Your editorial "Non-binding gripes" (Jan. 24) sarcastically posed the question: When do non-binding proxy resolutions become binding? Your equally sarcastic answer distorted the view of the three New York City pension funds. In so doing you evinced a woeful ignorance of and insensitivity to the real issue of concern to institutional investors. The significant issue is the existence of a flawed system under which corporate directors routinely ignore majority votes for non-management proposals, rendering them value-less and ineffective, while, at the same time, giving majority votes full value and effectiveness when they are cast for management proposals. This double standard is undemocratic and inimical to the rights and interest of shareholders.
If majority votes are de facto meaningless when they are cast for non-management proposals, the shareholder proposal process itself is reduced to a futile, resource-consuming exercise. Indeed, SEC Rule 14a-8 and its resubmission thresholds, no-action letter process, and other provisions are reduced to foolish child's play if the process ends with boards of directors ignoring the ultimate expression of the wishes of the shareholders -- the majority vote.
With majority support for non-management proposals on the rise, entrenched self-serving boards of directors will no longer find comfort in ignoring and disenfranchising shareholders behind the technicality of the "non-binding" proposal. The directors' blatant disregard for the majority vote and the resultant shareholder frustration will engender increasing "vote no" initiatives. The premise is reasonable: Those who exercise power should be accountable to those who are affected by it. In the same manner that elected officials are accountable to the electorate, boards of directors are accountable to the shareholders. Accountability legitimizes the directors' delegated authority. Without it, abuse is unbridled.
Whether you agree or disagree with the corporate reforms sought by the New York City Pension Funds' resolutions, or the Funds' decision as to when to pursue a "Vote No" initiative, the fundamental issue remains the double standard which allows directors to render majority votes meaningless. The de facto invalidation of majority votes for non-management resolutions dangerously tilts the proxy voting and shareholder proposal process, making directors the representatives of management and not the shareholders.
Until there is a legislative or judicial remedy, the "Vote No" initiative remains the only resource for shareholders.
Alan G. Hevesi
comptroller
City of New York
Too many managers?
I am writing regarding a small news article which appeared on page 40 of the Dec. 27 issue of Pensions & Investments, regarding the restructuring of the Waltham (Mass.) Contributory Retirement System.
Apparently, this plan has decided to completely revamp itself. It has decided to terminate its index funds and hire 18 new managers across a number of asset classes.
Eighteen managers for a $127 million plan! What justification does this plan and its consultant, Wainwright Investment Counsel, have for making these drastic changes? What is the increase in fees? Does a plan of this size have the resources to monitor 18 managers? What about the transaction costs in making these changes? Does anybody understand the concepts of prudence and fiduciary responsibility?
David C. Finstad
senior manager, external funds
Alberta Treasury
Edmonton, Alberta
Recapture vs. discount
It appears that the survey referenced in the article "Institutions use discount brokerage," page 43, Feb. 7, may, in fact, be a Trojan horse.
As we all know, surveys and associated commentary are frequently used to introduce ideas and shape opinion.
In your article, and in contributions to it by Lynch, Jones & Ryan, "commission recapture" and "institutional discount brokerage" are used as interchangeable terms. After reading the article, retirement plan trustees might logically ask, "Why not just charge a discount commission and save the effort and expense associated with the recapture process?"
For over two years Lynch, Jones & Ryan has been marketing an "execution only" service (no rebate). Because processes, procedures and traditions within the institutional brokerage industry mitigate against "commodity pricing" for brokerage services, LJR's "execution-only" program has not been well accepted. The survey and your article may provide more attention for the program.
Competitive forces, full disclosure, unbundling of services and the increasing professionalism of plan sponsors may eventually contribute to the evolution of true institutional discount brokerage.
Using the terms "commission recapture" and "discount brokerage" interchangeably will provoke analysis, which will hasten this evolution. Until then, only index funds will enjoy anything close to institutional discount brokerage.
Bill George
Encino, Calif.
