wfn.org | Agencies promote ethical practices in churches, businesses

[NewsDesk <NewsDesk@UMCOM.ORG>]

May 20, 2002  News media contact: Tim Tanton*(615)742-5470*Nashville, Tenn.
10-21-71BP{229}

NOTE: This report is a sidebar to UMNS story #228. Photographs of Sandra
Kelley Lackore, Vidette Bullock Mixon and David Zellner are available at
http://umns.umc.org/photos/headshots.html.

A UMNS Report
By Diane Huie Balay*

United Methodist leaders at every level can be advocates for ethical
behavior in church and corporate life, say denomination executives.

The spectacle of Enron Corp. and Arthur Andersen LLP struggling for their
lives has highlighted for many people the fact that even the most reputable
organizations can fall into scandal when their ethical foundation crumbles.
For some United Methodist agencies, ethics are a focus not only in their
work with local churches but also with corporations.

"The church has been way ahead of the curve" on the issue of corporate
responsibility and ethical practices, says Sandra Kelley Lackore, top staff
executive of the churchwide General Council on Finance and Administration. 

The top executives of the church's boards and agencies requested training in
the subject, she says, so former GCFA counsel Mary Logan wrote a book on
legal and ethical responsibility for United Methodist organizations.

Parameters were set for all organizations that receive general church funds,
Lackore says. "None can determine their own auditors. A GCFA committee of
some board members, plus independent people selected for their expertise in
accounting, reviews all audits.

"GCFA has an Internal Audit Department that performs all of the audits on
every board and agency," she says. "In addition, we provide a local church
audit guide that is available online at http://www.gcfa.org/.

"It all comes down to the duty of disclosure," Lackore says. "In a fiduciary
environment, one of holding something in trust, where you are the custodian
of assets, you have the duty of care to treat these assets as if they were
your own."

Quoting from Logan's book, The Buck Stops Here: Legal and Ethical
Responsibilities for United Methodist Organizations, Lackore says church
officials have a duty of loyalty. "Be aware of and avoid conflict of
interest and any appearance of conflict of interest. If there are conflicts,
disclose them. Trustees must maintain confidentiality."

They also have a duty of care, she said. "Trustees are obliged to act in the
best interest of the organization at all times. They must be reasonably
informed before making a decision. If they don't know, they must ask. They
must act as a reasonably prudent person would act. They must make
independent decisions based on what they think is right and wrong."

At the denominational level, the church can influence ethical corporate
behavior in several ways.

As an institutional investor with more than $11 billion in assets, the
United Methodist Board of Pension and Health Benefits "has the
responsibility to exercise appropriate corporate governance of the companies
in which we invest - to make sure other Enrons don't happen," says David
Zellner, managing director of finance and administration for the agency.
Corporate management "should pay attention to us, and they do," he says.

"Companies are responsible for declaring relevant information to
shareholders," Zellner continues. "I've talked to very sophisticated
investors who couldn't understand Enron reports. Enron deliberately
presented vague and misleading information in their financial statements."

The Board of Pension was one of the many institutional investors that felt
the impact of Enron's downfall. "Our participants were hurt," Zellner says,
"but losses because of Enron investments amount to less than one-quarter of
1 percent of the entire value of General Board investments." The board sold
out of its Enron stock, as did other church entities, such as the Board of
Global Ministries and the United Methodist Church Foundation. (See UMNS
story #043.)

The pension board is looking into the role of independent corporate
auditors, Zellner says. Proposals under consideration include encouraging
companies to hire independent auditors and discouraging corporate directors
from serving on audit committees.

Part of Enron's problems, according to some critics, stem from the company's
use of Arthur Andersen LLP as both auditor and consultant, generating huge
profits for the accounting firm. Concern also has been expressed about
conflicts of interest posed by board members serving on the audit committee.

The church's pension board has several tools at its disposal: letters of
concern to corporate management, formal shareholder resolutions and dialogue
with corporate management. If all else fails, the agency has the power of
the proxy - the ability to file shareholder resolutions that are voted upon
through the use of proxy statements at annual stockholder meetings. In
addition, the board can place its support behind initiatives drafted by
other groups.

Effecting change in corporate management is a slow process, says Vidette
Bullock Mixon, the board's director of corporate relations and social
concerns. "Sometimes it will take several years.

"We are long-term investors," she says. "We want the companies in which we
invest to do well and meet high expectations, so we are willing to sit down
and talk with their management about our concerns. That has served us well."

The pension board looks carefully at a corporation's willingness to be
transparent - that is, to disclose all essential information, she says. She
and other staff members look at a corporation's overarching mission and
goals and how the company measures up to them.

They also look at the salaries of the chief executive officers. "There are
advantages to tying a CEO's salary to stock value as long as the company is
doing well," Bullock Mixon says, "because it is an incentive. But we've seen
cases where CEOs are paid excessive amounts while the company was not doing
well by its shareholders. The pension board takes exception to that. It is
not appropriate for a CEO to benefit when shareholders do not.

"In the case of Enron, people within the top circle knew things were not as
they appeared," she says. "They were selling off - jumping ship before it
sank. This is immoral and unethical."

The pension board's efforts to encourage ethical corporate management are
related to its "Strategies of Socially Responsible Investing." Many of these
efforts center around encouraging inclusiveness at all levels of the
corporation, fair labor practices, environmental sustainability, and
sensitivity to the community in which the company finds itself, Bullock
Mixon says.

"We expect management goals to be tied to something in addition to financial
goals."
 
# # #

*Balay is a free-lance writer in Dallas and a frequent contributor to
church-related publications.

*************************************
United Methodist News Service
Photos and stories also available at:
http://umns.umc.org