May 23, 2024

DealBook: 2 JPMorgan Directors Resign

David M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.Carlo Allegri/ReutersDavid M. Cote and Ellen V. Futter, directors of JPMorgan Chase, were criticized for their lack of financial experience.

1:27 p.m. | Updated

Two directors at JPMorgan Chase who  received lackluster support from shareholders at the bank’s annual meeting in May resigned on Friday.

The two board members, David M. Cote and Ellen V. Futter, were re-elected at the meeting, but narrowly.

Mr. Cote, the chairman and chief executive of Honeywell International, resigned after five years with the bank. Ms. Futter, the president of the American Museum of Natural History, had been on the board 16 years, JPMorgan said in a statement on Friday.

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Both Mr. Cote and Ms. Futter, members of the board’s risk committee, were buffeted by criticism after multibillion-dollar trading losses  that emerged last year from JPMorgan’s chief investment office in London. Some investors said the risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit JPMorgan.

The trading debacle was also widely viewed as a black mark on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive. A shareholder proposal to split Mr. Dimon’s two roles, while aimed at bolstering corporate governance, became a kind of referendum on Mr. Dimon’s stewardship of the bank.

It was a test he handily passed. Nearly 70 percent of the shares were voted to reject a proposal for an independent chairman. To voice their dissatisfaction, a small but vocal group of shareholders agitated against some of the board members’ re-election.

Shortly before the annual meeting in Tampa, Fla., Ms. Futter decided to resign, according to people with knowledge of the matter who spoke only anonymously. She was said to be sick of the swirl of negative attention clouding her service on the board, and worried that it would divert attention from both JPMorgan’s strong points and from the American Museum of Natural History.

Those plans changed, though, when Mr. Dimon called her to urge her to stay. A sudden resignation by a bank director, the people said, would have needlessly drawn attention from the centerpiece of the annual meeting: Mr. Dimon’s victory.

She was  re-elected with the lowest amount of support among directors, 53.1 percent of the vote. Mr. Cote was re-elected with 59.3 percent of the vote.

“I want to thank Ellen and Dave for their dedicated service to our firm,” Mr. Dimon said in a statement. “We have learned a great deal from both of them and will miss having them as members of our board.”

Mr. Dimon also reiterated his support for Mr. Cote on Friday. “As chairman and C.E.O. of Honeywell, Dave brought exceptional experience to JPMorgan Chase across a broad spectrum of issues., “ Mr. Dimon said in a statement. “He is a highly talented executive, and we were all fortunate to benefit from his knowledge and leadership.”

Despite JPMorgan’s overwhelming support for its board, criticism mounted as the annual meeting drew near in May.

Before the meeting, an influential shareholder advisory firm, Institutional Shareholder Services, or I.S.S., urged shareholders not to vote for three directors, including Mr. Cote and Ms. Futter.

In its report, the firm cited “material failures of stewardship and risk oversight” in the wake of the trading loss last year. For the advisory firm, it was a rare challenge, because the company noted that it only recommends that shareholders oppose directors under “extraordinary circumstances.”

The report, which came amid cries for an overhaul of JPMorgan’s board leadership, was another hurdle for the bank as it worked to restore its reputation as an astute manager of risk — an accolade JPMorgan won after emerging from the 2008 financial crisis in far better shape than its rivals.

While all three directors, including Mr. Cote and Ms. Futter, had served on the risk committee when JPMorgan navigated through that crisis, I.S.S. criticized them for not having strong enough backgrounds in risk management. Its report said “it is odd” that the bank’s biggest rivals had managed to find directors with stronger qualifications.

Ms. Futter had also served on the board of the insurance giant American International Group, which nearly collapsed in the 2008 financial crisis. Last year, 86 percent of shareholders voted for Ms. Futter, the lowest level of support for any director who was up for re-election at the bank that year.

Mr. Cote, as chief executive of Honeywell International, heads an industrial company, not a financial firm, I.S.S. noted, leaving him potentially lacking in relevant experience.

JPMorgan steadfastly stood by its board members ahead of the annual meeting. The board, JPMorgan executives noted, moved to cut Mr. Dimon’s compensation by 50 percent earlier this year. It also demanded a full accounting of what precipitated the trading loss and clawed back millions of dollars in compensation from the executives at the center of the bungled trades. And some executives inside the bank said that while Ms. Futter was not be a banker, she did bring perspective on reputational risk.

Both Mr. Dimon and Lee Raymond, the lead director of the board, have vowed to further rectify risk lapses and improve controls.

At the bank’s annual meeting, Mr. Raymond, the former chief executive of Exxon, hinted at the change. He told shareholders to “stay tuned” when he was asked if the board is planning to make changes to the risk committee.

Still, JPMorgan shareholders have much to be thankful for. Last week, the bank reported its 13th consecutive quarterly profit. JPMorgan has gained market share and has managed to buck many trends rattling its rivals.

JPMorgan said Friday that it would appoint new directors to the board later this year.

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BlackRock, a Shareholding Giant, Is Quietly Stirring

Once settled, Yumi Narita started describing the disappointing qualities of a big entertainment company she’d been checking out. “I’m inclined not to trust this compensation committee,” she told the group.  “Year-over-year, they pay their C.E.O. more, and the metrics are often questionable.”

