Harvard Business School---Lane (medium)
heavy nasdaq index. investors are pressing s.e.c. officials to give them more say in electing company boards. the rule proposed by the s.e.c. would let large shareholders nominate candidates on proxy ballots if 35% votes for a director were withheld the prior year. lane bajardi talked to dwight crane about the governance issues, a professor of business administration at harvard business cool and board member of smith barney investment funds.
>> i’ve not seen the proposal they’re considering but the general idea, if it can be made in a feasible way, makes sense.
>> is there any danger in allowing investors to have such a say? what do you think about this?
>> i suppose there’s always the danger of―i’m not sure what adjective to use―but an inappropriate person getting himself or herself nominated and using the shareholders to get him or her elected and it could be dysfunctional in a sense.
>> how much democracy would be good for this kind of thing or would you expect to see recall elections and no-confidence votes as we saw with disney recently happening more often than we’ve seen in the past?
>> those would be costly, i think. the other kind of costs, harder to see, is the cost of the process of the board working. the board members need to work together, get to know each other and need to understand how best to relate to the investment adviser they’re working with. there’s a certain element of collegiality and ability to work together as a team that makes them effective. to have someone who’s an outlier could be costly.
>> what’s the best way to give investors more transparency about the cost of mutual funds?
>> i think that the―there should be more transparency. the fees that shareholders pay should be transparent to them. some of the clal clations are difficult to understand. you can compute the brokerage commissions easily but the cost of the trade is harder to compute.
>> what else should investors be told more clearly about their funds? they get a lot of information with a lot of paperwork several times a year.
>> i think they should be given better performance comparisons annual year-by-year comparisons rather than a five-year total. i think they should be given good information about portfolio turnover. i think they should be given good information about the style and philosophy of the portfolio manager. they are given that information now but the portfolio manager doesn’t always do what the specified style is.
>> so the style can be stated as one thing but you may have a new manager for the portfolio and a completely different philosophy?
>> that’s correct and i don’t think that’s good for the shareholders. if the shareholder buys a growth fund, it should stay a growth fund.
>> what about separating the roles of chairman and c.e.o.? whether it be disney or michael dell stepping aside, there’s a lot of talk on this. what’s your viewpoint?
>> i think it works well to have a chairman of the mutual fund board not be affiliated with the investment adviser. i don’t think that’s a cure-all for situations that can occur, but i think that would be a source of strength for the board.
>> would it be good in general in corporate america, as well?
>> i think so. but i don’t think we’re going to get there in the u.s. context.
>> that’s interesting. let’s turn to the consolidation of the banking industry for a moment. so far this year, we’ve seen 65 bank deals. what do you think the greatest danger is in bank consolidation here.
>> i don’t see much danger for the household consumer or retail consumer of banking services. i think there are a lot of options available to the retail consumer. i think we need to continue to monitor for antitrust purposes but on the consumer side, there are lots of options for consumers. i do worry some, not a lot, but some about the consolidation of the wholesale side of the banking business in terms of the lending function. a small number of large banks dominate that market , for example.
>> that was lane bajardi talking with professor dwight crane of the harvard business school. the rally in junk bond prices may may be all but over. investor speculation that corporate profit growth will make it easier for low-rated companies to repay debt is largely rejected in prices of junk bonds. the average price for so-called junk has inched up .7% this year to 103.3 cents on the value of the dollar. last year, the value surged 22%, according to merrill lynch, junk bonds yield about 4.33 percentage points more than comparable benchmark u.s. treasuries with the same maturities. oracle’s earnings are out tomorrow and we will be joined by michael cohen, technology analyst with pacific american securities.
