Corporate directors and officers have a fundamental obligation to do what is in the best long-term interests of their shareholders. While this simple precept is at the heart of the current debate over corporate governance, Louis Lavelle missed this essential point in his commentary when he made reference to American International Group Inc.'s (AIG) 50-year relationship with the Starr Insurance agencies ("When directors join CEOs at the trough," Management, June 17).
The history and facts behind this relationship, which we shared in depth with Lavelle before he wrote his piece, tell an exemplary story of how shareholders' interests were put ahead of directors' and management's. The Starr managing general agencies benefit AIG and its shareholders by generating attractive business for AIG subsidiaries. AIG companies pay commissions to the Starr agencies at rates no greater than those paid to unaffiliated producers for comparable business.
Although these agencies were part of the original operations of AIG's founders, they were not sold to AIG with other Starr assets over 30 years ago after AIG went public, because they were small and not profitable at the time, and management did not want to saddle AIG with money-losing operations. AIG has done what is best for its shareholders, which is the essence of good corporate governance.
Maurice R. Greenberg
American International Group
New York "Big guns aim for change" ("Restoring trust in Corporate America," Cover Story, June 24) correctly points out our firm's strong interest in improving the corrupt system of executive compensation that plagues much of Corporate America. While our firm has spoken with other like-minded institutional investors and experts including Bill Miller, Warren E. Buffett, and John C. Bogle about this issue, at no time during our conversations with them did they ever agree to "sign up" as a group, as your article implies.
While I believe that the formation of a group of reform-minded institutional investors could serve to advance the cause of corporate governance, and while I am certainly interested in speaking with other institutional investors who feel the same way, your article was mistaken in implying that our firm has created such a group.
Christopher C. Davis
Davis Selected Advisers
New York The reasons given in "Investors are ignoring all the good news" (Business Outlook, June 17) fail to include what should be the most obvious: Flip the page to "What Cleanup?" (News: Analysis & Commentary, June 17). Independent investors like me have opted out of the stock market. There is no serious reform drive in Washington (Securities & Exchange Commission Chairman Harvey L. Pitt apparently even secretly meets with suspect firms!), and CEOs still reap outrageous salaries, bonuses, and stock options all the while steering their companies to record losses.
Come on. Should I be so stupid as to continue to finance such shenanigans? I'm out for as long as the system remains unchecked. Good luck to Warren Buffett and John Bogle in their attempt to get rightful action for the investor.
Pittsburgh Finally the truth comes out in your profile of Microsoft Corp. CEO Steve Ballmer ("Ballmer's Microsoft," Cover Story, June 17). Ballmer's own words reveal what many have thought for years, that Microsoft's real business strategy is to complicate the operations of its customers and then sell them the solutions to fix those very snafus.
"If we're successful," he says, "business isn't going to be any simpler to run five years from now than it is today. We better be thinking about the tools we need to run that business now." Brace yourselves: Here comes a whole new generation of "innovations."
Columbia, Ky. While terrorists may be better off than their peers, as Robert J. Barro says, it's a long way from refuting the power of economic advancement ("The myth that poverty breeds terrorism," Economic Viewpoint, June 10). In fact, free markets and democratic governments help countries improve by establishing a healthy path for intelligent, success-driven individuals. The best and brightest have a system that allows them to amass power and money in a way that advances society.
On the other hand, terrorist activity is worst in countries that lack free markets and democratic government. These countries' best and brightest people still strive for success and power, but instead of building businesses, they gravitate toward leading through nationalism in radical cells.
Cincinnati "The Street's new cleanup crew" (News: Analysis & Commentary, June 10) says that "states formed a task force to tackle the analyst issue, one of its first tasks was coming up with a formula for divvying up the funds fromsettlements." Why does that sound like racketeering to me?
Thomas J. Sloan
Lawrence, Kan. Some interesting facts could be added to Jeffrey E. Garten's column "When everything is made in China" (Economic Viewpoint, June 17). China has three votes in the World Trade Organization, and every other nation has one. Hong Kong has a vote that it received prior to becoming part of China; Taiwan joined with status of a "separate customs territory"; and China itself has a vote.
Chinese companies are building free-trade ports and foreign trade zones in the Caribbean. They are also in Mexico. By using this system, the Chinese companies can get around the tariffs, duties, and quotas.
In reality, very little trade actually takes place between an exporter and importer. The beneficiaries seem to be the multinational companies and category-killers, which can purchase directly from manufacturers.
Peter T. Milne
China has more incentives to act responsibly and sensibly in world affairs because its economy is entangled in the global economy. In fact, China's relations with the rest of the world, including its neighbors as well as the U.S. and Western countries, are more productive, stable, and less confrontational than ever before.