Recently, it was reported that the Council of Institutional Investors had submitted a petition for rule making to the Securities and Exchange Commission. Indeed, the CII did submit this petition on January 8, 2014. In the petition, the CII describes itself as “a nonprofit, nonpartisan association of public, corporate and union pension funds and other employee benefit plans, foundations and endowments with combined assets that exceed $3 trillion.” The petition “applauds” the recent recommendation by the SEC’s Investor Advisory Committee (“IAC”) “to provide proxy contestants with the option (but not the obligation) to use Universal Ballots in connection with short slate director nominations.” The petition also cites and discusses the 2009 proxy battle between Target Corporation and Pershing Square Capital Management.
What is missing from the petition is any disclosure of the common thread that ties Pershing Square to the IAC and the IAC to the CII. It turns out that Mr. Roy J. Katzovicz is the Chief Legal Officer of Pershing Square. In connection with the the Target Corporation proxy fight cited by the CII, he wrote this regarding Pershing Square’s request for a universal proxy. Mr. Katzovicz is also a member of the IAC. It also so happens that Ms. Ann Yerger is the CII’s Executive Director and a member of the IAC. That is not the only connection between the CII and the IAC. CalPERS and CalSTRS each have representatives on CII’s Board and the IAC. Mr. Dear, the IAC’s Chair, previously served as Chair of the CII. His wife, Ms. Anne Sheehan, succeeded him as Chair of CII’s Board. Ms. Sheehan also serves as Director of Corporate Governance at CalSTRS and as a member of the IAC. Another member of CII’s board, Anne Simpson, is a senior portfolio manager at CalPERS, where Mr. Dear is the Chief Investment Officer.
Two years ago, I urged the SEC to adopt procedures so that these types of relationships would be fully disclosed:
The [Investor Advisory] Committee should take appropriate steps to identify and address potential conflicts of interest. Based on publicly available information, it appears that several members of the Committee hold positions in organizations or entities that have significant business relationships with each other. It also appears that persons serving on the Committee have other relationships such as interlocking directorships that may affect their independence. Each Committee member should be required to disclose fully and publicly: (1) all actual and potential conflicts of interests and (2) all relationships (whether business or social) that call into question the independence of Committee members. In addition, the Committee should take appropriate steps to ensure that the Committee’s advice and recommendations are not tainted by the votes of members who are interested or lack independence. At a minimum, these steps should include appropriate amendments to the Committee’s Bylaws and Operating Procedures.
It is unfortunate that the CII failed to disclose its relationships with the IAC. It is much worse that the SEC, an agency dedicated to disclosure, has chosen to do absolutely nothing to assure full disclosure when it comes to the IAC.