The Make TIAA-CREF Ethical Coalition was picketing and leafletting in front of 730 Third Avenue. They did a good job of encouraging a wide variety of pleasant, articulate participants to show up for the meeting and speak. More to permit regular office traffic than because of the demonstration, I think, Annual Meeting admission was through the side door to the lobby, on East 45 Street, just West of Third Avenue. There were a large number of security officers in blazers, all of them extremely courteous. There was a metal detector and a bag x-ray machine. Adhesive “Visitor" badges were issued, and you had to present your photo identification to two different people in the lobby. Elevators with attendants were set aside for us, so that we could exit only on the meeting floor.
There were two booklets set out in the foyer, a corporate-style annual report for the two companies together, and a media relations handout called "Quickfacts." There was ice water available on a catering table. The Agenda card was handed-out at a counter opposite the annual report table. I mention this because I overlooked the Agenda at first. Because I had put on my own nametag, below the adhesive "Visitor" badge, I was recognized at the Agenda counter. They said that Mr. Allison hoped to speak to me before the meeting. He had been mingling with the trustees and employees in their reserved donut lounge beside the meeting room. He immediately came out to ask if I had received his recent reply to a long letter I sent him in May. We chatted until the moment he entered the meeting room.
Wharton Auditorium was about 50% full, of its 240-person capacity. It was a little fuller by the end of the meeting. The 17th annual CREF meeting was called to order at 9:05 AM. Mr. Allison introduced a number of senior employees and board members. One CREF trustee (Bridget A. Macaskill) was absent, due to "a previous commitment". (She missed her first-time election to trustee, in 2003.) Two TIAA trustees, Marta Tienda and Ronald L. Thomson (late arrival) sat in the front row, while the CREF trustees sat in a group to the left of the dais. I saw at least Mr. Ikenberry of the Overseers, but I don't know the others by sight.
There were five seats on the dais, with the speaker's lectern on the audience's right. From left to right, the speakers were E. Laverne Jones (VP and Corporate Secretary), George W. Madison (EVP and General Counsel), Edward Grzybowski (Chief Investment Officer-his first time on the dais), Scott C. Evans (EVP and CEO of Investment Management), and Herbert M. Allison (Chairman.) The Chief Technology Officer, Susan S. Kozik sat with other executive team members in the front row, but was not called upon to speak about recent computer problems.
Mr. Allison noted that while he hoped the meeting would take about two hours, it would not end until everyone who wished to speak had received an opportunity. This was an effort to encourage the socially responsible investing speakers to wait for the general question period, but he was unsuccessful. Unlike other meetings I've been to, when Mr. Allison asked for questions related to each of the two voting agenda items, there actually were several questions appropriately related to the election topics.
Mr. Allison gave a substantial introduction. He said that nearly all key elements of the "transformation" of the company would be in place by the end of 2006. His speech text, and videos (of both speakers, new this year) of Mr. Grzybowski's investment review are available on the TIAA-CREF website. The purchase of the planned-giving firm Kaspick and Company will close around September 30. He referred to the previous announcement of the new Social and Community Investing department, drawing attention to an actual plan to originate community investments. Both principals of the new department, Scott J. Budde (a Bowdoin graduate) and Amy O'Brien were present, and stayed to speak to participants informally after the meeting.
When Mr. Grzybowski completed his review of the CREF fund results, (with slides), he asked if there were any questions about performance. When no one spoke up, he asked again. I had a tentative question for his boss, Scott Evans, who was on the agenda to speak next, so I kept silent. However, Evans never did give a speech, so my question went unasked. The reason I bother to report this is that Grzybowski should have been questioned about the fact that while the CREF funds had positive results, all of them failed to beat their benchmark index, some by as much as 157 basis points for five years, 143 basis points for one year! His slides are one page past the one linked above, if you want to see them.
Election of trustees was the next order of business. Neil W----- asked for permission to speak about Social Investing and the trustees. He pointed out that TIAA-CREF's own survey shows that the principles of socially responsible investing are important across all participants, not just CREF Social Choice fund investors. Roy R-----, bearing a proxy from Paul B----- pointed out that KLB has now removed Coca-Cola from their list of permitted investments, but it was on the last list of Social Choice investments. Mr. Allison replied that those shares have been divested. There was then some discussion of where they went.
