Risk & Compliance

Proxy Firm, Heal Thyself

Proxy-services firm Glass, Lewis's new Chinese owner, criticized for senior-management lapses, announces new initiatives, but not all of them meet ...
Roy HarrisJune 1, 2007

Shanghai-based Xinhua Finance Ltd. and its Xinhua Finance Media subsidiary are adopting several corporate-governance initiatives in the wake of controversy surrounding its control of proxy-services company Glass, Lewis & Co.

In a press release, XFL CEO Fredy Bush said the Chinese information and media service provider would commit to having a majority of independent directors on both the XFL and XFM boards “as soon as possible,” pointing out that under existing laws and rules, “neither company is required to do so.” She also said a lead independent director position on the boards of both companies would be created, and that an executive-search firm, Spencer Stuart, would be engaged “to identify world-class independent director candidates.”

Some individuals familiar with Glass, Lewis’s corporate-governance standards, however, noted that in some cases, Xinhua’s changes fall short of what the Xinhua-owned research company itself recommends. For example, the Glass, Lewis standards call for at least 75 percent of directors to be independent.

The commitments at XFL come in the wake of sharp media criticism being leveled at the Xinhua companies for naming Shelly Singhal as CFO of XFM, Glass, Lewis’s owner. Singhal resigned as CFO after press reports pointed out his former involvement, as an Orange County, California-based Cruttenden Roth investment banker, with two companies that were implicated in alleged frauds.

A spokesman for Singhal did not immediately return a call from CFO.com seeking comment.

At Glass, Lewis, which is recognized for its work promoting stronger governance and studying governance and accounting problems, two key staffers resigned in mid-May after the company was purchased by Xinhua. One was former research manager Jonathan Weil, who left saying that events at Glass, Lewis had forced him to “protect my reputation” by severing ties to the company and its new parent. The other manager, former Securities and Exchange Commission chief accountant Lynn Turner, said in his resignation letter that the change in control played a factor in his leaving.

Earlier this week, Glass, Lewis CEO Katherine Rabin praised Weil in an E-mail to CFO.com for having “helped turn some outstanding accountants and analysts into significantly better communicators.” While she said that Turner had left a legacy of quality research “and the standards, policies, models and screens we use every day,” she added that “Glass Lewis is not about any one person,” and noted that a research-development council has been created to help the company in the future.

XFL’s Fredy Bush, however, used the press release about the governance improvements to blast Weil, although not by name. She said that “vague and sweeping disparaging remarks about Xinhua Finance and its directors and officers [were] made by a former reporter and Glass Lewis employee as he was leaving the firm.” (Weil is a former Wall Street Journal reporter.)

When contacted by CFO.com, Weil would not comment on Bush’s remarks, but reiterated that his May 16 resignation letter had said that “I am uncomfortable with and deeply disturbed by the conduct, background, and activities of our new parent company” and its senior management and directors. (One member of XFL senior management, who recently submitted his resignation, is Gordon Lau, who serves on the advisory board of CFO China, an affiliate of CFO.com.)

In a follow-up E-mail from Rabin on Thursday, she said: “We believe the steps our parent company, Xinhua, announced this week are an indication of its commitment to achieving best practices in corporate governance. We are playing a positive and constructive role in helping Xinhua evolve its governance practices to meet the standards of the new markets it has entered.” She added: “Glass Lewis has always been — and will continue to be — operationally and editorially independent of Xinhua Finance Limited. Xinhua’s management team has always been incredibly supportive of our mandate to provide thorough and objective analyses for our clients.”

Rabin noted that the senior research analyst group, making up more than half its permanent staff, has grown by 20 percent since the end of last year, and now stands at 79 people.

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