Wednesday, June 13, 2007

Institutions, govern thyselves

Earlier this month, the Stanford Investors' Forum came out with a report on best practices of fund governance in connection with Stanford University's Rock Center for Corporate Governance.
Since institutional investors are often prominent advocates for better governance in corporates, it seems only right for them to prescribe standards for their own behavior.

This WSJ article notes that prominent governance lapses at funds in recent years include:

- The Securities and Exchange Commission inquiry into New Jersey's state pension system, which is billions of dollars short in assets to cover obligations.
- TIAA-CREF's trustees resigning in 2004 after it was revealed that they had invested in a company that had done business with TIAA-CREF's independent auditor, Ernst & Young. The problems were attributed to poor judgment rather than malfeasance.
-Last year, a former trustee of the Illinois Teachers' Retirement System pleaded guilty to accepting hundreds of thousands of dollars in kickbacks from investment firms seeking to do business with the pension provider.
- In 2004, the San Diego City Employees' Retirement System projected it was $1.4 billion short of assets to cover its obligations. Subsequent investigations highlighted poor decisions by the fund's board, and some former board members face criminal charges. A fund-sponsored investigation found that former board members ignored conflicts of interest, didn't properly investigate funding proposals and failed to heed warnings by experts.

The full text of the best practices report can be found here.

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