Teachers expands its curriculum - interview with TIAA-CREF - CSIV

Chief Executive, The, Nov, 1998 by Jennifer Pellet

What's your take on the CEO compensation Issue and the pay-for-performance trend?

A lot of places have gone overboard, and that is a concern. We've always said, if you're going to have these big awards, you'd better have a good process that's open and fair. We filed a vigorous shareholder resolution at Walt Disney Co. on board independence, fought hard, and got quite a vote. My hunch is that the Ovitz deal and the Eisner deal are good deals for the shareholders and probably within the market for those people. But to have Eisner's personal lawyer chair the compensation committee does not give me confidence. The company had him step down as chairman while he negotiated Eisner's contract, but then as soon as the negotiations ended, he stepped back on. It seems to me if you're going to have an award with an actual value of $100 million, you ought to be sure you have an independent group of people making the decision.

Whenever we see a big award, we ask questions about the quality of the board, and if we're not satisfied, we'll take action. But we're not crusaders on compensation. We can't be. With 2,200 companies, how do you tell if this guy really deserves what he's getting? We can't be smart enough to go in and say what's right and what's wrong, but we can go in and have a good representative group for shareholders.

BOARDROOM LESSONS

Do you take issue with firms that use aggressive accounting to boost earnings?

I get concerned when we find a token rubber-stamp audit committee. CEOs ought to make sure they've got good people on their boards to staff the audit committees. We've had a couple of battles over independence. Nucor Steel was a wonderful company, with wonderful results and a chairman with a gutsy way of doing business. But in the interest of saving money, he didn't pay his board. He had a nominal board that met the stock exchange's definition, but it never met. The audit committee consisted of the former treasurer of Nucor. That's a fundamental investor protection that we as shareholders ought to have - somebody good and independent in a company, who will make sure financial statements are reliable.

Nucor at least performed. Irregularities surfaced at companies like Sunbeam, Cendant, Livent, and Oxford, all of which had fully staffed boards. When you see that kind of thing, do you get mad as hell and not want to take it anymore?

We do, but the problem is we have about 2,200 American companies in our portfolio. We have a corporate governance audit procedure. We visit as many companies as we can, have a CEO conversation, and nose into things like the audit committee, the nominating committee process, and who's on the board. We have Ken West, the former CEO of a Midwestern bank, who goes out and talks to firms about their practices. There's a whole army of corporate governance issues where we can probably do more good than having a media-driven kind of program to kind of scare people.

Dale Hanson really did a lot for corporate governance with CalPERS' 10 Worst Boards list. They were very public, and given their resources, that was probably the best way for them to go. But for us, going and seeing individual companies is better. Most of the time we come out and say, more power to you.