Shareholders Tighten Grip on Executive Pay, Governance

(March 27, 2012) — Investors are taking a firmer grip on the management of the companies in which they hold stakes, several initiatives announced this week have shown.

This morning the National Association of Pension Funds (NAPF) launched a scheme under which pension fund investors will conduct open dialogue with some of the largest listed companies in the United Kingdom over their executive pay arrangements.

The initiative, co-led with Hermes Equity Ownership Services (EOS), has already seen 44 of these top 100 companies meet with a similar number of pension funds to discuss measures that could better align both sets of interests.

David Paterson, Head of Corporate Governance at the NAPF, told reporters this morning: “Through these working groups we can improve links between companies and pension schemes and improve the quality of dialogue between the two parties.”

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Paterson said the programme was set out for the long term and would allow investors to understand what drives remuneration at large companies.

“This is a long-term game that requires dialogue that will lead to positive change and if we don’t start now we will miss the opportunity that the recession has brought,” he said.

Paterson also said there had been a significant upturn in executive pay over the last decade, but the process had started much before that.

The initiative echoes moves by the UK’s Government Department for Business, Innovation and Skills, which this month called for investors to have tighter control of the executive remuneration at the companies in which they hold shares.

The Kay Review on the UK’s equity markets has also reported there should be closer cooperation between companies and their ultimate owners to improve efficiency and returns for shareholders.

Elsewhere, asset manager Aviva Investors reported that the majority of global stock exchanges were committed to promoting greater corporate responsibility on sustainability issues.

However, Aviva said that despite over three quarters of exchanges accepting it was their responsibility to promote these issues, they were restricted in what they were legally allowed to do.

An even higher number, over 80%, said they would welcome a global approach to consistent and material corporate sustainability reporting, suggesting a common framework may need to be built among policymakers at the global level.

Paul Abberley, Chief Executive of Aviva Investors London, said: “Exchanges play a vital role in the move towards more sustainable capital markets as they have the opportunity to influence and monitor companies seeking to access equity markets. So it’s encouraging to see that they recognise this responsibility although it is disappointing that so many failed to consider the implementation of mechanisms to promote sustainability disclosure through changes to listing rules.”

Abberley said he realised exchanges needed further support from asset owners and their managers – along with regulators and legislators – to push the issue forward.

The Iowa Public Employees Retirement System is claiming that auditors overlooked a $553 million Ponzi scheme by issuing falsely clean audit reports.

(March 26, 2012) — The Iowa Public Employees Retirement System is asserting in Federal Court that auditor Deloitte facilitated a $553 million Ponzi scheme by turning a blind eye.

The civil case stems from criminal prosecutions against Paul Greenwood and Stephen Walsh — both accused of defrauding investors in their commodities and investment house, WG Trading Investors. The two men also owned Westridge Capital Management, a registered investment adviser, and WGIA LLC. While Greenwood pleaded guilty, the charges against Walsh are pending.

In a complaint filed last week and obtained by Courthouse News Service, the Iowa Public Employees’ Retirement System claimed that between early 2007 and late 2008, the scheme invested about $496 million in the managers’ companies. Thus, its auditor Deloitte should have warned its clients about the fraud. Instead, the fund asserts, the auditors ignored warning signs.

According to the complaint, the National Futures Association suspended Greenwald and Walsh from trading in February 2009, noting that they refused to cooperate with an audit.

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The complaint states: “Plaintiff suffered millions of dollars of losses as a result a fraudulent investment scheme that had the elements of a classic Ponzi scheme. At all relevant times, defendant served as the auditor of a company controlled by the operators of the fraudulent scheme, and it aided and abetted the scheme by issuing unqualified and/or ‘clean’ audit reports on which plaintiff justifiably relied in purchasing securities issued as part of the scheme. Defendant acted in willful blindness of the scheme, and its auditing practices were so deficient that the audits amounted to no audit at all, or an egregious refusal to see the obvious, or investigate the doubtful, and the professional judgments which it made were such that no reasonable auditor would have made the same decisions if confronted with the same facts.”