Commentary on July 20, 2009 Meeting

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There was no demonstration in front of TIAA-CREF's main office at 730 Third Avenue this morning. But there were plenty of Socially Responsible Investing ("SRI") advocates with tickets at the meeting upstairs. The office building was surrounded by the sort of sidewalk shed you see all over New York City. Looking above it, the 60's white-glazed brick does seem in need of work. The main entrance on Third Avenue was signposted "Employee Entrance". So annual meeting admission was only through the side door to the lobby, on East 45 Street, just West of Third Avenue. They used a metal detector arch and a bag x-ray machine. You had to present your photo identification with the mailed admission pass. Large bags were not permitted in the building. Attended elevators went only to the meeting floor.

TIAA-CREF's press release describing some highlights of the meeting was posted on their website later in July.

Most of the documents in the foyer to Wharton Auditorium were about SRI efforts at TIAA-CREF. (A principal SRI officer at TIAA-CREF, Scott Budde, arrived early and was available in the auditorium for half an hour.) There was also an August, 2008 "White Paper" on TIAA Traditional. You can find a later revision of this in the "Education" section of the website. There were two large screens with the Powerpoint slides for the meeting. A meeting agenda was placed on each chair:

Order of Business

1. Welcome and Introductions by Maceo K. Sloan, Chairman of the College Retirement Equities Fund
2. Introductions and Remarks by Roger W. Ferguson, Jr., President and Chief Executive Officer, College Retirement Equities Fund
3. Remarks by Edward J. Grzybowski, Senior Managing Director, Chief Investment Officer, College Retirement Equities Fund
4. Election of Trustees
5. Ratification of selection of auditors
6. Opportunity for questions
7. Report of balloting results
8. Adjournment

Wharton Auditorium was about 75% full, of its 240-person capacity. There were quite a few employees present, but it's impossible to provide a separate count. After an anonymous voice asked that cell phones be turned off, the 20th annual CREF meeting was called to order at 3:01 PM. There was a new format for the meeting this year: The Chairman of the CREF Board, Maceo K. Sloan, led the meeting and spoke first.

Mr. Sloan introduced a number of senior employees and board members at the front of the room. One Executive V.P. on that linked list, Bertram L. Scott, was announced to have a business commitment that prevented his presence at the meeting.  Two of the CREF Trustees, Michael A. Forrester and James M. Poterba were described as "delayed". I didn't see them come in, but they might have sat down quietly in the rear. Two TIAA trustees who have attended before, Marta Tienda and Ronald L. Thompson were introduced. None of the Overseers were introduced this year, so I don't know if any attended. Two accounting firm representatives were seated with the audience.

There were four seats on the dais, with the speaker's lectern near the center. From left to right, the speakers were Maceo K. Sloan (Chairman of the CREF Board), Roger W. Ferguson, Jr. (President and CEO), William J. Mostyn, III (VP & Corporate Secretary, a recent hire from Bank of America), and Edward Grzybowski (Senior Managing Director, Chief Investment Officer.)

Mr. Sloan emphasized that there would be an opportunity for general comments towards the end, and that he would like questions earlier in the meeting to be restricted to the topic under discussion at those times. This was an effort to encourage the SRI speakers to wait for the general question period, but they insisted on speaking during the Trustee election period as well. He turned the meeting over to the President and CEO.

Mr. Ferguson wore a wireless lavaliere microphone, so the gooseneck mics on the lectern were folded down for him. It turned out that during the question and answer session, he stepped around the lectern to stand in front of the management table, at the very front of the dais. But he gave his general remarks from the lectern. He gave a substantial welcome and introduction, organized around the following points:

• Financial Strength
• Improved Value, through disciplined expense management
• Leading in Corporate Governance

Under Financial Strength, Mr. Ferguson mentioned TIAA's $17 Billion capital reserves, and that it provides $10 Billion in lifetime income to 500,000 Participants. TIAA is one of 4 U.S. Life Insurance companies with the highest AAA [so I presume he was referring to "debt" rating] from 4 agencies. He pointed out that TIAA Traditional's crediting rates are significantly higher than 10-year Treasury bills over the same periods. He noted that the "vintage" system is a crucial part of managing TIAA's strengths.

Cost Management and Value: TIAA-CREF has been managing costs aggressively while strengthening client relationships. There has been a 17% increase in advice and counselling sessions. Bret Hammond has visited 35 institutions, some of them more than once. They send 700,000 monthly email updates and 1,000,000 quarterly email updates. Surveys indicate 8 out of 10 Wealth Management clients found their services better than the top competitors.

Leadership in Corporate Governance: In March, TIAA-CREF escalated action against genocide and called on other financial services companies to engage the issue. The CREF Social Choice Account is the largest globally screened pool in the United States. TIAA General Account has three programs: 1) the 2007 community bank deposit program,  2) the $600 Million corporate social real estate investment program, and 3) the $100 Million global microfinance investment program. [You can read about this topic and those programs in their .PDF file, "Global Strategies, Global Impact".] He noted TIAA-CREF's advocacy of executive compensation disclosures and "say on pay" votes, as well as providing those for TIAA itself. He said that last year's TIAA "say on pay" vote was 82% positive.

For as long as they leave it available at the TIAA-CREF website, there's a "mid-year update" by Mr. Ferguson that carries all of the flavor and content of his 2009 CREF Annual Meeting speech. Note that it's billed as an "update" in their press releases, not as a copy of the meeting speech.

