Investors Look To Change MMC Board

The American Federation of State, County and Municipal Employees, AFL-CIO, (AFSCME) based in Washington, D.C.; the California Public Employees' Retirement System (CALPERS) and the California State Teachers' Retirement System (CalSTRS), both based in Sacramento, Calif.; and the New York State Common Retirement Fund released a statement saying they would present a shareholder proposal to allow the four to nominate and elect directors to MMC's board.

The four said they hold 6.85 million shares of MMC worth $306 million, or about 1.3 percent of the company.

The action comes after it was learned that Putnam allowed certain investors to trade mutual funds after hours, giving them an advantage over most investors. After the illegal trades came to light, MMC replaced Lawrence Lasser as president and chief executive officer at Putnam.

"March & McLennan deserves to be the first company in U.S. history to face a binding proxy access proposal because of its gross failure to have proper controls that could have prevented the Putnam disaster," said Gerald W. McEntee, AFSCME Employees Pension Plan Chairman, in the statement.

Mr. McEntee called it "tragic that the board at Marsh & McLennan lacked the independence needed and today continues to be influenced more by its insiders than the needs of its shareholders. There is no question that shareholders will support the idea of electing a truly independent director to the board if given the opportunity through our shareholder resolution."

The four also criticized MMC for excessive compensation to Mr. Lasser.

Referring to now-bankrupt energy giant Enron Corp. that has seen management indictments and convictions for price manipulation, Sean Harrigan, president of CALPERS, called the actions at Putnam "Enronesque," adding that what occurred at MMC is in that category.

The analogy drew strong criticism from MMC, based in New York City, the parent company of the global insurance broker Marsh. In a statement, the company said that it was "surprised and disappointed" that the investors decided to communicate their stance in a press release instead of sitting down with the company first.

It added that "any sense of objectivity is undermined by your outrageous reference to Enron in your characterization of what has occurred at our Putnam Investments subsidiary." The company said it did not believe the facts supported the position taken by the four pension funds.

MMC said nine of its 15 directors are independent and other forms of committee oversight are comprised of independent directors. It also said a new management team is in place to oversee operations at Putnam and "establish the most rigorous governance, oversight, trading and compliance standards in the mutual fund industry."

The company said it has also taken other measures, including firing others involved in the scheme and committing to reimburse funds that suffered losses because of the actions.

Jason Adkins, an attorney at Adkins, Kelston, Zavez in Boston, said the pension funds "are on the right track."

Mr. Adkins, who has represented a number of plaintiffs in suits against the insurance industry said, "it is clear that the board, in this case, has not done a good job and needs to be replaced and having the right to change the directors is the first step to do that."

He called this a fundamental crack in the mutual fund structure.

"It is only a matter of time before this has got to change this is the first major shot to force that issue," he noted. "I think ultimately, they need to be successful before the system breaks down and people put their money else where. Will this be successful. I can only hope."