There were sympathetic nods around the room. Ms. Narita is one of about 20 analysts on the corporate governance team at BlackRock, the world’s largest asset manager. BlackRock’s size is mind-boggling. With almost $4 trillion under management, it is, according to a recent University of Michigan study, the single largest shareholder in one of every five United States companies. It manages money from pension funds and endowments as well as retail investors, controls large stakes in companies like JPMorgan Chase, Wal-Mart and Chevron and owns 5 percent or more of roughly 40 percent of all publicly traded companies in the country.

These investments give BlackRock tremendous influence, particularly now, during proxy season. At this time of year, public companies hold annual meetings, and shareholders vote on executive pay and elect corporate directors. Inside BlackRock, the small group of analysts led by Ms. Edkins meets every morning for about an hour, hashing out how BlackRock will vote its clients’ shares in hundreds of contests, zeroing in on directors they feel have been around too long, or ones who they think are overpaying executives.

These analysts have a language of their own, casually throwing around terms like “overboarding,” for when directors serve on multiple boards, possibly spreading themselves too thin; “engagement,” when a problem reaches a critical stage and merits a visit from a BlackRock analyst; and “refreshment,” when engagement doesn’t work and a director needs a heave-ho.

BlackRock is no activist investor. In fact, it’s far from it. It has never sponsored a shareholder proposal, and it rarely broadcasts its actions. Ms. Edkins says the firm generally votes against a director or a company proposal only when a behind-the-scenes “engagement” has failed.

A number of public pension funds and activist shareholders argue that BlackRock could use its influence to greater effect and say it sides with management far too often. It received a failing grade from the A.F.L.-C.I.O. in a 2012 survey; BlackRock voted with the federation just twice in 32 shareholder votes on issues that the union sees as important to the trustees of union pension funds.

 “We believe shareholders have the power and the obligation to use every tool at their disposal to encourage greater accountability,” said Brandon Rees, acting director of the A.F.L.-C.I.O. Office of Investment. “It’s disappointing that such a large company like BlackRock votes for so few shareholder resolutions.”

There is agreement, however, that the firm has become more active in recent years, as other shareholders, too, have been expressing themselves more forcefully. It’s easy to be cynical about the value of voting on what are ultimately nonbinding resolutions that companies can ignore. But investors can now wield more power than in the past, partly because of recent laws that require companies to hold a vote on issues like executive pay. On Tuesday, in fact, shareholders of JPMorgan Chase will meet in Tampa, Fla., where the company is expected to announce the results of a the vote on an unusually tense confrontation over a motion to split the roles of chairman and C.E.O., both now held by Jamie Dimon.

BlackRock’s influence over the governance of corporations has increased as the company itself has expanded. It gained prominence during the financial crisis when Laurence D. Fink — a BlackRock co-founder and its current chief executive — became the government’s go-to guy to analyze and manage hard-to-value assets. BlackRock expanded this expertise into a separate business, advising troubled governments around the world, like Greece and Ireland. In 2009, the firm bought Barclays Global Investors in a $13.5 billion cash-and-shares deal that transformed BlackRock overnight into the world’s largest asset manager. BlackRock controls both actively managed shares, and millions more that sit in exchange-traded funds.

“BlackRock is the silent giant,” said Gerald Davis, a professor of management and organizations at the University of Michigan. He said the firm had almost no name recognition, despite managing more money than household names like Vanguard and Fidelity. “No one really knows about BlackRock but they are incredibly powerful.”

MS. EDKINS, an understated 43-year-old from New Zealand, leads BlackRock’s corporate governance effort. She got her first taste of annual reports and the corporate documents that would become her future at the University of Otago as an economics teaching assistant, where she analyzed annual reports to see which companies were disclosing their environmental impact. The experience of parsing often-dry sentences didn’t immediately turn Ms. Edkins into a corporate-governance geek. Instead, she landed a job at New Zealand’s central bank and later at the British High Commission in Wellington.

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Fair Game: Chevron Takes Aim at an Activist Shareholder

It is unusual to make such a demand from a shareholder, corporate governance experts say. While companies often try to keep shareholder resolutions off the ballot by contending that they do not follow the rules, going beyond that is rare.

Trillium oversees $1 billion in assets and specializes in what is known as sustainable investing. It focuses on environmental, social and governance factors in its investments and pursues shareholder advocacy programs on these issues.

In an interview last week, Jonas Kron, Trillium’s director of shareholder advocacy and corporate engagement, declined to discuss the subpoena. But it is part of a Racketeer Influenced and Corrupt Organizations lawsuit Chevron has filed against an army of parties involved in bringing an environmental case against the company in Ecuador almost two decades ago. In February 2011, the court in Ecuador ruled against Chevron, awarding the plaintiffs more than $18 billion.

The Ecuadorean matter centered on claims that Texaco Petroleum, which Chevron acquired in 2001, had polluted sections of a remote region in the Amazon. Chevron maintained that Texaco successfully remediated the site years before, in a $40 million cleanup.

