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September 10, 2003
Influential Institutional Investors to Form National Coalition for Corporate Reform
    by William Baue

The National Coalition for Corporate Reform, championed by state treasurers and pension funds, seeks to restore investor confidence through better corporate governance.


Today, former Enron Treasurer Ben Glisan pleaded guilty to conspiracy and was sentenced to five years in prison, representing at least partial rectification for the corporate governance scandals that have rocked the financial markets the past few years. However, it will take much more than this prosecution to restore investor confidence in corporate America.

To systematically address investors' crisis of confidence, New York State Comptroller Alan Hevesi proposed a comprehensive solution in his keynote speech at the annual meeting of the Council of Institutional Investors (CII) in San Diego last week. Mr. Hevesi called for the formation of a National Coalition for Corporate Reform (NCCR) to advocate for improved corporate governance through proxy voting, litigation, regulation, and lobbying.

"The goal of the coalition is to reform corporate governance and restore confidence in the financial markets," said Mr. Hevesi. "NCCR will unite institutional and individual investors, labor leaders, corporate CEOs, elected officials and community leaders in support of a program of corporate governance reforms, regulation and legislation."

A number of influential institutional investors endorse the establishment of the NCCR, including California Treasurer Philip Angelides, Pennsylvania Treasurer Barbara Hafer, and AFL-CIO President John Sweeney. Also expressing support are Sean Harrigan, president of the board of the California Public Employees Retirement System (CalPERS), New York State Attorney General Eliot Spitzer, and New York City Comptroller William C. Thompson, Jr.

The corporate governance scandals manifested themselves not only psychologically, sapping investors of their ability to rely on information emanating from corporate America, but also, of course, financially. The Brookings Institution, an independent research and public policy think tank, estimated that the scandals cost the US economy some $35 billion in the first year.

Mr. Hevesi's office applied the same methodology as the Brookings study to the New York State economy, and found that the state lost some $2.9 billion in economic activity and $1 billion in taxes in its fiscal year (FY) 2003 due to the scandals.

"The best way to stop corruption is by instituting policies and structures inside corporations that prevent it or expose it early, by ensuring strong and effective regulation and oversight, and by suing when necessary to recover investors' losses and provide a deterrent," said Mr. Hevesi.

The NCCR intends to promote better corporate governance by pushing for independent directors, and will weigh in on the Securities and Exchange Commission's proposed rules for the proxy process regarding the nomination and election of directors. The coalition will also promote better corporate governance through proxy voting on pertinent shareholder resolutions, such as those regarding performance-based stock options and reeling in American companies that have re-incorporated abroad.

"Investors have a unique and essential role to play in achieving this [goal; as] the owners of public corporations, investors have the right and the duty to ensure that their companies are operated properly," said Mr. Hevesi. "They have a strong interest in protecting their [investments, and] they have the power to make essential internal changes in the way corporations function."

The NCCR will also lobby for better regulation of corporate conduct, focusing on changes to the Private Securities Litigation Reform Act of 1995, the Sarbanes-Oxley Act of 2002, and the Class Action Fairness Act of 2003.

The coalition considers litigation a "last resort" for redressing corporate mismanagement and fraud that costs shareowners. According to the NCCR, lawsuits can result not only in financial restitution if they are successful, but also they can act as deterrents to malfeasance.

 

 
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