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October 14, 2003
Resolutions Ask TIAA-CREF to Practice the Good Corporate Governance It Preaches
    by William Baue

TIAA-CREF faces several resolutions asking it to reconcile its strong corporate governance advocacy with what filers describe as its own weak governance policies.

The Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) is widely regarded as a strong promoter of good corporate governance at the companies it holds in its portfolios. However, policy- and account-holders with TIAA-CREF have filed a number of resolutions for the November 13 annual meeting calling into question the organization's own internal corporate governance. Resolution filers and their supporters express concern that TIAA-CREF's external governance advocacy may ring hollow coming from an organization with dubious internal governance practices.

"It seems logical that portfolio companies will give less attention to TIAA-CREF if its activities are viewed as mere public relations," said Curt Verschoor, a research professor at DePaul University's School of Accountancy.

Dr. Verschoor co-filed a resolution, or "Participant Proposal II" as the CREF proxy calls it, with Stephen Viederman, the co-founder of the Initiative for Fiduciary Responsibility. The proposal asks CREF to adopt recommendations from the Conference Board Commission on Public Trust and Private Enterprise. For example, this blue ribbon commission recommends that organizations "avoid having one individual functioning as Chairman, as President, and as CEO with no other director appointed Lead Independent Director or Presiding Director."

The TIAA-CREF website lists Herbert Allison as chairman, president, and CEO of TIAA-CREF.

Participant Proposal I, filed by Wiworn Kesavatana-Dohrs, a lecturer in Asian Languages and Literatures at the University of Washington, explicitly and exclusively recommends splitting the positions of CEO and Chairman of the Board at CREF. A longer version of this proposal received 23.46 percent support from voting TIAA-CREF participants in 2002. The US Securities and Exchange Commission (SEC) allowed TIAA-CREF to omit three subsections of the 2002 proposal in this year's proxy.

However, the SEC did not allow TIAA-CREF to omit the proposal's statement that CREF's Social Account is rated the worst of socially responsible mutual funds in the 2002 NIS Social Rating of socially responsible mutual funds. It also allowed the proposal to enumerate its grievances with TIAA-CREF's corporate governance practices.

"Whereas, TIAA-CREF Policy Statement on Corporate Governance is woefully inadequate and OPPOSES shareholder resolutions concerning separation of the positions of CEO and chairman; OPPOSES designation of a lead director; OPPOSES the formation of shareholder advisory committees; OPPOSES the requirement that candidates for the board be nominated by shareholders; OPPOSES a requirement that directors must attend a specific percentage of board meetings, unless the board supports such measures; and OPPOSES a requirement that directors be prohibited from providing consulting services," the proposal states.

"We acknowledge that there are specific groups/organizations that disagree with some of TIAA-CREF's investment and governance policies," said Stephanie Cohen Glass, director of TIAA-CREF's corporate communications. "We, however, believe we have strong corporate governance practices and continue to review our policies to adopt the best practices."

Accordingly, the TIAA-CREF Board of Trustees recommends voting against Participant Proposal I this year.

"At the outset, participants should note that CREF's current President and Chief Executive Officer, Herb Allison, is not on the CREF Board and does not serve as the Board's chairman," the Board of Trustees wrote in their opposing statement.

According to Ms. Glass, Mr. Allison is chairman of TIAA-CREF, the "brand name" for the overarching organization that encompasses TIAA and CREF as two separate entities, and also chairman of the TIAA board of trustees. However, he has no chairmanship responsibilities over CREF, Ms. Glass told

Furthermore, Ms. Glass points out that TIAA-CREF does not advocate for companies to split their CEO and chair positions.

"Our Policy Statement on Corporate Governance clearly states that we recognize the responsibility of company boards to organize its functions and conduct its business in the manner it deems most efficient, consistent with these or similar governance principles," Ms. Glass said.

This position puts TIAA-CREF at odds with most corporate governance advocates as well as with corporate directors themselves. The Participant Proposal I cites a McKinsey & Co. survey in which of nearly 70 percent of respondents (180 US directors representing almost 500 companies) said that the roles of Chairman of the Board and CEO should be separated.

"It seems evident that TIAA-CREF's areas of interest are narrowed to exclude those issues in which it does not itself comply," Dr. Verschoor told


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