Chevron has not paid the judgment. The company has said it does not believe that the Ecuador judgment is enforceable “in any court that observes the rule of law.” It maintains that the Ecuadorean case was riddled with fraud and says it will “continue to pursue relief against Ecuador in our pending arbitration and against the plaintiffs’ representatives in our RICO action pending in New York.”

Last July, a federal judge in the United States declined to declare the judgment unenforceable; he did note that aspects of the trial in Ecuador were tainted. And a judge in Argentina froze the assets of a local Chevron unit last month as the court determines whether it should enforce the Ecuadorean judgment.

Trillium is not a defendant in Chevron’s RICO suit. But it, along with other shareholders, has questioned how Chevron has handled all this. Earlier this year, for example, 40 Chevron shareholders overseeing $580 billion in total assets signed a letter asking to meet with company management to discuss the matter. Chevron declined.

When asked about the company’s subpoena to Trillium, Justin Higgs, a Chevron spokesman, acknowledged that it was not standard operating procedure. But, Mr. Higgs said, it reflects the company’s belief that Trillium was working closely with plaintiffs in the Ecuador case to pressure Chevron into a settlement. That belief, he said, is supported by documents produced in the suit.

In an interview on Friday, Randy Mastro, a lawyer at Gibson, Dunn Crutcher who represents Chevron in the case, said: “Our case is about a massive fraud and extortion scheme for billions of dollars. The conspirators enlisted a network of not-for-profits, so-called shareholders who were acting independently but really acting in collusion to get out their false story. We have a right to take discovery of those shareholders and those groups they enlisted to try to find out the methods of the scheme.”

Among the concerns Trillium has raised are Chevron’s disclosures to investors about the potential liabilities associated with the judgment. In 2011, the fund manager asked the Securities and Exchange Commission’s corporate finance unit to review whether Chevron had adequately explained “the scope and magnitude of financial and operational risk arising from the Ecuador judgment.”

In the letter, Trillium noted Chevron’s public contention that the uncertain legal environment in Ecuador meant the company could not estimate “a reasonably possible loss” in the case. But Trillium contrasted this stance with deposition testimony in the RICO case from Rex Mitchell, Chevron’s deputy controller. Mr. Mitchell said the company faced “irreparable damages” if the Ecuador plaintiffs succeeded in enforcing their judgment by seizing Chevron’s assets. It is unclear how the S.E.C. responded to this request. Mr. Higgs, the Chevron spokesman, said all of the company’s disclosures had been appropriate.

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DealBook: The Benefits of Incorporating Abroad in an Age of Globalization

Deal ProfessorHarry Campbell

Michael Kors Holdings not only sells fashion that people crave, it has also offered shares that were a hit with investors. The company’s shareholders, including the designer himself, sold about $944 million worth of stock last week in an initial public offering that valued the company at about $4 billion.

Michael Kors is not just a successful I.P.O., however. The company is also a case study on how globalization increasingly allows companies to avoid United States taxes and regulation.

Michael Kors gets about 95 percent of its revenue from sales in Canada and the United States. Like most clothing manufacturers, the company makes its clothes largely in Asia. And Michael Kors has gone one step further. It has outsourced its corporate governance and taxes to the British Virgin Islands.

Because the company is organized there, it sidesteps higher taxes and substantial regulation in the United States.

The tax savings are likely in the millions and could end up being much more.

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If Michael Kors were organized under the laws of the United States, it would be subject to taxation on its worldwide income instead of just the revenue it earned in the United States. The company could defer these taxes on foreign income by keeping the money abroad in foreign subsidiaries. If it repatriated the money to the United States, it would then be taxed at rates of up to 35 percent, offset by any foreign tax paid.

Because of this tax regime, JPMorgan Chase estimates that American multinationals have $1.375 trillion in cash sitting overseas. By keeping this cash abroad, these companies are not subject to United States tax until the money is returned to America. These companies may be waiting for Congress to enact a tax holiday to allow the cash’s repatriation.

Since Michael Kors is organized abroad, it never has to face this issue and will pay tax only on money earned in the United States. Right now, Michael Kors does not have significant foreign revenue, but this is bound to increase, as the company appears focused on building international sales.

Michael Kors will also be able to dodge much of the securities and corporate regulation applicable to American public companies, which are subject to scrutiny under the federal securities laws intended to protect investors. This requires an American company to file quarterly reports and publicly disclose material events promptly upon their occurrence. Executives also have to report all stock sales within two days, and companies are generally required to have a board comprising a majority of independent directors. As a foreign corporation, Michael Kors is under no such restrictions and instead is subject to bare-bones reporting requirements under United States securities law.

If a shareholder wants to sue a Michael Kors director for misconduct, good luck. The corporate laws of the British Virgin Islands are very different from those of United States. Michael Kors states in its I.P.O. prospectus that “minority shareholders will have limited or no recourse if they are dissatisfied with the conduct of our affairs.” A shareholder would most likely have to sue in the British Virgin Islands. While a few weeks’ visit there might be nice, I am not sure that shareholders are prepared to spend years on the island locked up in litigation.

