Thursday, March 5, 1998

Peters quits Mid Ocean amid AG conflict probe

The Bishop trustee will
not seek re-election as a director
of the firm in which the estate
is a big shareholder

By Rick Daysog

Bishop Estate trustee Henry Peters is stepping down as director of Mid Ocean Ltd., a Bermuda-based reinsurance company in which the estate is a big shareholder.

Peters -- whose role at Mid Ocean has come under the scrutiny of state Attorney General Margery Bronster in her investigation of the estate -- said he recently decided not to seek re-election to Mid Ocean's board of directors due to time constraints.

His term expires at Mid Ocean's annual shareholders meeting, which was to be held today.

A Mid Ocean board member since 1993, Peters said his workload at Bishop Estate and other corporations made it difficult to serve on Mid Ocean's board. But he said he was comfortable leaving the board at this time given the company's current management.

The announcement comes as Bronster has subpoenaed documents relating to Bishop Estate's investment in Mid Ocean.

The attorney general is investigating charges of financial mismanagement and breaches of fiduciary duties by individual Bishop Estate trustees. Sources say the state may be delving into Peters' investments in Mid Ocean.

Mid Ocean, based in Hamilton, Bermuda, is a publicly traded company that sells coverage to insurance companies, enabling the insurers to spread their risk.

Bishop Estate is Mid Ocean's fourth-largest shareholder behind Bermuda-based EXEL Ltd., the Scudder, Stevens & Clark Inc. investment company and the Wall Street firm of Oppenheimer Group Inc. The charitable trust's 1.86 million shares represent 5.16 percent of the company's 36.1 million outstanding common shares.

Since 1993, Mid Ocean has granted Peters options to acquire 4,500 shares of Mid Ocean stock under its long-term compensation plan for outside directors, according to a 1996 proxy statement filed with the Securities and Exchange Commission. Those options would be worth more than $266,000 based on Mid Ocean's closing price of $59.13 yesterday.

Peters and other outside directors also earned $30,000 each in the form of Mid Ocean stock and deferred shares last year, according to Mid Ocean's proxy statement for its 1997 fiscal year.

Outside directors received an additional $3,000 for each board meeting attended and $1,500 for each committee meeting attended. Peters was present at at least six board and committee meetings in 1997.

The Mid Ocean director's fees are on top of the $843,109 in commissions Peters received as a Bishop Estate trustee for the year ending June 30, 1996.

Peters took issue with recent criticism about his Mid Ocean stock options. He said he has not exercised the options, which were offered to all of Mid Ocean's outside directors.

He said the options were not given to directors for free: Directors must acquire them at market prices and can only sell them after a set time period.

"I haven't even looked at them," Peters said.

To be sure, Bishop Estate's investment in Mid Ocean has been successful.

The estate's initial investment of $31 million in 1992 is now worth about $110 million.

Last year, the estate earned nearly $5.6 million in dividends from its Mid Ocean stock, or more than double the $2.5 million in dividends it received in fiscal year 1996.

Critics argue that Peters' stock options in Mid Ocean raise the appearance of a conflict of interest given Bishop Estate's big stake in Mid Ocean.

Randall Roth, University of Hawaii law professor and co-author of the "Broken Trust" article that prompted the state's investigation of the estate, believes that co-investing should be avoided by trustees of Bishop Estate.

Roth said he wasn't familiar with the details of Peters' role in Mid Ocean. But he noted that the estate's internal guidelines forbid trustees from placing personal money in trust investments.

The issue of Peters' Mid Ocean stock options has raised questions within the estate's board room. Fellow trustees weren't aware of the options until media reports criticizing the awards surfaced in September, sources have said.

Consequently, board members told Peters to not exercise the options and said he should not receive future director's fees, sources said.

He has not returned past director's compensation.

The estate is studying ways to transfer ownership of Peters' Mid Ocean stock options to Kamehameha Schools.

"Arguably, this creates an appearance of a conflict of interest if not an (actual) conflict of interest," Roth said.

"A trustee is supposed to avoid even the appearance of a conflict."

Trustees’ salary proposal
studied by Judiciary,
Ways and Means committees

By Rick Daysog and Craig Gima

The state Probate Court could set the salaries of Bishop Estate trustees under a proposal before two Senate committees today.

Legislature '98 The Senate Judiciary and Ways and Means committees will hold a hearing this afternoon on a measure that sets the annual compensation for trustees of charitable organizations at "reasonable" amounts established by the Probate Court.

Yesterday, Republicans took to the House floor to urge their colleagues to limit the pay of the trustees of Bishop Estate and other charitable institutions.

Sen. Matt Matsunaga, co-chairman of the Judiciary committee, said: "I just can't see anybody arguing with this."

"I can't see anybody arguing that trustees salaries should not be reasonable."

The bill aims to bring more accountability to the issues of trustees' pay, advocates say. Critics of the Bishop Estate have charged that the current law allows them to receive excessive compensation at the expense of the trust.

Bishop Estate's five trustees each received about $840,000 in commissions for the year ending June 30, 1996.

Today's hearing comes as the House Judiciary Committee last month heard several bills proposing caps on trustees pay.

But the House was unable to reach agreement on the caps and recommended a task force to study the issue of trustees pay.

"I think it was chicken. Another colleague said we seem to be ducking the issue," said Rep. Cynthia Theilen (R, Kailua)."So we've got a chicken and a duck and not much of anything to show from it."

The House Judiciary Committee last month passed a bill to set up a task force to put together a study on trustee's pay for the Legislature by next session.

The committee did not act on other bills that would have capped trustees' pay at three times the governor's salary or limit their pay to the salary of the chief justice of the Hawaii Supreme Court.

Rep. David Pendleton (R, Kailua) said there was a consensus among the people who testified at the hearing that trustee's pay could be capped using a "reasonableness" standard.

But Judiciary Vice Chairman Brian Yamane (D, Kaimuki) said setting an arbitrary cap and using the "reasonableness" standard could lead to lawsuits. "There was no consensus," Yamane said.

The Senate Judiciary Committee was scheduled to hear a bill to limit the pay of the trustees of charitable trusts today.

Pendleton said he hoped the Senate version would contain the "reasonableness" standard and that the House and Senate would be able to agree on a compromise bill.

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