wfn.org | Foundation seeks broader authority to elect Trust Company board

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Note #6929 from PCUSA NEWS to PRESBYNEWS:

members
01-November-2001
01411

Foundation seeks broader authority to elect Trust Company board members

Proposed changes raise concern about accountability to denomination

by Evan Silverstein

NATCHEZ, MS - The Presbyterian Church (USA) Foundation is proposing changes
that would allow its trustees, rather than the General Assembly, to elect
board members to its for-profit subsidiary, the New Covenant Trust Company.

"We're simply asking, not for a really significant change, but an expansion
of our ability to nominate those people directly, subject to the approval of
the Foundation's board of trustees," said Bob Leech, the Foundation's
President and CEO.

The Foundation trustees approved the principles and general intent of a
"change in governance" during their meeting here Oct. 24-27.

The plan raises accountability issues, said the Rev. Clifton Kirkpatrick,
stated clerk of the General Assembly (GA), because it sidesteps the usual
process, in which the GA elects board members of church-related entities.
(It would require that appointments to the board be submitted to GA
commissioners for confirmation.) Foundation officials said they believe the
plan has adequate provisions to ensure accountability to the PC(USA).

"It is my understanding that this is the way that many seminaries choose
their boards," Leech said, "so I question whether there should be any
accountability concerns."

New Covenant Trust Company is a three-year-old, for-profit subsidiary that
manages a group of mutual funds called New Covenant Funds. Like the trust
departments of other big institutions, New Covenant operates under federal
government scrutiny and pays taxes on its profits.

When the New Covenant Trust Company was created, in 1998, the General
Assembly approved its creation and passed an exemption allowing its board
members to be selected from the trustees of the Foundation, bypassing the
normal General Assembly Nominating Committee process. The main purpose of
the Foundation's new proposal is to broaden the pool of available candidates
for service on the subsidiary's board.

Foundation officials said the current process takes too long, limits the
pool of qualified candidates, and results in a board that does not comply
with the guidelines for directors' qualifications established by the Office
of the Comptroller of the Currency (OCC), the federal agency that charters,
regulates and supervises financial institutions, including the Foundation's
trust company. The U.S. Securities and Exchange Commission (SEC), whose
primary goals are to protect investors and maintain the integrity of
securities markets, regulates both New Covenant Funds and the securities
activities of the trust company.

"I simply hope that people will look at it for what it is, which is just an
attempt to be able to operate in compliance with all the federal rules and
regulations," Leech said. "We certainly recognize the primacy of our
responsibility to the Presbyterian Church and our fiduciary
responsibilities. But we also have to pay attention  to the U.S.
government."

Leech said the OCC and SEC have pressured him and the trust company's
directors to operate without limitations on governance and to implement a
plan for increasing the trust company's revenues and capital. If a new
financial plan is not in place soon, Leech and the board could be subject to
review and possible regulatory action.

Leech said vacancies on the board must be filled quickly to satisfy the
federal Office of the Comptroller, which could slap the trust company with
sanctions for operating without a complete board of directors. He said
penalties could range from an order to take corrective action to a
revocation of the trust company's charter.

"I think they've been very cooperative and understanding that we are a
Christian, faith-based organization," Leech said of federal regulators.
"They have worked with us along the way, and they're sensitive to this. But
they have said to us that we need a plan to increase our capital.  They are
concerned about us having a pool of directors that have significant
financial background experience, and would like for us to continue to
increase those numbers to be sure those people can help us grow the trust
company."

The Foundation receives and manages financial gifts from individuals, as
well as endowments of Presbyterian churches, governing bodies and
church-related institutions. Earnings go to support Presbyterian mission and
ministry. The Foundation is the first organization of its kind to start a
federally chartered national trust company. A seven-member Governance
Committee was appointed earlier this year to develop a plan for changing the
structure of the New Covenant board and procedures for electing members.

 	Leech said need for the change is urgent. He said it is hard to find
people willing to take on the responsibilities of trustees. He said the
Foundation is having trouble finding Presbyterians with the appropriate
financial and business backgrounds. All candidates must be Presbyterians in
good standing.

"We need to increase our meetings by eight to nine meetings per year to
satisfy the Comptroller, and these people serve without compensation," Leech
said. "Additionally, they may be subject to government sanctions and
penalties if something goes wrong, and they also must make a detailed
disclosure of their security transactions.  Individuals already employed by
other banks might have conflicts of interest that prevent them from
serving."

Kirkpatrick, a member of the Foundation board, noted during the meeting that
the GA would exercise no oversight in the proposed process.

Kirkpatrick said The Book of Order, among other church guidelines, allows
for GA supervision to ensure accountability. He declined further comment,
saying only that he is happy that the Office of the General Assembly and the
General Assembly Council are included in deliberations on the matter.

Leech said the PC(USA) is the primary shareholder in the New Covenant Trust
Company, and thus the General Assembly can remove the entire board if it
chooses.

"Therefore, I believe there are adequate checks and balances," he said. "Our
proposal is only an attempt to satisfy OCC concerns about a board with the
proper background to run a business, as well as the need to rapidly fill any
vacancies."

The proposal will go to an executive committee of the Foundation's board in
January for final review and revisions before being submitted to next
summer's 214th General Assembly in Columbus, OH.

The Rev. Phil Young, a Foundation trustee and chair of the Governance
Committee, agreed with Leech, saying that he believes the principles
established during the recent meeting guard against the possibility that the
GA may lose control of funds held in trust by the Foundation.

That is so, he said, "because the General Assembly elects the Foundation
trustees, who elect the (trust company's) directors, and also because now
the General Assembly will be confirming the people who are serving on the
subsidiary boards. And if they fail to confirm, then the trustees will have
to take action to replace them with other persons who do meet the acceptable
requirements of the General Assembly."
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