It is not just Michael Kors that is taking advantage of foreign incorporation. Private equity firms have been buying American companies with significant foreign operations and reorganizing them as foreign corporations. The private equity firms will then arrange for the company to make an initial public offering on an American exchange. Freescale Semiconductor Holdings, a company purchased by a consortium of private equity firms in 2006, went public on the New York Stock Exchange in May, yet it was organized under the laws of Bermuda.

It is all seems so easy.

More American companies would probably love to lower their taxes and leave for the Caribbean, if not for Congress. In 2002, Stanley Works, based in Connecticut, tried to reincorporate in Bermuda to save $30 million a year in taxes. But after a public outcry, the company’s board abandoned the plan. Congress subsequently passed a law prohibiting companies from migrating out of the United States to lower their taxes unless the exit involved a sale of control. Private equity firms take advantage of this loophole to send portfolio companies with large overseas operations abroad.

Michael Kors was reincorporated in the British Virgin Islands and established its corporate headquarters in Hong Kong in connection with its acquisition by Sportswear Holdings in 2003. Sportswear Holdings is based in Hong Kong and controlled by Lawrence S. Stroll and Silas K. F. Chou, both of whom reside outside the United States. Michael Kors’s foreign incorporation and headquarters was most likely put in place to take advantage of this foreign ownership and further ensure that the United States did not tax its owners.

Michael Kors and Freescale show yet again that American corporate tax laws need to change as companies become increasingly international. The United States is one of the few countries in the world to tax worldwide income for companies based here.

In a world where companies have a choice about where to incorporate, enforcing these tax rules is going to get harder. Michael Kors stock may be listed on the Hong Kong Stock Exchange and the company may have headquarters in Hong Kong, but this appears to be a mailbox. The fashion designer’s largest office is in New York and its stock is also listed on the New York Stock Exchange. But when it came time to set up the company’s place of organization, Michael Kors chose a third country where it had no operations.

Congress can try to close this loophole, but companies that want to lower their taxes will still find a way to incorporate abroad, something made easier by the ability to raise capital through an I.P.O. anywhere in the world.

Perhaps it is time for the United States to adopt a tax system more in line with the rest of the world. This does not mean pandering to tax havens, but it should incentivize companies to bring their riches to the United States.

The regulatory concerns are also high. American investors may be investing in Kors and other companies incorporated outside the United States without appreciating that they are not subject to the same United States laws that other publicly traded companies are. The Securities and Exchange Commission set up these different regimes to attract foreign listings, but companies like Michael Kors are taking advantage of the loophole to lower their tax burden, possibly at the expense of shareholders.

Welcome to globalization.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

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Olympus Board Hints at Quitting Over Fraud

At a news conference on Wednesday, Olympus said one director had resigned, others may follow and the entire board could go once the company submitted its second-quarter earnings, due by Dec. 14.

An external investigative panel report, released on Tuesday, concluded that several former executives spent 13 years running a complex scheme to hide huge investment losses. “Our corporate governance was severely criticized,” Shuichi Takayama, the president of Olympus, told reporters. “As the representative of the company, I apologize sincerely.”

The former chief executive, Michael C. Woodford, who was fired in October after questioning murky merger deals, is campaigning to return to lead Olympus, a 92-year-old Japanese maker of cameras and endoscopes. He has called for an extraordinary shareholders’ meeting to pick a new board.

Mr. Takayama, who took over after the scandal became public, said the earliest such a meeting could be held was late February, and the management would not resign before then — after picking its own slate of candidates.

“We don’t know what Mr. Woodford is thinking, but he has said he will pursue a proxy fight, so we think there will certainly be a proposal,” Mr. Takayama said.

“We will have the shareholders meeting decide,” he said. But he did praise Mr. Woodford for “pointing out problems that the current board failed to do.”

Olympus also set up an outside committee to advise whether to file criminal complaints or sue those responsible for the scandal, which has halved the value of the firm’s shares and fanned fears about Japan’s corporate governance generally.

Announcing the new committee, which is to report its recommendations by Jan. 8, the once-proud firm also said that a senior executive director, Makoto Nakatsuka, had quit the board, the third to do so since the scandal erupted.

Mr. Nakatsuka was found on Tuesday to have helped the two main architects of the cover-up — a former auditor and a former executive — to manage Olympus’s financial assets in the late 1980s, when it embarked on risky investments that led to the losses.

Olympus, which still risks being delisted from the Tokyo stock market and forced into a humiliating sale of core assets, said it would form a second external panel to examine the responsibility of the company’s auditors.

A report released Tuesday, prepared by outside legal and accounting specialists, said Olympus management was “rotten to the core,” ruled by a culture of absolute corporate loyalty and a desire to flatter financial performance.

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Olympus Board Signals Intent to Resign

At a news conference, Olympus said one director had resigned, others may follow and the entire board could go once the company submits its second-quarter earnings, due by Dec. 14, and takes steps to put the disgraced company back on track.

An external investigative panel report, unveiled Tuesday, concluded that several former executives spent 13 years running a complex scheme to hide huge investment losses off the company’s balance sheet.

“Our corporate governance was severely criticized,” said Olympus’s president, Shuichi Takayama. “As the representative of the company, I apologize sincerely.”

