TIAA-CREF Bores in on MBNA

April 7, 2004 ( - Continuing the growing trend of corporate governance activism by institutional investors including pension funds, one retirement plan on Tuesday urged MBNA Corp. to step up its plans for more independent directors and other changes.

The Wilmington, Delaware bank holding company, responding to the entreaty by the Teachers Insurance and Annuity Association-College Retirement Equity Fund (TIAA-CREF), revealed in a regulatory filing plans to tap two new independent directors by year end, Dow Jones reported. TIAA-CREF, which filed a proxy initiative about its desired governance changes, holds more than 17.9 million MBNA Corp. shares.

MBNA is also freezing executives’ salaries, scaling back bonuses this year, and cutting off stock options to current officials in favor of restricted stock awards, the regulatory filing said. Executive pay in 2004 will be 44% below 2002 levels, MBNA spokesman Jim Donahue told Dow Jones Tuesday.

But TIAA-CREF, which has a roughly 1.4% stake in the company, said Tuesday that the pending changes don’t mean shareholders should reject the fund’s proposal. TIAA-CREF previously had declared its intention to pressure companies this proxy season to overhaul their compensation and governance systems. The resolution, which MBNA opposes, is slated to be considered at MBNA’s May 3 shareholder meeting.

“We recognize that MBNA has taken significant steps in the past year to change the composition of the board and address the compensation of the company’s top executives, and we applaud the new leadership’s commitment to enhancing corporate governance,” Peter Clapman, TIAA-CREF’s senior vice president and chief counsel for corporate governance, wrote in a letter to shareholders. “By supporting our proposal, shareholders can send a strong message urging the board to accelerate these efforts.”

Clapman’s letter asserted that a majority of MBNA’s directors in recent years have had “personal or business ties” to the company’s past or present senior management. The letter also flogged the board for awarding executives “egregious” and “inappropriate” stock compensation, post-retirement benefits and spousal benefits.

Donahue told Dow Jones that MBNA’s board agrees “in principle” with some of the fund’s claims. The company expects to add two independent directors to the board in the “not-too-distant future,” Donahue said. The corporate governance committee is working with a director-search firm to help identify and screen candidates.

Nine directors currently sit on MBNA’s board, but two – including one who isn’t considered independent – are retiring this year. Of the seven directors who are standing for election, five meet the New York Stock Exchange’s independence criteria, MBNA said. “That status will be enriched” by the new directors, Donahue said.