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Ariel Fund Not Associated with Madoff Scandal

Friday January 16, 2009

The people at Ariel Investments very much want you to know that their Ariel Fund is not the same entity that has been mentioned in recent news reports regarding alleged swindler Bernard Madoff and a hedge fund controlled by former GMAC Financial Services Chairman J. Ezra Merkin.

Ariel Investments says that its mutual funds, including Ariel Fund, Ariel Appreciation Fund and Ariel Focus Fund, are not associated or “in any way” related to Ariel Fund Ltd., the hedge fund controlled by Merkin, Gabriel Capital LP fund, GMAC LLC; Cerberus Capital Management LP “or any other feeder funds used by Bernard Madoff in his alleged Ponzi scheme.” Though the Ariel hedge fund is in the process of closing down, Ariel Investments is insisting that it receive a letter stating that the two are not connected.

Madoff, of course, has allegedly admitted to an investment scam that has cost individuals and institutions about $50 billion. Merkin and his Ariel Fund Ltd. have been sued by New York University for funneling its money to Madoff. Ariel Investments says that as publicity around that lawsuit has grown it has received numerous inquiries about the affiliation between Ariel Fund, managed by John W. Rogers, and Merkin. The mistaken association has caused damage to Chicago-based Ariel Investments, the company claims. Ariel Investments is demanding that Ariel Fund Limited immediately change its name.

Ariel Investments’ Ariel Fund is a mid-cap fund with just under $1 billion in assets under management. The fund does not invest in corporations whose primary source of revenue is derived from tobacco products or the manufacture of handguns and screens out nuclear energy companies.

Suze Orman's Free Book Download

Friday January 9, 2009

I've not read much by Suze Orman so I pass this information along as a public service and not a recommendation: if you go to Oprah's web site you can download Suze Orman's 2009 Action Plan for free. The offer is good until January 15. Considering her credentials as a CNBC commentator and best selling author, this may be one of those times when the old saying "Free advice is worth what you pay for it" does not apply.

Congress and "Say on Pay"

Monday January 5, 2009

Cornell economist Robert H. Frank took up the issue of executive pay in the Sunday Money section of the New York Times and his conclusion probably left a lot of readers in agreement – out of sheer frustration with the issue.

Writing about the mood in Congress to cap executive pay, Frank says that may make some sense in the financial services sector, but for the rest of the economy the better plan would be to raise marginal tax rates on the highest earners, regardless of where they work.

If you say “amen” to that, you’re not alone. The shocking bailouts and the rapidly rising unemployment have only magnified what has been a fundamentally unfair income disparity between corporate CEO’s and the rest of America. While incomes for the middle class have been stagnant, corporate chieftains have been pulling in tens to hundreds of millions of dollars annually. In good times those incomes were stunning. Now they just seem disgusting.

But yet what’s to be done? Socially responsible investors try to tie principles to their returns, but still aim for the highest profit on their money they can make. If there is an SRI mutual fund that has performed better than others, we’ll move our money there. That’s smart. Similarly, it’s smart for corporations to want to hire the best talent available and money talks. To entice a perceived superstar they’ll offer a dollar more than their competitors and a few other benefits as well. A few million here, a few million there . . . Well you know how that goes.

I’ve written in the past about “say on pay.” In Frank’s column that’s dismissed quickly by saying that critics complain it would have little impact. “Say on pay” is an approach in which a company’s shareholders are allowed to vote up or down on how they pay their top executives. Shareholders at many of the country’s largest companies voted on resolutions at annual meetings in 2008 to grant them a say on pay, including General Motors, Wal-Mart and IBM.

It seems to me Congress can get punitive and jack up the taxes on the highest earners or we can get some real momentum behind giving shareholders a stronger voice. They are the owners of the company, but too often they’re too dispersed to have impact or ignored by senior management. After Congress returns this month it needs to pass a "say on pay" law requiring publicly traded companies to submit executive pay plans to a nonbinding shareholder vote each year. It would prompt boards to engage shareholders and make them more responsive to the wishes of stockholders regarding executive compensation.

In the mid-80s Congress passed a law that eliminated the tax deductibility of golden parachutes that exceeded three times base salary. What was the reaction? Many companies that previously weren’t offering golden parachutes at all began offering them at 2.99 times the base salary. Then in the early 1990s the federal government enacted a tax change that tried to cap CEO salaries by permitting companies to take a tax deduction on only $1 million worth of pay for top executives. The companies got around that by paying their top bosses in stock options that drove compensation even higher.

If Congress wants to pass something that’s fair and long lasting, it will get behind a “say on pay” plan that works.

Wal-Mart Settles 63 Employee Lawsuits

Wednesday December 24, 2008

Wal-Mart Stores, Inc. has settled 63 wage and hour class action lawsuits that have been pending against the company, agreeing to pay up to $640 million to hourly workers who say they had been cheated and required to work through breaks.

It’s a settlement that is being termed “fair and reasonable” by at least one spokesman for the workers. Frank Azar, an attorney representing employees in 14 states, said Wal-Mart has made “tremendous strides in wage-and-hour compliance.” Another lawyer involved in the settlement said “As a result of this settlement, Wal-Mart can now say that it has taken action to make its stores a great place to shop and work.”

Wal-Mart has been one of those companies that social investors have loved to hate. They argued that it didn’t treat its part-time workers well; its supply chain wasn’t environmentally friendly; and its big box stores killed small independents. But Wal-Mart’s reputation has improved somewhat. It has convinced its suppliers to reduce the amount of packaging they use, for example, enabling them to put more on delivery trucks, which has meant fewer deliveries and less gas consumed. And if you go to its web site you’ll find that it is at least addressing sustainability.

But the matter of poor employee relations was still out there. The new settlement doesn’t mean everyone is satisfied. Similar wage and hour suits still remain in Massachusetts, California and Pennsylvania. Nor did the announcement appease David Nassar, executive director of Wal-Mart Watch, a non-profit group in Washington, D.C. that monitors Wal-Mart’s corporate behavior.

“Wal-Mart is scared and is throwing dead weight overboard to lighten its load,” said Nassar. “The company’s decision to settle these cases so suddenly is clearly driven by the knowledge that having such cases pending is strong evidence for the need for the Employee Free Choice Act.” The Employee Free Choice Act is a union-backed bill in Congress that would make it easier to unionize workers. Wal-Mart’s employees are not unionized.

“If these millions of workers had been allowed union representation, they never would have had to hire lawyers and wait years to get their paychecks,” said Nassar.

Wal-Mart says it is a changed company. A spokesman said that some of the suits that were filed were done years ago and “are not representative of the company we are today.”

Conventional investors will view the settlement as one less liability nagging Wal-Mart. But socially responsible investors have problems with companies that get sued by their employees. A settlement is a good sign and one to make Wal-Mart worth watching.

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