SJR 28 FED AUDIT OF NATIVE REGIONAL CORPORATIONS CHAIRMAN GREEN called the Senate State Affairs Committee to order at 4:50 p.m. and brought up SJR 28 as the first order of business before the committee. She stated SB 194 (ANCSA CORPORATIONS), which is also sponsored by Senator Halford, would be rescheduled to the May 8 meeting, and that copies of a letter from Sealaska Corporation relating to that piece of legislation would be distributed to committee members. BOB LOESCHER, Executive Vice President, Sealaska Corporation, stated that since incorporation Sealaska and the other regional corporation have been audited annually by independent certified public accountants, which is required by federal law. Sealaska's accounting firm, Price Waterhouse, holds the corporation to the standards of generally accepted accounting principles. Reports of these audits are sent to every shareholder of the corporation, and these reports are published in an understandable, user-friendly format. The coporation's audited financial statements and reports to shareholders are filed with the State of Alaska. Mr. Loescher said because there is already plenty of auditing and accountability to shareholders and government agencies, it is apparent to Sealaska that the purpose of SJR 28 is to create discord among Native groups whose views differ on issues of corporate direction and management, to retaliate against Alaska Natives over the Indian Country issue, and to discredit Alaska Natives and rural residents in advance of public policy consideration of the subsistence issue pending before the Legislature. Sealaska suggests that these are neither necessary nor proper purposes for legislative involvement. Sealaska also suggests that the regional corporations are the wrong target since they too may be affected by the Venetie decision. Mr. Loescher said the sponsors of this legislation are not willing to fund an audit at the state level and the U.S. Congress is even less likely to fund an audit. He added that none of Alaska's Republican congressional delegates support SJR 28, and that Deborah Williams, who is the special assistant to the U.S. Secretary of the Interior, recently stated that the federal government lacks the authority to audit Native corporations. Mr. Loescher noted that much of the testimony on SJR 28 has been by shareholders who say that the corporations do not do enough for them. He then outlined the following benefits that have been provided to Sealaska shareholders throughout the years: - An at-large or urban Sealaska shareholder with 100 shares has received $17,663 in dividends and other distributions since 1972. Shareholders with village corporation shares receive a portion of this through their village. Sealaska has approximately 15,700 shareholders, which totals over $277 million being injected into the economy. - The Alaska Native Claims Settlement Act requires Native corporations to share revenues from natural resources from their land, and from the start of ANCSA to March 31, 1997, Sealaska has paid out approximately $162 million to other corporations. These funds were in turn distributed directly to shareholders and village corporations throughout the state. - In 1991 a vote by shareholders approved a special one-time benefit payments when he or she reaches age 65. Since then over 1,900 elders have received payments totaling $4.4 million. - Educational support has been a vital part of Sealaska's programs for about 1,500 shareholders and their descendants since 1981. Last year 403 young people received awards totaling $422,000. - Additionally, Sealaska has a jobs program which provides jobs to over 400 people, an internship program that has provided over 120 internships, cultural programs, historic sites and cemetery programs, etc. In closing, Mr. Loescher said Sealaska is proud of its role in providing jobs, dividends and other benefits to its shareholders, as well as its contribution to the economy of Alaska. Number 145 AMY GAMBELL, Audit Manager, Seattle Office of Price Waterhouse, said Price Waterhouse is the independent accountants of Sealaska Corporation and since 1982 have been performing annual audits of the corporation's financial statements. The firm's reports are addressed to the corporation's shareholders and published by Sealaska in their annual report, which is distributed to all shareholders every year. This audit process is closely monitored by the audit committee of the Board of Directors. Ms. Gambell said Sealaska Corporation prepares their financial statements following generally accepted accounting principles, including full disclosure for all sources and uses of money and disclosure to explain the financial statements and to describe any important matters such as litigations or claims against the company. In addition, Sealaska has recently submitted their proxy statements and financial statements for voluntary review by the Securities and Exchange Commission who has commended Sealaska on the readability of these statements and are using them as an example for other public companies. Price Waterhouse's report on the financial statements contains no exceptions or qualifications. If they noted any material noncompliance that was not corrected, they would explain it in their audit report as an exception or a qualification. Also, if Price Waterhouse was to become aware of any material impropriety by management not resolved by the directors to their satisfaction, they would no longer be able to continue their association with Sealaska. Ms. Gambell said SJR 28 asks the federal government to audit Sealaska and implies that they lack accountability to their shareholders; however, Sealaska is audited by an independent company and they are financially accountable. Number 195 SENATOR MACKIE stated for the record that he is a Sealaska shareholder and a Shan S'eet Shareholder. He then asked Mr. Loescher what Sealaska is doing to improve communications with shareholders, to share information with them so that they don't feel like they are being shut out of the process and to reduce the animosity felt by many of them. In response to Senator Mackie's questions, MR. LOESCHER said from time to time Sealaska receives