Pensions Target Marsh & McLennan Board For Putnam Screw-up
December 15, 2003
There are many laws that hold parents responsible for the willful misconduct of their children, and now it looks like Marsh & McLennan Cos. (MMC) may have to face the music for its lack of oversight of its Putnam Investments unit.
Four of the nation's largest public pension funds said they are going after the board of directors of MMC for its "failure to properly control its money management business and for its severe lack of independent board leadership," the funds announced in a joint statement last week.
The quartet said they intend to use an anticipated SEC rule to more easily nominate and elect better leadership on MMC's board. The funds plan on using shareholder proposals to gain access to the proxy and then nominate and elect directors to the board who are not anointed by the company. However, the rule is not set in stone as of yet and is awaiting SEC approval next month.
AFSCME Employees Pension Plan, New York State Common Retirement Fund, California Public Employees' Retirement System and the California State Teachers' Retirement System, which together hold 6.85 million shares, worth $306 million or about 1.3% of MMC, are the four involved in the action.
Sean Harrigan, president of CalPERS, said the problems at Putnam and MMC are "so severe they are Enron-esque." Recently, CalPERS, the nation's biggest pension plan and later its sister fund, CalSTRS, the third-largest plan, announced that they had each fired Putnam as their money manager.
"Marsh & McLennan deserves to be the first company in U.S. history to face a binding proxy access proposal because of its gross failure to have proper controls that could have prevented the Putnam disaster," said Gerald W. McEntee, AFSCME Employees Pension Plan chairman, in a statement.
"It is tragic that the board at Marsh & McLennan lacked the independence needed, and today continues to be influenced more by its insiders than the needs of its shareholders. There is no question that shareholders will support the idea of electing a truly independent director to the board if given the opportunity through our shareholder resolution."
MMC fired back: "We were surprised and disappointed that serious investors concerned with corporate governance would communicate their opinions through a press release and not directly to our management and Board," William L. Rosoff, senior vice president and General Counsel at MMC, wrote in a letter addressed to the heads of the four pension funds. "Moreover, any sense of objectivity is undermined by your outrageous reference to Enron in your characterization of what has occurred at our Putnam Investment subsidiary."
MMC said that a "substantial majority," or nine out of the 15 members, of the board of directors are independent. Additionally, the committees that are responsible for board nominations -- the audit committee, the compensation committee and the directors and governance committee -- are all made up entirely of independent directors.
MMC pointed to a number of initiatives that Putnam has undertaken in order to cure the ills related to the scandal, including naming a new management team, firing employees involved in the sour deals and adding additional layers of controls and oversight.
Jeff Keil, vice president of Lipper's global fiduciary review, said that forcing change on the MMC board is a realistic goal. "Their actions encapsulate the spirit of what the SEC intended to do. They are looking at the corporate situation and made the determination that the board is not acting in their best interests."
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