News Center

Elsewhere Online twitter Facebook SLS Blogs YouTube SLS Channel Linked In SLSNavigator SLS on Flickr

Stanford Governance Experts Seek Investment Fund Reform

Publication Date: 
June 04, 2007
Stanford Law School

Clapman Report Offers Best Practices for Pension, Endowment, and Charitable Funds

STANFORD, Calif., June 4, 2007— A committee of the Stanford Institutional Investors’ Forum at Stanford Law School, in cooperation with the Arthur and Toni Rembe Rock Center for Corporate Governance, announced today new standards designed to improve fund governance and curb abuse of fund assets. The Clapman Report, a set of best practice principles for managing pension, endowment, and charitable funds, calls for institutional investors—who today are the central repository of capital in the United States—to adopt basic policies aimed at improving how they govern themselves.

The Clapman Report comes in the wake of several high-profile scandals that painfully illustrate the need for tougher governance standards—from New Jersey, where it recently surfaced that the state diverted $3.1 billion from its pension system, to Illinois, where a state teachers’ retirement system trustee pled guilty to “pay to play” schemes involving million-dollar kickbacks, to California, where governance lapses by former City of San Diego retirement board members contributed to a $1.4 billion unfunded liability, to New York State, where the former comptroller, who exercised sole control and discretion over pension fund assets, stepped down in the face of serious allegations that he misused state funds for personal use. Governance issues have plagued charitable funds as well, most notably the Getty Trust, whose president resigned amid accusations ranging from inappropriate funding of mortgage loans to using museum assets for personal benefit. The Red Cross also faced calls to reform its governance structure based on its response to the Katrina disaster and other leadership issues.

“As a committee we were bound by a central belief: fundamental fund governance standards ought to exist to safeguard beneficiaries’ assets from questionable—and often illegal—practices, and to protect the taxpayers who end up footing the bill when institutional investors fail,” said Peter Clapman, CEO of Governance for Owners USA, former chief investment counsel of TIAA-CREF, and chairman of the Stanford Institutional Investors’ Forum’s Committee on Fund Governance.

Clapman added: “Bad governance also weakens funds by eroding public support for them. Why, for example, continue to pay for a pension system that sucks money from education, transportation, and health care programs while increasing public debt instead of diligently saving for the future?” he said. “Our report provides institutional investors with a framework for developing proper checks and controls so that doesn’t happen.”

Among the Clapman Report recommendations are that funds should: 1) clearly define and make publicly available their governance rules; 2) mandate tough and transparent policies to address conflicts of interest; 3) take steps to ensure funds have trustees who are competent in financial and accounting matters; 4) establish clear reporting authority between trustees and staff; and 5) define appropriate responsibilities and delegation of duties among fund trustees, staff, and outside consultants.

The committee has asked the Council of Institutional Investors (CII), a not-for-profit association of 130 public, labor, and corporate pension funds with assets exceeding $3 trillion, and Institutional Shareholder Services (ISS), a respected and influential provider of voter advisory and corporate governance solutions to the institutional marketplace, to encourage its members and clients to adopt the Clapman principles.

The report’s call for better oversight is appropriate given the importance of institutional funds in the American economy. In 2005 institutional investors owned 67.9 percent of the Fortune 1000. Not only do these funds represent the combined savings of teachers, union members, public servants, airline pilots, small business owners, firemen, police, and philanthropists, as well as employees of churches, colleges and universities, and other nonprofits, they wield significant power over the corporations in which they’re invested.

“Fund governance is vital to institutional investment funds just as corporate governance is essential to publicly owned corporations,” said committee member Joseph Grundfest, William A. Franke Professor of Law and Business at Stanford Law School and co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance. “Good governance ensures better organizational performance, reduces the potential for fraud and financial abuse, and legitimizes institutional investors’ demands on publicly owned companies to adopt and follow corporate governance standards.”

“For the many institutional investors already practicing good governance, the Clapman Report serves as validation. For those who aren’t, the principles are a much-needed wake-up call,” said Chris Waddell, general counsel of the San Diego City Employees’ Retirement System (sdCERS). Waddell, former general counsel of the California State Teachers’ Retirement System (CalSTRS), joined sdCERS in November 2006.

To advance dialogue about fund governance and provide institutional investors with resources to implement governance best practices, the Clapman committee will be launching a series of videocasts, seminars, and publications exploring issues surrounding fund governance. In addition to distributing the report to CII’s membership, the committee will be sharing the report with the corporate community, including the participants of Directors’ College, a program hosted by Stanford Law School that brings together leading CEOs, directors, jurists, scholars, and regulators to examine corporate governance challenges.

“The Clapman committee’s recommendations are in line with growing sentiment among institutional investors that we must actively address how to guard against the abuse and mismanagement of these huge funds,” noted Richard Koppes, of counsel to Jones Day and former general counsel of CalPERS. “CalSTRS just addressed this issue, in part, by imposing new limitations on campaign contributions to fund trustees and the International Corporate Governance Network, an association of international funds, is in the final process of adopting guidelines for investor responsibility.”

“What we don’t want is a future Sarbanes-Oxley for investment funds,” concluded Clapman. “That’s why the funds ought to take action now.”

The report is available at

About the Stanford Institutional Investors’ Forum

The Stanford Institutional Investors’ Forum provides an opportunity for many of the nation’s largest and most sophisticated institutional investors to meet in a confidential setting, closed to the press and public, to discuss current policy issues of concern to the institutional investor community. Meetings generally involve institutions that, in the aggregate, have in excess of $2 trillion in assets under management. The forum’s home page is located at

About the SIIF Committee on Fund Governance

The SIIF Committee on Fund Governance (“the Clapman committee”) includes current and former representatives of some of the nation’s largest and most influential institutional investors and academic and corporate governance practitioners, including: committee chairman Peter Clapman, CEO of Governance for Owners USA and former chief investment chairman counsel of TIAA-CREF; Mark Battey, managing director, Miramar Capital and former trustee, the California State Teachers Retirement Systems; Margaret Foran, senior vice president-corporate governance, associate general counsel, and corporate secretary of Pfizer; Joseph Grundfest, William A. Franke Professor of Law and Business at Stanford Law School and co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance; Keith Johnson, chair of the Institutional Investor Services practice group at Reinhart Boerner Van Deuren and former legal counsel, State of Wisconsin Investment Board; Richard Koppes, former deputy executive officer and general counsel, California Public Employees’ Retirement System; Bruce Marquand, General Motors Investment Management; Glenn Miles, director, Corporate Governance Research Projects, Stanford Law School, and former corporate governance officer, California Public Employees’ Retirement System; Dan Siciliano, executive director, Program in Law, Economics, and Business at Stanford Law School; and John Wilcox, senior vice president and head of corporate governance, TIAA-CREF.

About the Arthur and Toni Rembe Rock Center for Corporate Governance

The Arthur and Toni Rembe Rock Center for Corporate Governance, a joint initiative of Stanford Law School and the Stanford Graduate School of Business, was founded in 2006 to advance the practice and study of corporate governance and become an important voice in the debate over governance policy, both domestically and internationally. The Rock Center’s home page is located at

About Stanford Law School

Stanford Law School is one of the nation’s leading institutions for legal scholarship and education. Its alumni are among the most influential decision makers in law, politics, business, and high technology. Faculty members argue before the Supreme Court, testify before Congress, and write books and articles for academic audiences, as well as the popular press. Along with offering traditional law school classes, the school has embraced new subjects and new ways of teaching. The school’s home page is located at



Amy Poftak
Assistant Director of Communications
Stanford Law School