petitions for recall on board members and they are responsive to them. He also related Sealaska has a shareholder newspaper that is published approximately every six weeks that goes out to all shareholders in which they discuss the corporate affairs and corporate actions that go on within the corporation. Also, the corporation's annual report and proxy statement is sent out to every shareholder every year. In addition, shareholders may go the Sealaska offices and review the books and records of the company at any time. Sealaska also provides a toll free line and a Website. Number 245 SENATOR MACKIE asked Mr. Loescher if the federal government were to decide to do an audit, was their anything in his view that would be contained in such an audit that Sealaska would be criticized for not providing to its shareholders. MR. LOESCHER responded that there was not. Number 245 SENATOR WARD asked Mr. Loescher if he would explain the discretionary voting process used by the corporation. MR. LOESCHER explained that every year Sealaska puts out a proxy and there is a slate of candidates. A shareholder can vote on the proxy form only, or a directed vote, or a discretionary vote. If a shareholder signs the box for a discretionary vote, that empowers the committee of the board to cast the ballot on behalf of the shareholder in a manner that they see fit. This process is allowed under state law, and sometimes over 50 percent of the shareholders elect to use the discretionary voting box. SENATOR WARD commented that the committee has received testimony from hundreds of people that think this is an inherently unfair and quite anti-Indian process. MR. LOESCHER responded that it is a matter for policy makers to determine whether or not that law should be continued, but the law is there and their shareholders have elected to use that provision of law. Number 295 SENATOR WARD inquired if every board member gets full retirement after serving on the board for five years. MR. LOESCHER acknowledged there is a retirement program for directors, but he was not familiar with its provisions. He also acknowledged that he didn't think that program was approved by the shareholders. SENATOR WARD asked Mr. Loescher if had a running tally of how much money he and other officials of the corporation have been paid since December 18, 1971. MR. LOESCHER replied that he didn't have that information with him, but the data could be provided to the committee if necessary. Number 323 CHAIRMAN GREEN stated testimony would be taken over the teleconference network from witnesses waiting to testify on SJR 28. BARBARA DONATELLI, Vice President of Administration for Cook Inlet Region Incorporated (CIRI), testifying from Anchorage, voiced CIRI's opposition to SJR 28, not because CIRI is in any way concerned about the end results of the audit process called for in the measure, but because of the disturbing implications presented and the messages sent by it. CIRI has nothing to hide from its shareholders or from state or federal auditors. CIRI, like all the Native regional corporations, is audited annually by an independent accounting firm. Ms. Donatelli said regional corporations, in general, and CIRI, in particular, have not failed the Native people of Alaska. She noted that in 1972 CIRI received $34 million and the right to select certain lands. Today CIRI's total shareholder equity is excess of $492 million in addition to the value of CIRI's ANCSA land. CIRI's net income last year was $39.8 million, and for the last five years alone cumulative net income for the company exceeded $150 million. Additionally, during its 25 years of existence, CIRI has paid out a cumulative amount of approximately $240 million to its shareholders. CIRI has also been one of the leading contributors in sharing of resource revenues with all other regional corporations. CIRI's sharing of $161 million in resource revenues over the past 25 years has made CIRI a driving force for economic return and growth, not only for its own shareholders, but for Native shareholders statewide. CIRI has contributed millions of dollars to nonprofit corporations that are dedicated to furthering economic, educational and health care and other benefits to CIRI shareholders and Alaska Natives. In the last three years alone, CIRI has donated $7.9 million to these important nonprofit organizations. Ms. Donatelli said the regional corporations do not lack responsiveness or accountability to their shareholders. CIRI is the first regional corporation to put directly before the shareholders the chance to choose by ballot amongst four different options for the future direction of the corporation. CIRI's philosophy and goal in this process is to enhance and extend shareholder participation in the fundamental direction of the corporation. Additionally, ANCSA provides itself with the ultimate mechanism for Native shareholders to express dissatisfaction or assert control over the corporation with the democratic election of corporate boards. Ms. Donatelli said contrary to the resolution's suggestion of widespread dissatisfaction and disenfranchisement among shareholders, CIRI shareholders have repeatedly returned CIRI's board members to the board thereby expressing their continued confidence in the board. Notwithstanding this, CIRI allows minority voice representation on the board. CIRI's bylaws provide for cumulative voting for directors, whereby shareholders with less than a majority of votes can still beat directors. Ironically, this system allows dissident candidates to win seats with only about 15 percent of the vote. In her closing remarks, Ms. Donatelli said the dissatisfaction with the regional corporations did not bring about an outcry by Native people of Alaska for sovereignty. She said the sovereignty movement in Alaska is not a recent development, and that it has been fueled by governmental failures in areas such as subsistence, social welfare programs and drug and alcohol enforcement rather than by objections to the management of regional corporations. Number 395 SENATOR WARD asked Ms. Donatelli how much land CIRI received in its original entitlement, how much of that land is left and the book value