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TIAA-CREF Updates Policy Statement on Corporate Governance

TIAA-CREF Updates Policy Statement on Corporate Governance

Published 12-19-03

Submitted by TIAA-CREF

NEW YORK--TIAA-CREF, the premier retirement system for higher education and research employees, today released the fourth edition of its Policy Statement on Corporate Governance. The revised statement articulates principles intended to promote accountability and foster high-quality governance at portfolio companies in which TIAA-CREF invests.

"TIAA-CREF is fully committed to championing corporate governance," said Herbert M. Allison, Jr., Chairman, President and Chief Executive Officer of TIAA-CREF. "Just as we will enter the coming year with even stronger internal governance for TIAA-CREF, this revised policy statement updates the principles we encourage all of our portfolio companies to adopt to ensure best practices."

The TIAA-CREF Policy Statement on Corporate Governance was last revised in 2000. The updated guidelines seek to emphasize improvement in governance related to three specific areas widely recognized as sources of corporate governance deficiencies, including the failure of boards of directors to play their required oversight role; the failure of some professional advisors, including public accountants, law firms, investment bankers and consultants, to discharge their responsibilities properly; and the failure of many investors, particularly institutional investors, to exercise their rights and responsibilities -- or even be heard -- on important matters of corporate governance affecting them.

"Our Policy Statement on Corporate Governance seeks to strengthen and clarify our principles so that companies in which we invest will have a clear understanding of the issues we deem important when we consider shareholder initiatives and voting on proxy issues," said Peter Clapman, TIAA-CREF's Senior Vice President and Chief Counsel who manages the corporate governance program. "A lot has happened in the market since we last updated the statement in 2000. Scandals have shaken investor confidence and regulatory reforms have placed greater scrutiny on how boards of directors perform their necessary functions. With that in mind, it is my hope and expectation that this new Policy Statement will provide a firm basis for dialogue with boards of directors and senior managers to improve practices at their companies."

Following are descriptions of the new TIAA-CREF policies intended to strengthen the corporate governance of portfolio companies.

  • Annual Election of All Directors. We believe the annual election of all directors establishes a board that is more responsive to shareholders. A classified board structure can strongly impede a free market for corporate control, particularly in combination with takeover defenses, such as a "poison pill" shareholder rights plan. Moreover, a classified board structure can restrict a board's ability to quickly remove an ineffective director.

  • Designation of a Lead or Presiding Director. When the board chooses not to separate the positions of Chairman and CEO, it should designate an individual director who would preside over an executive session of independent directors.

  • Auditor Independence. A company's audit committee should ensure that the outside audit firm's independence is not compromised by the provision of non-audit services or by a long-standing relationship with the company. In addition to establishing limits on the type and amount of such services that the audit firm can provide, the committee should also consider requiring periodic rotation of the outside audit firm.

  • Shareholder Access to the Board. Since the board of directors is responsible for representing shareholders' interests, shareholders should have the ability to communicate effectively with them. As such, formal procedures should be created to enable shareholders to communicate their views and concerns directly to board members. When a board fails to fulfill its governance responsibilities, shareholders should consider other means to ensure board responsiveness, including challenges to the current board.

  • Equity-Based Compensation Charged to Earnings. There is a need for regulatory organizations to require realistic accounting of the cost of equity-based compensation plans to the company so as to eliminate the excesses that have diminished the usefulness of these plans to shareholders. TIAA-CREF strongly advocates for comprehensive disclosure and realistic accounting of equity-based compensation plans, with the cost charged to the income statement.

  • Holding Requirements. Companies should require that employees who acquire stock through the exercise of options hold that stock for a specified, substantial period of time.

  • Performance-Based Equity Compensation Plans. Equity-based compensation plans should emphasize restricted stock awards. Restricted stock more closely aligns the interests of executives with shareholders (as opposed to option grants), and the value to the recipient and cost to the corporation can be determined easily and tracked continuously. Stock options should be awarded judiciously, if at all.
The new TIAA-CREF Policy Statement on Corporate Governance has been reviewed and approved by the Corporate Governance and Social Responsibility Committees of the TIAA-CREF boards. Copies are being sent to the Chief Executive Officers of all our portfolio companies. The full text of the statement is available on the TIAA-CREF Web Center at https://www5.tiaa-cref.org/bookstore/detail.do?id=146.

About TIAA-CREF
TIAA-CREF, with nearly $300 billion in assets under management, is a national financial services leader and the premier retirement system for higher education and research employees. Further information can be found at http://www.tiaa-cref.org.

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TIAA-CREF

TIAA-CREF

TIAA-CREF is a national financial services organization with more than $380 billion in combined assets under management (6/30/06) and the leading provider of retirement services in the academic, research, medical and cultural fields.

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