At 3:30, Mr. Grzybowski gave a report on the current economic outlook and the performance of the CREF accounts. Unlike some previous years, he said nothing about non-CREF investment products. He bragged that as of June 30, 2009, CREF Stock, CREF Bond Market, and CREF Social Choice were outperforming their benchmarks. [I have to assume he meant YTD figures, since as of 6/30/09, CREF Stock's Ten-Year result was -1.04% while the benchmark was -0.69%, CREF Bond Market's was +5.46% versus a benchmark of  +5.98%, and CREF Social Choice, a balanced fund, returned +1.42% versus a 1.49% benchmark. But maybe he meant to say, "after expenses" ... ]

Election of trustees was the next order of business, conducted by Mr. Sloan at 3:45PM. After the nominations were seconded, he called for discussion of the trustee election. Roy R-----, the first to speak last year as well, bearing a proxy from a C.U.N.Y. faculty member, asked about socially responsible investing responsibilities of the board, particularly emphasizing last year's decision to divest Coca-Cola from the Social Choice Account. Referring to tobacco companies, he noted that he had been arrested at this year's Reynolds American meeting and had filed charges against them as a result. Mr. Sloan tried to get him to put off the SRI speech until the general comment period, but R----- insisted that the responsibilities of the trustees included moral investment decisions. Other speakers brought up Wal-Mart and mentioned a book on Coca-Cola, "Belching Out The Devil".

More on the question, a Participant (I missed her name) asked why there were no Asian candidates for the board. Mr. Sloan noted that he had served with Asians in his 19-year tenure, but that the selection process was essentially "color-blind". Mina S------, retired from Baruch, asked about the responsibilities of the trustees and "Who is watching our investments". Mr. Sloan replied that no one could have caught all of the bad decisions made on Wall Street in the last few years.

The proposed selection of Auditors was adopted at 4:10PM without discussion from the floor. Mr. Sloan then opened the floor to general questions.

Jim K----, a former college sports coach, gave a well-prepared and gripping indictment of Nike. Roger Ferguson came out to the front of the stage to respond to this passionate appeal, and promised him (K---- is returning to Indonesia this week) a personal response in 30 days, and a meeting with him.

Anne S-------, Univ. of Virginia, reported on the persistent administrative problems and lengthy delays she suffered when following TIAA-CREF's procedures for certifying her beneficiary status upon her husband's death. She said it took 3 months to get and submit the proper forms, and 2 months more to receive confirmation. She pointed out that the market had been moving down for those 5 months and she had been frozen out of making any changes. Mr. Ferguson apologized to her, and agreed that there were problems in this area. He asked her to provide a copy of her carefully prepared suggestions for improvement of these procedures. She did an excellent job of presenting a personal issue (which they announce at the beginning of the meeting should be held for counselors at the back of the room) as a symptom of administrative problems that are of urgent general interest.

Yvette M----, Hunter College expressed displeasure at the ups and downs of her pension returns. In addition to complaining about the restrictions on transfers between TIAA and CREF, she asked why she couldn't leave the system entirely. I thought Mr. Ferguson's reply was not detailed enough, but in fairness to him, Yvette didn't even make it clear whether she had annuitized her balance or not. He did not address her inability to take her money elsewhere.

I gave my speech, which was too detailed and had too many questions in it. I spoke mainly about Executive Compensation. My comment,  "... our list of 'peer companies' for salary purposes included AIG for several years. When their CEO’s salary dropped to $1 a year, they were suddenly out of our peer group" got a chuckle from the audience. Although Mr. Thompson, from the Human Resources Committee (formerly known as the Compensation Committee!) was called upon, and gave thoughtful information, I never learned whether George W. Madison (the former General Counsel) resigned "for Good Reason" or was terminated involuntarily, and I never learned why Bowdoin College signed a non-disclosure agreement about "firing" us for new accounts. They didn't say where we could read the results of this year's TIAA Executive Compensation Report (.PDF file link) approval vote, and Mr. Ferguson said it wasn't permissible to say how much of the TIAA Real Estate Account was currently held by the TIAA General Account as Liquidly Units.

(The subsequent TIAA REA 10-Q filing reported that as of August 12, 2009, TIAA is holding 11.7% of  the REA Account in the form of Liquidity Units.  They also noted, "The Account’s total net assets decreased from $17.1 billion at June 30, 2008 to $9.3 billion at June 30, 2009. The primary drivers of this 45.5% decrease were depreciation in value of the Account’s wholly owned, joint venture, and limited partnership real estate investments (approximately 53% of the decrease) and net participant transfers out of the Account (approximately 47% of the decrease).")

I had waited too long to speak, as the audience was tired, both by the length of the meeting and from the harangues of some of the SRI speakers.

The final speaker asked why the meetings were inconveniently now held in the summer, and why he had so much trouble getting a ticket. I told him after the meeting that working academics might have trouble taking off in the middle of a term anyway. I had no trouble leaving my voicemail request for a ticket, although it's irritating to worry about whether the request will be acted upon.

The meeting was adjourned at 5:20 PM, later than usual. Proxy Proposals for the 2010 meeting must be submitted between October 14, 2009 and February 12, 2010. Several officials, including Roger Furguson, lingered to speak extensively to various Participants in the audience before leaving the room. I have not listed every single speaker from the floor in this report..

The sound and the slides at this meeting were slightly below standards for an annual meeting. The microphones were not always turned on at the right time for the speakers. The slides sometimes showed the Windows® desktop, rather than being in full-screen Slide Show mode. (I used to do lights and sound for public company shareholder meetings.)