The former chief executive, Michael C. Woodford, fired in October after questioning murky acquisition deals, is campaigning to return to lead the 92-year-old maker of cameras and medical equipment and has called for an extraordinary shareholders’ meeting to pick a new board.

Mr. Takayama, who took over after the scandal broke, said the earliest such a meeting could be held was late February. He said the management would not resign before then and would pick its own slate of candidates.

“We are still considering the plan” for a new president, Mr. Takayama said. “We don’t know what Mr. Woodford is thinking, but he has said he will pursue a proxy fight, so we think there will certainly be a proposal.”

“We will have the shareholders meeting decide,” he added, although he gave a nod to Mr. Woodford for “pointing out problems that the current board failed to do.”

Olympus also set up an outside committee to advise whether to file criminal complaints or sue those responsible for the scandal, which has cut the value of the company’s shares by half and fanned fears about Japan’s corporate governance generally.

“We deeply regret that we have given a very negative impression to Japan and possibly the world,” a grim-faced Mr. Takayama said.

Announcing the new committee, which is to report its recommendations by Jan. 8, the company also said that its senior executive director, Makoto Nakatsuka, had quit the board, joining others who have left since the scandal erupted.

In the report released Tuesday, Mr. Nakatsuka was found to have helped the two main architects of the cover-up, the former internal auditor Hideo Yamada and the former executive vice president Hisashi Mori, to manage Olympus’s financial assets in the late 1980s, when it embarked on risky investments that led to the losses.

Olympus, which is still at risk of being kicked off the Tokyo stock market and forced into a humiliating sale of core assets, said it would set up a second external panel to examine the responsibility of the company’s auditors.

The damning report, prepared by outside legal and accounting experts, said Olympus management was “rotten to the core,” and ruled by a culture of absolute corporate loyalty and a desire to flatter financial performance.

Mr. Takayama has said that Olympus will consider legal steps, including criminal complaints, against those found responsible. He has blamed Mr. Mori and Mr. Yamada for masterminding the cover-up, and the panel found that two former company presidents were also told of the concealment.

Olympus faces a number of hurdles in its struggle to survive. It must meet the deadline next week for submitting its results for the six months to end-September, a task that requires combing through and sorting out decades of cooked books. Even if it meets that deadline, the Tokyo Stock Exchange could still delist Olympus shares depending on the scale of the previous financial misstatements.

Mr. Takayama, the company’s president, said that as far as he knew, Olympus’s liabilities had not exceeded assets at any point since 2000, but he admitted the company’s capital situation was tough and said that it might sell assets or accept a capital tie-up with another company.

“We haven’t decided our direction on that at this point but, as you mention, the capital situation is very difficult,” he said. “Therefore, we can’t deny that this is a possibility. If there is such an opportunity, we would like to consider it.”

One of the few glimmers of hope from the panel report Tuesday was its conclusion that there was no evidence of a much-rumored link between the scandal and organized crime. If a link were found — and the police are still investigating — Olympus would most likely be delisted from the stock market.

The police, prosecutors and the securities watchdog are still investigating the Olympus affair and are expected to step up their inquiries now that the independent panel has issued its report.

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Scandal at Finmeccanica Revives Questions in Italy

ROME — For weeks now, the influential chairman of Finmeccanica, the state-backed Italian military equipment group, has been resisting calls to resign, even as the company sinks ever deeper into a widening kickbacks scandal and posts disappointing returns.

At least four investigations, at times overlapping, are under way involving Finmeccanica and its subsidiaries, laying bare what prosecutors depict as a system of patronage, slush funds and bribery that has already felled some executives at the group and contributed to a big slide in the company’s shares.

Italian media reports are comparing the cases with the so-called Clean Hands investigation of the 1990s, which uncovered kickbacks at dozens of Italian companies and swept away an entire political class.

The day of reckoning for Pier Francesco Guarguaglini, the chairman and former chief executive, could come Thursday, when the board of directors was to review what it last week cryptically called “delegated powers and granting of powers.”

Last week, Mario Monti, the new Italian prime minister, said he was keeping an eye on the case and expected a “rapid and responsible” solution. On Wednesday, he said his government would respect the board’s “procedures and the eventual deliberations.”

While it is likely that a shakeup of some kind in Finmeccanica’s corporate governance could emerge, the outcome of the meeting is anything but a foregone conclusion, although Italian newspapers have been abuzz about possible successors to Mr. Guarguaglini in recent days.

As evidenced by the tenaciousness of Mr. Monti’s predecessor, Silvio Berlusconi, and other beleaguered public figures, “Italians aren’t used to giving up their seats,” said Luca Giustiniano, an associate professor in management at Luiss University in Rome.

“It’s not in our culture to leave when we’re invited to leave,” he said.

Tension within the company have also been fueled by an open conflict between Mr. Guarguaglini, who was chief executive from 2002 until May, and his successor in the post, Giuseppe Orsi, over their differing visions for the group, which has lost two-thirds of its market value since January.

In many ways, the turbulence that has engulfed the company, Italy’s second-largest industrial group, after Fiat, has laid bare both the dynamic potential of Italian industry as well as the ingrained mechanisms in the national way of doing business that deter such growth.

