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Friday, May 6, 2005
Reports Suggests Governance Changes for TIAA-CREF
Investigators are blaming TIAA-CREF's top leaders for not better informing the fund manager's board of an improper business deal with Ernst & Young. The conclusion came from a report released former U.S. Attorney General Nicholas Katzenbach yesterday.
The 52-page report is available in PDF format at http://www.tiaa-cref.org/pdf/katzenbach_report_4_29_05.pdf.
The investigation looked into how senior managers, including Chairman and CEO Herbert Allison, handled the situation when they learned that two TIAA-CREF trustees had conducted an improper business deal to jointly sell valuation services for corporate stock options with Ernst & Young, the company's outside auditor.
One problem, according to Katzenbach's report, was the board power-sharing arrangement that confused responsibilities. TIAA-CREF has one board of trustees for both its TIAA division and its CREF division. It then also has a separate board of overseers. The arrangement is a relic of the merger of the two companies decades ago.
Katzenbach recommended that TIAA-CREF scrap the board of overseers, noting that the existing structure runs the "constant risk of potential and actual conflict" and "runs counter to the notions of effective governance."
"The obvious solution to potential conflict would be elimination of the board of overseers, perhaps through merger with the TIAA board," the report said. "There is no compelling reason for it to exist as a distinct entity."
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