"We can create a better investment climate"

Peter Clapman, Senior vice president and chief counsel for TIAA-CREF, the world’s largest pension system, and chairman of the International Corporate Governance Network, an organization of investment managers, regulators, shareholder advocates and corporate-governance experts.

TIAA-CREF has been a strong proponent of improved corporate governance for some time. We believe in board independence, and that the three key board committees-audit, compensation and nominating-should be composed entirely of independent directors, under a tough definition of "independent." These are critical safeguards for investors.

The corporate scandals we’ve seen are attributable to deficiencies in the boardroom, including a lack of independence of the directors and their failure to do a responsible job. Executive-compensation motivations also have been quite wrong for a number of years.

The overuse and abuse of stock options have led to a short-term focus on the part of corporate management at the expense of long-term shareholder interest.

We advocate shareholder approval of all stock-option plans. We also would require the compensation committee to be independent, and to hire its own consultants and take its responsibility of representing shareholders very seriously.

In addition, we advocate more effective regulation of the accounting industry by an oversight board that is independent and has real power. This could be accomplished by the Securities and Exchange Commission (SEC) or by congressional legislation.

We strongly support the accounting reform bill sponsored by Senate Banking Chairman Paul Sarbanes (D-MD) and (then) SEC Chairman Harvey Pitt’s proposal for a Public Accountability Board. At TIAA-CREF, we have our own analytical staff and rely on our own investment research, but we also depend upon the integrity of the market. We have an extensive corporate governance program and have sent our policy statement to the 1,500 domestic companies in our portfolio.

We meet with companies where we see corporate-governance deficiencies, but we will be most effective if we can improve the whole system. If corporate governance is aligned properly and meets the objectives outlined in our policy statement, then we should not see the type of abuse and oversight problems that lead to the collapse of corporations.

I tend to be optimistic. If we implement some of the proposed congressional and SEC reforms, we can create a better investment climate. If we don’t, the crisis in confidence will continue well into the future.