|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
Related-Party Transactions Still Common
Staff Writer
United Press International . December 4, 2004
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EXCERPT: Regulators have been tightening up corporate governance in U.S. companies, but nearly 40 percent of S&P 500 companies still have "related-party" business arrangements, a study by New York-based independent risk research firm RateFinancials Inc. shows. Such relationships don't automatically signify wrongdoing, but they might conflict with the interests of company shareholders on the one hand, and businesses doing work for the company through an executive who is a friend or relative on the other. For the study, RateFinancials examined the the proxy statements of companies representing nearly half the market capitalization of the S&P 500, and representing nearly all major industries. Although most such transactions are legal, they have figured prominently in several high-profile corporate scandals in recent years, including Enron, Adelphia, WorldCom and HealthSouth, RateFinancials said. "A significant number of S&P companies continue to ignore the growing outcry for improved corporate governance and actively engage in related-party transactions," said Victor Germack, founder and president of RateFinancials. "Although related-party transactions do not necessarily involve any legal wrongdoing, they insert conflicts of interest into a company's corporate governance where none needs to exist. Most of the arrangements were almost always avoidable and therefore appear to raise legitimate questions about whether company insiders are putting their own interests ahead of shareholders." The related-party arrangements ranged from directors whose law firms receive millions of dollars in fees, to office or other leasing arrangements with entities controlled by CEOs or their immediate families. Such arrangements are usually hidden deep within a company's proxy statement where investors won't notice it, RateFinancials said.
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