June 17, 2005

 

Neil Wollman

Senior Fellow, Peace Studies Institute and Professor of Psychology

Manchester College

North Manchester, IN  46962

 

Dear TIAA and CREF trustees:                                                                                   

Enclosed is the letter we sent to Mr. Allison on April 1, 2005. Also included are two letters of response from TIAA-CREF, as well as an open letter to TIAA-CREF that challenges assertions made by Mr. Wilcox in his letter of May 20, 2005. 

We applaud the adoption of appropriate guidelines for voting Social Choice Account shares; however, we find other statements in Mr. Wilcox’s letter disturbing. They contradict the content of conversations with us over the past year, and they contradict the thrust of Mr. Evans’ letter dated April 28, 2005, just a few weeks before.

 

We view Mr. Wilcox’s arguments about why TIAA-CREF cannot incorporate community investing and social venture capital/private equity into the Social Choice Account as specious. His assertions fly in the face of practices already employed successfully in other current socially responsible mutual funds. As just one example from the enclosed open letter, we note that it defies logic to say that it is too difficult to calculate daily valuations of community investments when over a dozen socially responsible mutual funds already do just that. If it is too difficult or disruptive to incorporate an actively managed community investment component with the Social Choice Account, there are a number of outside consulting firms that can and have done such work. (We have long pointed out the availability of outside resources for the social responsibility work of TIAA-CREF.) Given the size of the fund, we estimate that both community investing and social venture capital/private equity components could be added to the fund at a cost of less than one basis point each – significantly less. In our discussions with one of your executive vice presidents, the less-than-one basis point figure for community investing was mutually acknowledged.

 

We appreciate some very recent moves by TIAA-CREF toward greater socially responsible investing, including the hiring of the talented and experienced Amy Muska O’Brien. However the limited concrete changes over the past year and Mr. Wilcox’s recent letter seem to indicate we have returned to the old days. Allow me to remind you that during the late 1980s, we were told for five years that for legal, financial and administrative reasons TIAA-CREF could not establish a socially responsible fund. Then, in 1990, the Social Choice Account was launched and it has become one of the best funds offered under the TIAA-CREF banner—the only 5-star fund rated fund by Morningstar in one recent year. A resistance and then eventual acknowledgement of the wisdom of our requests has happened since then. Is it not time to learn from experience?

 

Sincerely,

 

Neil Wollman, Ph. D.

Co-Chair, Social Choice for Social Change

Enclosures

cc. Herbert Allison, Scott Evans, Amy Muska O’Brien, Bertram Scott, John Wilcox

  

 

June 17, 2005

 

An Open Letter to John Wilcox, Senior Vice President and Head of Corporate Governance, TIAA-CREF

 

Dear Mr. Wilcox:

 

Several weeks ago, TIAA-CREF announced the hiring of a Director of Social Investing to help run its socially responsible fund and otherwise act as a point person on issues of social responsibility. We applaud this move, but we have some concerns. One of the published requirements for this position was expertise in community investment—and yet TIAA-CREF has rejected such investment for its socially responsible fund, the Social Choice Account. This makes little sense. As we have pointed out numerous times, other socially responsible mutual funds invest in community development, as well as social venture capital/private equity. Yet in your letter of May 20, you state that TIAA-CREF will pursue neither of these strategies for the Social Choice Account.

 

Senior TIAA-CREF executives have been talking with us for a year about finding ways to incorporate community investing into the Social Choice Account. Mr. Allison even noted that such an attempt was being made while speaking at last summer’s annual meeting of CREF. But you have suddenly rejected the idea. Why? What have you discovered in the past few weeks that contradicted all the evidence we have provided of the feasibility and precedence of community investing and social venture capital/private equity? Just a few weeks before receiving your letter, we received a letter on April 28 from Scott Evans, Chief Investment Officer and Executive Vice President, expressing the hope that we can carry on discussions to move these issues forward.

