Malfeasance Insurance

Repairing the Damage
"Putnam is fixing its system," says Textron CFO French, who observes that "the interesting point is all the administrative issues that come up when you add choices" to a 401(k) portfolio.

For Putnam and other mutual-fund companies, of course, restoring confidence among customers like Textron is of primary importance.

Putnam CEO Charles "Ed" Haldeman says he "went to see a large number of our clients in the November and December period. We felt we had an obligation to have a face-to-face meeting...and to say to them that what had gone on at Putnam in the year 2000 was wrong." He says that the trading records of all 12,700 traders working at Putnam since 1998 have now been reviewed, and 15 employees have been dismissed.

"With regard to market-timing issues," states Haldeman, "Putnam fully understands the scope of that problem, and has dealt with it entirely." Putnam notes that it quickly settled with the SEC, made "100 percent restitution," and changed commission policies. It also reduced its fees.

John Brown, head of Putnam's institution business, concedes that the firm has lost clients in the wake of the scandal. He says that "on balance, the private-sector clients have kept more assets with us than the public-sector funds."

"Back in November, we were at the tip of the spear," says Brown, because Putnam was one of the first companies to have the market-timing activities of some traders exposed. But most corporate clients "are going through a long process," he says. "Nobody's shooting from the hip."

A CFO Survey Worry about the Mutual-Fund Scandal... How concerned are you about the alleged mismanagement of mutual funds? Extremely concerned 18.1% Quite concerned 33.3% Somewhat concerned 34.5% Not concerned 14.1% In particular: Trader's conflicts of interest Extremely concerned 37.3% Quite concerned 35.6% Somewhat concerned 18.6% Not concerned 8.5% Market timing by traders Extremely concerned 16.9% Quite concerned 35.6% Somewhat concerned 33.3% Not concerned 14.2% Secrecy surrounding mutual-fund operations Extremely concerned 26.6% Quite concerned 37.9% Somewhat concerned 24.9% Not concerned 9.6% Government's failure to detect mutual-fund abuses Extremely concerned 28.2% Quite concerned 37.9% Somewhat concerned 21% Not concerned 12.5% High management fees Extremely concerned 30.7% Quite concerned 40.3% Somewhat concerned 19.9% Not concerned 9.1%

...Has Not Prompted Drastic Action If one of your fund providers were implicated in the mutual-fund scandal, what would you do? Drop it from our plan immediately 30.1% Consider dropping it from our plan 56.8% No course of action decided on 11.9% Other 1.1% Compared with two years ago, how confident are you about your company's ability to provide adequate retirement option for employees? Much less confident 5.7% Somewhat less confident 25.6% No change 58.5% Somewhat more confident 8.0% Much more confident 2.3%

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