Where Were the Regulators?

http://www.afscmeblog.org/2008/09/22/where-were-the-regulators/

September 22nd, 2008

The following is an excert of interview by Portfolio.com with Rich Ferlauto, AFSCME’s Director of Corporate, Governance, and Pension Investment

For a union pension fund that has been an outspoken shareholder activist, these are bittersweet times.

Richard Ferlauto, general counsel for the pension plan for the American Federation of State, County and Municipal Employees, has long agitated for more corporate accountability and greater regulatory overnight.

Now amid the wreckage of the credit crunch, he can say: Told you.

“Fundamentally, this was a failure, not only of regulation, but of the structure of corporate governance in this country, which kept shareholders from holding boards accountable for their actions,” he said in an interview. “So boards mismanage risk, overpay their C.E.O, and are driven by short-term and short-sighted performance goals, rather than managing their companies for long-term survival.”

The AFSCME official has pushed for independent boards, greater financial transparency, shareholder rights to vote on independent directors, and a real regulator. In 2006, the union represented by lawyers from Grant & Eisenhofer, won a landmark ruling from the federal appeals court in Manhattan, granting shareholders access on the proxy ballot to nominate independent directors for none other than American International Group.

Sounds like something that Christopher Cox, the chairman of the Securities and Exchange Commission, whose mission is to protect investors, would support, right?

Nope. Through a rule change, he took away that shareholder right for the 2007 proxy season. Indeed, Ferlauto’s lawyers were literally on their way to the courthouse last March to file a lawsuit demanding access to the ballot at the annual meeting of Bear Stearns when the firm was rescued from collapse in a government-backed takeover.

“This is why I think Cox has been disastrous to the markets,” Ferlauto says.

For Ferlauto, the problems with the agency are many. “The S.E.C. was completely derelict in its duties,” he says. Early in the Bush administration, the agency lifted leverage limits for financial institutions. Then, the agency was complicit in eviscerating its own enforcement budget.

Read the full interview here: http://www.portfolio.com/views/blogs/daily-brief/2008/09/19/where-were-the-regulators