I have to point out that on a given day, the number of shares of Coca-Cola are constant, even when someone sells them. If another fund happened to want them on that day, we would actually save money because they might not have to go through a broker to change fund ownership. Of course, Neil's point was that he'd rather TIAA-CREF did not own Coke shares anywhere in the company right now.
Finally, some questions specifically on the question were asked: Linda L. T------- observed that the audit committee of the trustees is underpaid for their efforts and responsibilities. Another speaker asked for a trustee to speak to the election question. Mr. Allison called on the lead trustee, Nancy Jacob. She said she was delighted to serve as a trustee, and they all take their fiduciary responsibilities seriously. She thanked the trustees for their work over the years. Carlos --------- asked about the procedures for nomination. Mr. Allison responded that the entire board is completely independent of management, including the committee that nominates.
The trustees were all elected, with about 96% of votes (not 96% of all participants, of course...) in favor, typical of recent meetings.
Approval of the independent auditor was the next order of business. Mr. Allison again asked for questions specifically on that topic. I asked, "We voted on auditors last year, which was the first time in several years we were asked to vote. I believe this is because of Rule 32a-4 under the Investment Company Act. That could be an admission that the audit committee may not have been independent in 2004! Will we ever vote on auditors again?" Mr. Allison smiled and said that as soon as I mentioned Rule 32a-4, he had to ask the General Counsel, George Madison to respond. Both of them suggested that we would continue to get to approve the independent accountant. I decided to press Madison farther, and asked about audit committee independence again. He replied that the SEC was conducting an investigation, and would decide whatever it was going to decide. Lance from NYC Tech asked if there was a fixed limit on the tenure of each firm's service. The answer was "No." Mark F-------- asked about auditing costs. The March, 2006 SEC filing indicated that E&Y had billed $18 million, including SOX certification, which was 3½ times the average E&Y charges, and 2½ times PWC's 2005 charges. Mr. Allison replied (to paraphrase) that SOX reporting is complex and time-consuming, but he didn't present that as a "complaint", like the U.S. Chamber of Commerce has! Mark F-----, a lawyer and past employee of TIAA-CREF (not during Mr. Allison’s tenure) asked several thoughful and agressive technical questions, which had to be answered by the representative of the accounting firm.
The new auditors were approved with 96% of the votes "For", the same as last year.
Mr. Allison then asked if there were any general questions. Jackie S----- from Columbia Graduate School suggested that the creation of a CREF Foundation would be a good idea. Mr. Allison agreed, and said the idea was under consideration, but that "Our capital, our assets are owned by our participants." A speaker who works at Amnesty International (A TIAA-CREF participating employer; Mr. Allison noted the important work they do in his reply) discussed Chevron's "legacy of contamination" and Google, Yahoo!, and Microsoft's accomodations to China. A student from Georgetown spoke about sweatshops. A "Sprawlbusters" representative urged that Wal-Mart be put on a watch list. Mr. Allison asked Amy O'Brien (see above) to comment, especially on Nike.
I gave my short speech, about TIAA versus CREF, and our ability to "regulate" the other company. I expressed concern that most employees perform work for both companies, and (I hypothesised ...) TIAA may currently be ascendant. Mr. Allison replied that employee evaluations are based on joint contributions to the entire enterprise. Client services dominate employee evaluations, rather than financial performance. He suggested that questions about TIAA were welcome at the CREF annual meetings.
Neil W----- spoke again, to remind TIAA-CREF about their promise to add community reinvestment into the SR mix. It was talked about today, but he'd like to see some action. Some limited social venture capital, for example micro-finance is desirable.
Another speaker pointed out that TIAA-CREF has had three CFOs since May of last year. What is the state of the internal control environment? Has PWC actually issued a written report and attestation letter? Paul K----- , PWC's representative at the meeting said that the trustees have received the, unqualified, letter and report. George Madison explained that the letter is posted with the public regulatory documents. But the written report is a private communication that no company gives out. It was filed with the NY State Department of Insurance, and it's their rule that TIAA-CREF can't give it out, only the Department of Insurance has access to it. In a follow up question, it was revealed that the report mentioned material deficiencies, but no material weaknesses.
PWC was ratified as the independent accountant with about 96% of votes in favor. The meeting was adjourned at 11:19 AM. Most of the TIAA-CREF employees remained in the room, and spoke to participants for several minutes, some longer.
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