Teacher's Insurance and Annuity Association-College Retirement Equity Fund (TIAA-CREF)

is the largest institutional shareholder in the United States. Traditionally, TIAA-CREF has acted as a passive investor. However, TIAA-CREF announced a tough new corporate governance policy beginning October 5, 1993.

In a statement mailed to all 1,500 companies in which it invests, TIAA-CREF outlined a policy* designed to improve corporate performance, including a goal of higher stock prices for the assets it holds (currently S280 billion), and to encourage corporate boards to have a majority of independent (outside) directors. TIAA-CREF wants to see management more accountable to shareholder interests, as evidenced by its statement that the fund will vote against am* director "where companies don't have an effective, independent board which can challenge the CEO."

Historically, TIAA-CREF did not quickly sell poor-performing stocks. In addition, the fund invested a large part of its assets to match performance of the major market indexes locking TIAA-CREF into ownership of certain companies. Further complicating the problem, TIAACREF owns stakes of from 1 percent to 10 percent in several companies, and selling such large blocks of stock would depress their prices.

Common stock ownership confers a right to sponsor initiatives to shareholders regarding the corporation. A corresponding voting right exists for shareholders.

a. Is TIAA-CREF an ordinary shareholder?

b. Due to its asset size, TIAA-CREF assumes large positions with which it plans to actively vote. However, who owns TIAA-CREF?

c. Should the investment managers of a fund like TIAA-CREF determine the voting practices of the fund's shares, or should the voting rights be passed on to TIAA-CREF s stakeholders?

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