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If you’re involved in a proxy vote, always disclose your conflicts of interest. That reminder comes from the U.S. Securities and Exchange Commission. In August the SEC levied a $750,000 fine against Deutsche Asset Management, Inc., for its role in last year’s merger between Hewlett-Packard Company and Compaq Computer Corporation. According to the SEC, Deutsche Asset Management voted 17 million of its clients’ shares in favor of the deal without revealing that its parent company, Deutsche Bank AG, stood to earn $2 million in consulting fees from HP if the merger went through. Robert Mitchell, the SEC’s assistant district administrator in San Francisco, says that Deutsche Asset Management clients were denied “a conflict-free vote.” The company was obligated to disclose its parent’s consulting work, Mitchell says, adding, “this is just basic fiduciary law.” Though Deutsche Asset Management consented to the fine, it didn’t admit wrongdoing. In a statement, the company said it “is pleased to reach this final resolution with the SEC. Even before [the] settlement, we voluntarily strengthened our policies regarding information barriers to ensure that proxies will continue to be cast in the best interests of our advisory clients.” William McLucas, a partner at Wilmer, Cutler & Pickering who represented Deutsche Asset Management in the SEC action, says, “It’s behind them. It’s about process, and none of this affected the proxy vote.” Voting No, Then Yes Deutsche Asset Management initially voted its clients’ shares against the HP/Compaq merger. At least two officials at the firm knew about the consulting arrangement between parent Deutsche Bank and HP at the time, the SEC says. But Deutsche Asset Management reconsidered its position after its then�chief investment officer was contacted by two Deutsche Bank officials, who asked if HP executives could lobby for the merger. The CIO asked the Deutsche Bank officials whether they were “trying to pressure him,” according to the SEC. The two officials denied doing so. HP was allowed to make its presentation to Deutsche Asset Management, the SEC says. Carly Fiorina, the computer company’s CEO, concluded the meeting by saying that the Compaq merger was “of great importance to our ongoing relationship.” Deutsche Asset Management subsequently switched its position and voted its clients’ shares in favor of the merger. How Strong Of A Warning? The SEC’s action shows that companies need to be very sensitive to potential conflicts of interest, says Paul Lapides, director of the Corporate Governance Center at Kennesaw State University in Georgia. “Disclosure is a very basic principle of fiduciary responsibility, but it’s not one that is always exercised properly when money is involved. Almost anyone who manages money has conflicts, and if you disclose it, at least the shareholders know there is another relationship.” But while calling the SEC’s enforcement order “significant,” Lapides wonders whether the penalty against Deutsche Asset Management will prove to be a strong deterrent to other financial institutions. “The settlement is saying that if you do something wrong you will be punished,” he says. “But Deutsche Bank got $2 million [in fees] and only had to pay $750,000 [in fines], so what kind of message is that sending?”

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