Under Mr. Guarguaglini, the company became a strong international competitor and nearly doubled its work force to some 71,000 people through a series of at times costly acquisitions.

The group is best known for its still-profitable AgustaWestland helicopter division. Through its Alenia unit it is also a supplier to Boeing for its new Dreamliner passenger aircraft.

In November, Alenia took a write-down of €753 million, or $1 billion, partly because components supplied to Boeing were deemed to be unsatisfactory.

Just Tuesday, its Ansaldo transport units signed a $1.3 billion contract to supply technology and vehicles for a new, driverless subway system for Honolulu.

In 2008 Finmeccanica bought DRS Technologies, a U.S. supplier of military electronic products, for €3.4 billion, a price that some analysts consider too high and that has contributed in no small part to a debt load of €4.7 billion.

Mr. Guarguaglini also attempted to simplify the group and focus on its principal areas. But some analysts say that the strong state presence, with the Finance Ministry owning just over 30 percent of Finmeccanica, prevented broader changes because of the impact they might have on the company’s Italian employees, who account for around 56 percent of its global work force.

Since taking over in May, Mr. Orsi has spearheaded a series of efficiency plans that include selling some €1 billion in assets and nonstrategic operations.

Mr. Giustiniano at Luiss University noted that the company operated in sectors that were especially vulnerable to global factors like the economic downturn. That, he said, partly explained the company’s recent losses, which totaled €324 million in the third quarter.

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DealBook: Pension Investor to Vote Against Murdochs on News Corp. Board

LONDON – Hermes Equity Ownership Services, which represents British Telecom and other large pension funds, said Friday it planned to vote against the re-election of Rupert Murdoch and his sons to News Corporation’s board at next week’s shareholder meeting.

Hermes EOS, indirectly owned by the BT pension scheme, Britain’s largest, said News Corporation’s directors failed to react to concerns about the composition of the board. The institutional investors also raised concerns that calls for an independent investigation into corporate governance and the culture at the media conglomerate went ignored, following the phone hacking scandal at one of its publications were also ignored.

Jennifer Walmsley, director of Hermes EOS, said she had a number of meetings with the independent directors of the board to discuss the demands but that they have “not reacted with sufficient urgency.” Hermes EOS, which represents about 0.5 percent of News Corp., plans to withhold support for Rupert Murdoch, his sons, James and Lachlan Murdoch, as well as Arthur Siskind and Andrew Knight.

“They’ve made some very minor changes to the board so far, which is rather a tinkering around the edges,” Mrs. Walmsley said. “To know why the change isn’t happening, you only have to look at the composition of the board.”

“Members are either family members, owe their position to a relationship with the family or are somehow linked to the family,” she said. “We want to see family members and affiliated directors to be replaced.”

It’s a sign of the mounting pressure on the board. On Monday, Institutional Shareholder Services, a major investor advisory firm, recommended Monday that investors vote against the vast majority of the company’s board at the shareholder meeting on Oct. 21.

Still, such efforts may not have much sway. Mr. Murdoch, who is the company’s chairman and chief executive, controls about 40 percent of the voting shares.

Concerns about the management grew after the phone-hacking scandal in Britain that has led to the arrests of several News Corporation executives earlier this year. Institutional Shareholder Services criticized ”a striking lack of stewardship and failure of independence by a board whose inability to set a strong tone-at-the-top about unethical business practices has now resulted in enormous costs — financial, legal, regulatory, reputational and opportunity – for the shareholders the board ostensibly serves.”

Additional revelations this week of a controversial circulation deal at the media company’s Wall Street Journal Europe that lead to the resignation of the newspaper’s publisher were just the latest proof that an independent investigation into all of News Corporation was needed, Mrs. Walmsley of Hermes EOS said.

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DealBook: Milken’s Gift Stirs Dispute at U.C.L.A. Law School

Lowell Milken helped create the booming junk bond market of the 1980s.Milken Family FoundationLowell Milken helped create the booming junk bond market of the 1980s.

When the U.C.L.A. School of Law announced a $10 million gift from Lowell Milken to establish a business law institute in his name earlier this month, the university described him as a “pioneer in education reform” and a “leading philanthropist.”

Behind the scenes, Mr. Milken’s big donation has set off an internal debate at the school. While many faculty members welcomed the money, one of the University of California, Los Angeles’s top business law professors has said the gift poses deep ethical problems and reputational risks, given Mr. Milken’s run-in with securities regulators two decades ago.

“The creation of a Lowell Milken Institute for Business Law and Policy will damage my personal and professional reputation, as I have devoted my career to arguing for investor protection and honest and ethical behavior in business,” Lynn A. Stout wrote in a letter last month to the president of the University of California and U.C.L.A.’s chancellor.

Ms. Stout, a specialist in corporate governance and moral behavior, said in an interview last week, “I think it’s somewhat distressing that so few people seem to be aware of Lowell and Michael Milken’s business history.”

