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On Fannie's Board, Many Bonds

Some Outside Directors Linked to CEO, Company or Foundation

By David A. Vise and Jeffrey H. Birnbaum
Washington Post Staff Writers
Wednesday, October 6, 2004; Page E01

As D.C. Mayor Anthony A. Williams (D) announced the return of Major League Baseball to Washington last week, he praised Fannie Mae chairman and chief executive Franklin D. Raines and financier Frederic V. Malek for their efforts as part of a high-powered ownership group seeking to buy the team.

Raines and Malek share another close tie, as members of the board of directors of Fannie Mae. As an independent board member, Malek's job is to scrutinize Raines's performance as chief executive at a time the mortgage finance giant's federal regulator is criticizing its accounting practices and the quality of its management supervision.

_____FANNIE MAE_____
(FNM) Stock Quote and News
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Company Description
Analyst Ratings
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Web of Connections Some Fannie Mae directors have ties to the company or its foundation that go beyond their service on the board.
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"I don't know how you can do a good job of evaluating the CEO and be in business with him in a side deal at the same time, particularly now when the CEO's tenure is very much in question," said Nell Minow, editor of the Corporate Library, which tracks corporate boards. "I think that shows poor judgment on both of their parts."

The close connections between Raines and Malek are part of a broader web of relationships that link Fannie Mae, the Fannie Mae Foundation, Raines and some outside directors.

Raines and other top Fannie officials will testify today before the House capital markets subcommittee on regulators' concerns about the quality of Fannie Mae's management and whether top executives manipulated financial results, in part to win bonuses. The Justice Department and the Securities and Exchange Commission are investigating the company.

Ann McLaughlin Korologos, who is scheduled to testify as the company's lead outside director, is one of two independent directors who hold senior posts at organizations that have received hundreds of thousands of dollars from the Fannie Mae Foundation -- the company's philanthropic arm, which Raines also chairs. Other directors are involved with companies that have received hefty fees for doing business with Fannie.

Since joining the Fannie Mae board a decade ago, Korologos has served as a top official of the District-based Aspen Institute. In that time, the Fannie Mae Foundation contributed $280,000 to the forum, including $135,000 in grants in 2002, according to the foundation's Web site. She is also head of a committee of outside Fannie directors overseeing an internal probe of the alleged wrongdoing.

Another independent director, Howard University President H. Patrick Swygert, presides over an educational institution that has received grants of more than $450,000 from the Fannie Mae Foundation since 1996. The foundation also contributed several thousand dollars to pay expenses for Swygert's inauguration as Howard's president in 1996 and hired Swygert's son, who is no longer with the company, as an employee.

"There is a pattern there," Minow said. By giving grants to entities headed by outside directors, the Fannie Mae Foundation "creates another layer of real and apparent conflicts and another reason to be less than independent in oversight."

Patrick S. McGurn, special counsel of Institutional Shareholder Services, said the links among Raines, the Fannie Mae Foundation and the company's outside directors are "red flags" for investors.


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