto governance that matches the de jure shareholder-led model.” Greenspan is in a unique position. In his seventy-seventh year, the Federal Reserve Board Chairman is seeking no favor from anyone. He is largely immune to the subtle and not so subtle influences of the corpocracy that is Washington, D.C. today. It is hard to name another leader with comparable credibility in matters financial. So it falls on him to expose the convenient lie of governance based on “independent” board members. This fiction has been convenient to everyone – the government can pretend that there is a functional system, until a crisis like Enron shrieks that the Emperor has no clothes. Individual directors are glad to be overpaid and over valued. CEOs are thrilled to be able to function as dictators while having available the myth of accountability to an “independent” board. As Chairman Greenspan puts it from an economist’s perspective, the system has survived – “For the most part, despite providing limited incentives for board members to safeguard shareholder interests, this paradigm has worked well.” The limited incentives have resulted in the board members functioning as creatures of the CEO, so Greenspan prefers to base the public interest on the familiar hope – the “benevolent dictator”. It is ironic that Americans have overwhelmingly rejected this hope in providing a legitimate base of our political systems. If only men were angels. How many splendid creations have been developed from this premise? But, men are not angels, nor are CEOs any exception. Greenspan appears to take the unwillingness of institutions to inform and involve themselves more in corporate affairs as a controlling premise. Why, one might ask, should trustees, of all legal owners, be permitted by simple fiat to purge themselves of tiresome responsibility? Do we allow individuals, flesh and blood owners, unilaterally to disaffirm any responsibility for the impact of their possessions on society as a whole? As Adolph Berle said in addressing this problem some sixty five years ago, “If a horse dies, does not its owner have the obligation to bury it?” Further, it is clear that this disinterest of institutions to act as owner of the companies whose shares are held in trust portfolios is largely based on their conflicts of interest. The institutional owners are preponderantly financial conglomerates whose financing interests with corporations are apparently of greater value than functioning as trustee for their pension plans. And yet the law of trusts is clear beyond dispute. Any conflict of interest must be resolved in favor of the beneficiary. Government at all levels in the UK and the US has failed to enforce this plain requirement of basic law. The arrangements by which the majority ownership of America and Britain’s publicly traded corporations is held by trust institution was not an ineluctable product of history. The government in its interests in providing retirement income and safety in investing in mutual funds created these institutions. This government characterized the institutions as trusts and, thereby, gave assurance to beneficiaries that they could be confident their assets would be protected by, among other things, freedom from trustee conflict of interests. The unintended consequences of well-intended government action have resulted in the neutering of the majority owners of America’s publicly traded corporations. The “market” of ownership has, thus, been corrupted. Even the most rabid libertarian would not quarrel with the appropriateness of government acting to undo consequences created uniquely by government act. Simply, trust responsibilities must be enforced. The United Kingdom has faced up to this problem through adoption by the Labor Government of the recommendations of the Myners Report. Happily, Chairman Greenspan’s remarks were delivered only days following publication of SEC Chairman Harvey Pitt’s assurance that from his perspective the law would henceforth be enforced. “…[T] he head of the Securities and Exchange Commission has asserted that money managers should view their corporate proxy votes as a fiduciary duty.” In as much as the Department of Labor has long since opined (1985 or 1994, from speech to formal ruling) that Employee Benefit Plan Trustees have an identical obligation, we now have formal government assurance that the institutional reluctance so far as it obtains to pension plans and mutual funds to which Chairman Greenspan pays such deference will no longer be tolerated.The importance and value of shareholder involvement has been demonstrated dramatically in recent times in the cases of Solomon Brothers and Waste Management. In the first case, “owner” Warren Buffett took direct personal control of the enterprise, successfully negotiated with the government the continued ‘parole” of the company, and ultimately realized substantial profits for all shareholders. In the latter case, “owner” Ralph Whitworth of Relational Investors took on the Chairmanship in order to direct the recovery from the massive accounting frauds that have resulted in huge tort recoveries from Arthur Anderson and SEC initiated criminal proceedings against the principal officers. The continuing shareholders of WMX have profited. Contrast the situation characterized by governance based in “active owners” with the total losses for outsiders in Enron and Global Crossing. Chairman Greenspan has identified the real alternatives. He has politely but firmly repudiated the conventional governance wisdom of the past twenty years. He has given us much to think about.  Lublin, Joann S., Proxy Voting is a Fiduciary Duty, SEC Chief Says in Letter to Group, Wall Street Journal, March 21, 2002Robert MonksEmail: email@example.comWeb Site:http://www.ragm.com