The Milken name is still a lightning rod on Wall Street and in legal circles. Michael Milken and his younger brother, Lowell, were central figures in creating the booming junk-bond market of the 1980s and the subsequent collapse of the investment bank where they worked, Drexel Burnham Lambert.

In a controversial deal with the government, Michael pleaded guilty to securities law violations after the government agreed to drop criminal charges against Lowell. Michael served a 22-month prison term and paid $600 million in fines and restitution.

As part of a settlement in a related civil matter, the Securities and Exchange Commission permanently barred the two brothers from the securities industry.

Lowell Milken did not admit to any wrongdoing.

Kenneth W. Graham Jr., a retired U.C.L.A. law professor, said it was a mistake to take the gift from Mr. Milken, a 1973 graduate of the school and longtime donor to it. “To say that I was outraged would be something of an understatement,” wrote Mr. Graham in an e-mail.

But other U.C.L.A. law professors disagree with the objections and are thrilled with Mr. Milken’s largess. Since their legal woes, the Milken brothers have become prominent philanthropists, donating hundreds of millions of dollars to a variety of causes, most notably in the areas of medical research and education.

“Save for one dissident professor, the entire business law faculty is grateful for this gift,” Kenneth N. Klee, a bankruptcy law scholar, said.

The current debate surrounding Lowell Milken’s gift highlights the quandary that public universities across the country face as the fiscal woes of states have forced them to look increasingly to private corporations and wealthy alumni for financial support. Law schools are typically among a state school’s most profitable graduate programs.

“We’re staring down the barrel of another round of cuts in California and relying on alumni giving is essential for us to be able to provide a quality education,” said Stephen Bainbridge, a U.C.L.A. corporate law professor. “If it wasn’t for these sorts of gifts we’d have even tighter budgetary constraints.”

When asked to respond to complaints about Mr. Milken’s gift, Bonnie Somers, a spokeswoman for the Milken Family Foundation, issued a written statement.

“Basic fairness requires that individuals be evaluated solely on the basis of their own conduct and Lowell Milken’s life of accomplishment and service speaks for itself,” her statement said. She added that the foundation respected the fact that U.C.L.A. “understands that in the United States of America, its citizens are presumed innocent until proven otherwise.”

Lauri Gavel, a law school spokeswoman, also issued a written statement: “Only one member of the business law faculty has expressed anything less than gratitude — and that concern was surprising, given that this professor was involved early in the process, has been a beneficiary of the donor’s philanthropy, and did not raise objections until quite recently.”

This is not the first time a Milken has generated controversy at U.C.L.A. In 1994, the university severed its ties with an education company controlled by Michael R. Milken that planned to sell videotapes of a lecture series he gave at the school. The company agreed to remove any identification of U.C.L.A. from the tapes after the school said it received many complaints from state officials who did not want the university’s name associated with Mr. Milken.

While Lowell Milken’s gift was the capstone of the law school’s $100 million fund-raising campaign, several other benefactors made donations and in return had buildings, conference rooms, professorships and scholarship funds named in their honor.

Mr. Milken is not the only leading donor in the current campaign that has tussled with regulatory authorities. The capital drive also led to the creation of the Stewart and Lynda Resnick Endowed Fund in Support of Public Interest Law. The Resnicks are the Beverly Hills beverage industry entrepreneurs who own Fiji Water and Pom Wonderful.

Last fall, the Federal Trade Commission filed a civil lawsuit against the Resnicks, accusing them and their company, Pom Wonderful, of making “false and unsubstantiated claims” that their pomegranate juice product helped reduce the risk of heart disease and erectile dysfunction.

Jill Gottesman, a spokeswoman for Pom Wonderful and the Resnicks, which are fighting the charges, has called the government’s allegations “completely unwarranted.”

Law professors unaffiliated with U.C.L.A. say that even though the economic environment makes it challenging for public schools to finance vital programs, they need to consider the potential risks in accepting private money. Thane Rosenbaum, a law professor at Fordham University, said that U.C.L.A.’s gifts from Mr. Milken and the Resnicks reflect a kind of “academic cynicism.”

“Here is a major law school, with state funding in California deteriorating, now taking its money from people engaged in questionable behavior,” said Mr. Rosenbaum. “It’s unbecoming to a great university.”

Other schools have in the past refused money, or taken other actions, when their benefactors have become involved in corporate wrongdoing. In the 1980s, Princeton returned money from Ivan Boesky to build a Jewish Center after the government charged the Wall Street financier with insider trading crimes. Seton Hall removed the name of L. Dennis Kozlowski from an academic building in 2005, after the conviction of the former Tyco chief executive for looting his company.

Inside the halls of U.C.L.A., the protests of Ms. Stout, a tenured professor whose most recent book is “Cultivating Conscience: How Good Laws Make Good People,” has caused consternation among her colleagues.

Mr. Bainbridge, the corporate law professor, said that though he considered Ms. Stout a friend, he disagreed with her position.

“I believe that Lynn genuinely thinks that this hurts the school by giving Milken the U.C.L.A. imprimatur of being a good guy and an ethical person,” said Mr. Bainbridge.

“I think it’s unfortunate that we’re dragging up stuff that happened a quarter of a century ago — and for which any debt to society has long been paid — to taint something that is going to help our students tremendously.”