of that land. MS. DONATELLI answered that she did not have that information with her, but she advised that it was available and she would forward it to the committee. Number 400 CHAIRMAN GREEN noted that Mark Kroluff, who was also representing CIRI, was present in Anchorage to respond to questions. Number 410 DAVID MCCAMBRIDGE, an audit partner with KPMG Peat Marwick in Anchorage, stated KPMG currently audits six of the twelve regional corporations, provides other professional services to two other regional corporations, as well as auditing a number of Alaska Native village corporations. Mr. McCambridge related the audits performed by his company are financial statement audits and are performed annually. These audits result in their giving an opinion as to whether the Native corporations' financial practices follow generally accepted accounting principles. The audit standards require, among other things, that the accountant be independent of the corporation that the audit is being performed on, that an opinion be rendered as to the financial statements and whether or not they are presented in accordance with generally accepted accounting principles and that those financial provide adequate and full disclosure as required by generally accepted accounting principles. He said his company believes that the proposed governmental audits may be a duplication of the existing efforts and expense. Number 435 SENATOR WARD asked Mr. McCambridge is he had information on how much land was given to CIRI under ANCSA, how much acreage is left and what the book value of that acreage is today. MR. MCCAMBRIDGE responded that he did not have that information with him, and he added that most of it is included in CIRI's annual report. Number 444 WALTER JOHNS, a Tlingit Indian testifying in Juneau against SJR 28, stated he is a shareholder of both Sealaska Corporation and Goldbelt Corporation. He noted there are currently several other pieces of legislation before the Legislature that are all anti- Indian. He contended that if this type of legislation, which he considers racist, were introduced in other states with Indian populations they could create war. Mr. Johns said he said he believes the people of the corporations can handle problems that have arisen, and he is strongly opposed to state involvement in these corporations. In closing, Mr. Johns stated he is strongly opposed to SB 195 as well. Number 490 BUNNY MERCER a Sealaska and Goldbelt shareholder residing in Juneau, read her written testimony in support of SJR 28 into the record. She noted that since Sealaska's inception they have had the same board of directors, and she spoke to the need to get rid of the discretionary vote. She believes a federal audit will settle questions about what all previous shareholders are saying and what the opposition is saying. Number 525 SANDRA STUERMER, the treasurer of the Arctic Slope Regional Corporation (ASRC) testifying from Barrow, voiced the corporation's strong opposition to SJR 28. They believe that the process would not be positive for the state or to their shareholders. ASRC has been audited each year since its inception, and any inconsistencies or shortcomings in the financial records of the company are noted in an audit opinion. The annual audit is also monitored by a committee of ASRC's board of directors who are not employees of the corporation. The audited financial presentation is given each year and approved overwhelmingly by the shareholders at their annual shareholder meeting. Mr. Stuermer said ASRC believes the audit called for in SJR 28 would be a total waste of time and resources. She said none of the land and money received by ASRC as part of ANCSA has been lost, a fact demonstrated by their annual audit every year for 25 years. It is that land and other resources that can serve as foundations for further economic growth and development. Like many other regional corporations, ASRC is more than just a for profit-making entity. ANCSA corporations are not social service agencies, however ASRC does more in that respect for it shareholders than other corporations in the state. It was also noted that over the years ASRC has paid more than $92 million in dividends to its shareholders. Ms. Stuermer reiterated ASRC's strong opposition to SJR 28, which they believe is designed to create divisiveness within the Native community. Number 555 SENATOR MACKIE asked if ASRC shareholders have access to financial information on salaries paid to the corporation's directors and executives. MS. STUERMER responded that they do not deny specific requests on such information, that they have an open door policy, and that their financial statements are available every month at the time of closing. SENATOR MACKIE asked if 10 percent of ASRC shareholders were dissatisfied with the decisions that are being made by its board, could they petition for a recall election to remove their entire board. MS. STUERMER acknowledged that they could, but ASRC has not had any such action taken against the corporation. Number 575 BUTCH FONDAHN, a member of the Tatitlek Village Corporation testifying from the Mat-Su LIO, voiced his support for federal audits of Native corporations because it will make them more accountable to shareholders. He suggested the resolution should include the auditing of village corporations as well. The Tatitlek Village Corporation is going to receive approximately $37 million in oil spill oil money, and he fears that the money will disappear because their board of directors has a poor track record on its prior investments. TAPE 97-26, SIDE B Number 015 JAMES KNUDSON, a Sealaska and Goldbelt shareholder testifying in Juneau in support of SJR 28, stated it was his first time speaking out on this issue. In the past he sat back and listened to promises made by future board members that they would make Sealaska and Goldbelt more open to its shareholders. However, once these people are elected, the only thing that changes is their views, not the policies of the corporations. Number 030 CHAIRMAN GREEN closed the public hearing on SJR 28 because members had to return to the Senate floor session. She then adjourned the meeting at 5:40 p.m.