 

We had asked that TIAA-CREF management work with us to draft a proxy resolution that would allow small percentages of the Social Choice Account to be earmarked for community investing and private equity. We proposed that such a resolution would be presented and supported by management. Two Executive Vice Presidents said they would be personally supportive of a process aimed at mutual agreement. However, this appears to have now been pulled off the table. Why?

 

You note that TIAA-CREF does community investment in the TIAA Traditional Annuity fund. While admirable, a $170 million investment is a drop in the bucket for a $100 billion-plus pool of investment assets. More importantly, though some people are helped, this money often does not find it’s way to the communities and people who need it most. The SRI industry defines community investing as putting investment capital to work in at risk communities where, for all practical purposes, people do not have access to capital through conventional channels. Thus we invest primarily through Community Development Financial Institutions (CDFIs) whose missions mandate providing such small-scale assistance. Of course, the $170 million invested in low-income housing and other large projects through TIAA should not preclude community investing where it most rightfully fits, in the Social Choice Account; over a dozen other socially responsible mutual funds already incorporate such investment. For Social Choice participants who, for ethical reasons, place all their investment in a socially responsible fund, community investing makes perfect sense.

 

You note problems with doing community investing and investment in social venture capital/private equity in the Social Choice Account. You mention the great difficulties in doing daily valuations for these investments. Yet this same difficulty is adequately addressed by the dozen plus mutual funds that do community investing, and one that invests in social venture capital/private equity. You also mention additional expenses when, in fact, one of the top experts in socially responsible investing has told us that given the size of the fund, the added expense of doing such investing would be less than a basis point. If active management or a lack of specific expertise is a problem, these investments could be handled by outside management. TIAA-CREF investment management already relies upon outside expertise for the Social Choice Account. A full disclosure proxy resolution would allow for these or any other needed changes in the prospectus. Utilizing a resolution to modify a socially responsible fund prospectus to allow for community investing and social venture capital/private equity is not new.

 

Until the hiring of a Director of Social Investing, TIAA-CREF had candidly admitted a lack of real expertise in this area. What expert advice precipitated this complete turnaround in a matter of weeks? TIAA-CREF’s current stance is reminiscent of its resistance in the 1980s to establishing the Social Choice Account and, later, to modifying it to include more proactive, qualitative social screening, as we suggested. Now you have adopted appropriate guidelines for voting Social Choice Account shares; again, as we lobbied for. For years, we heard financial, legal and logistic arguments from TIAA-CREF that proved invalid once the company decided to really listen to its participants and investigate the issues.

 

You propose conducting a survey of participants to test the waters for a new fund that incorporates what we have been asking for. While sounding reasonable, we are concerned with how long it will take to complete the survey. And, given TIAA-CREF’s resistance on these issues, we are not certain that the survey questions would be as objective as they need to be, nor could we be confident of the interpretation of the results. In any case, TIAA-CREF did survey Social Choice Account participants some years ago and found strong support for investing that would bring “desirable social change,” even if it meant losing some financial returns. Unless there is some reason this core value would change, need another survey be conducted?

 

The real problem is that we explored the possibility of a new fund previously, and TIAA-CREF rejected the idea. We even had millions of dollars pledged by Social Choice Account participants who said they would transfer money to a new fund that incorporated actively managed community investing and private equity components. But a year ago, we were told that costs for setting up a new fund would be prohibitive and that adding a new fund would cannibalize the current Social Choice Account. We were told, instead, to focus on changing the current fund! Let us, instead, “test the waters” via a proxy resolution which would modify the current fund.

 

In summary, your letter has assertions that do not make sense given the nature of socially responsible investing and the history of our interactions with TIAA-CREF over the past year. Yet your letter does fit the pattern of TIAA-CREF’s twenty years of resisting proposals to strengthen the social responsibility of its investments, then eventually making the proposed changes anyway. Has not TIAA-CREF learned from experience? Why must both sides waste more time and energy? Over the years we have thoroughly investigated before making proposals, trying to look out for all concerned, including TIAA-CREF management. There is no exception here.

 

Sincerely,

 

Neil Wollman, Ph. D.

Co-Chair, Social Choice for Social Change