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DealBook: Efforts to Rein In Executive Pay Meet With Little Success

Harry Campbell

Executive pay continues to skyrocket despite years of criticism by corporate governance gurus, fierce efforts by unions to temper compensation and calls by politicians to regulate pay.

Given these failures, perhaps it is time to ask whether critics’ actions have actually driven executive pay higher.

The Dodd-Frank financial regulatory overhaul was supposed to be a victory for those who deplore high executive pay when it is not justified by company performance. The law tries to provide shareholders with more input by requiring that public companies hold “say on pay” votes. These votes are nonbinding, but they allow shareholders to express an opinion on compensation policies.

The rule comes after years of efforts by the Securities and Exchange Commission to regulate executive compensation. The S.E.C.’s most robust move occurred in 2006, when the agency mandated rigorous disclosure of compensation, including perks like free country club memberships. A company can now fill 10 to 20 pages in its annual proxy statement detailing executive pay.

These are all well-intentioned efforts to end unjustified, egregious compensation packages and ensure that they do not lead to excessive risk-taking.

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But evidence of success is scant. According to the research firm Equilar, the median compensation for chief executives at 200 large companies was $10.8 million in 2010. This was a 26 percent increase from the previous year, which was preceded by a rare decline in 2008.

Still, the Standard Poor’s ExecuComp database shows that executive pay rose about 300 percent from 1992 to 2007. This compares with growth in the same period of about 14 percent in the inflation-adjusted real wages of college graduates, according to the Economic Policy Institute.

The latest “say on pay” endeavor has turned into a costly exercise that validates almost every companies’ pay practices. FactSet Sharkrepellent found that through June 30 of this proxy season, shareholders rejected pay plans in only 39 out of 2,502 companies, including well-known companies like Talbots, Hewlett-Packard and Stanley Black Decker.

Still, this is a 98.5 percent approval rate. I’m sorry, but I’m a bit cynical that 98.5 percent of any group is doing the right thing.

Justice Louis D. Brandeis famously wrote, “Sunlight is the best disinfectant.” But for compensation, it has had a perverse effect.

Chief executives tend to view themselves as residents of Lake Wobegon, where all children are above average. Disclosure gives them an arsenal to make perception reality. The compensation details of their counterparts provides them with the leverage to request a higher amount from boards. The result: each year executive pay rises ever higher and the industry average is reset.

Meanwhile, there has been a major movement to ensure that boards appropriately set compensation, with independent directors tasked with the job. Yet even these independent board members are often not in an effective position to push back forcefully. The chief executive runs the company. And a few extra million dollars is often not worth debating when much more is at stake in terms of profits. It doesn’t help their objectivity that independent directors may be using the same strategy to increase their salaries at their own full-time jobs.

Instead, compensation becomes a process-driven exercise in which the way it is paid — in cash, options or restricted stock — is most important. The final arbiter then becomes yet more costly pay consultants who rely on the same disclosures to determine excessive compensation.

As owners, shareholders should be the parties with the most interest, but the evidence does not bear this out. It takes time, money and research to effectively monitor executive compensation. For a big institutional shareholder that owns only 1 or 2 percent of a company, the economics just don’t make sense.

Instead, pensions, money managers and the like subscribe to Institutional Shareholder Services and other proxy advisory services. But the firms often focus on the structure of compensation and how tied it is to performance, not the absolute amount.

Even then, I.S.S. recommended in this proxy season that shareholders vote no on compensation at only about 12.7 percent of Russell 3000 companies, a recommendation that appears to have been mostly ignored. As of June 30, shareholders have refused to follow 90 percent of I.S.S. recommendations to vote no.

The consequence is that shareholders with a say on pay are validating spiraling executive compensation at significant cost to public companies.

This is not to say things are all bad. There appears to be some give and take on approving pay. Some companies have revised their policies in the days leading up to shareholder votes. Both General Electric and the Walt Disney Company made changes to their compensation structures in the face of dissent.

Moreover, the new regulation has defined clear processes for determining executive compensation to ensure that the country club back-slapping of earlier years is not followed. In Britain and Australia, where say on pay already exists, it has not stopped the upward spiral of compensation, but there are assertions that this has tightened the link between pay and performance.

There is certainly a movement in this direction by companies in the United States, and there is evidence that executive pay is more tightly aligned with performance than it was 20 years ago. Another good sign: almost 80 percent of shareholders who voted on executive pay at Russell 3000 companies endorsed an annual shareholder vote as opposed to one every three years, according to I.S.S.

Executive pay should reward good performance. A man like Steven P. Jobs, who helped create hundreds of billions of dollars in wealth at Apple, should be compensated commensurately. But Philippe P. Dauman at Viacom was awarded $84.5 million, including $31.65 million in restricted stock compensation, last year for grants over five years. Will Viacom really earn enough through “Jersey Shore” spinoffs to justify this number?

In some cases, high compensation is appropriate; other cases, not. It also may be that the current system forces companies to tie pay more tightly to performance (a good thing) while driving up the absolute numbers.

But if the goal of these collective efforts is a reduction in compensation, the results are quite disheartening.

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