ANALYSIS

CalPERS expands engagement

simpsonCalPERS plans to send a written request to up to 58 of its largest domestic company investments to adopt a majority voting standard in uncontested director elections, following an increase in the number of shareowner proposals that staff have been delegated to submit at CalPERS portfolio companies.


Some of the high profile companies included in that list are Apple, BlackRock, Coca-Cola, Google, News Corp, and Visa, and this initial correspondence will be followed by ongoing dialogue with corporate boards and management, and subsequent potential filing of a shareowner proposal as needed.

Staff led by senior portfolio manager global equity, Anne Simpson, argued that removing the limits on the number of allowable proposals supported the investment office’s strategic priorities.

The investment office identified five strategic governance priorities in its roadmap 2010 to be achieved in support of implementing the fund’s financial reform objectives:

1. Formalising a total fund process for developing investment, environmental, social and governance policy and practice

2. Influencing capital market regulation as reflected in an evolving US legislative and regulatory environment

3. Developing a shareowner-aligned director pool of talent

4. Implementing majority voting standards for director elections at CalPERS equity portfolio companies

5. Executing a financial sector engagement initiative to catalyse adoption of accountable corporate governance best practices.

CalPERS has had limitations on the number of shareholder proposals it can file since 2004 with limits including: companies under the fund’s focus list methodology; up to 20 proposals per year at companies engaged under the committee’s strategic plan for executive compensation; and up to 10 proposals per year for governance issues that are consistent with CalPERS corporate governance principles that have already been identified by the investment committee as matters of special concern.

In the US the default voting threshold for director elections is a plurality standard, which means the director who receives the most votes wins in contested elections, but in an uncontested election an incumbent director can be re-elected by a single vote.

CalPERS says corporate governance practices should focus board attention on aligning the economic interests of the company with those of shareowners and holding the board of directors accountable for those interests.

It argues that one such governance practice, which is effective in holding directors accountable for creating shareowner value and encouraging better shareowner-director communication, is a director-election standard which requires a majority of votes cast for a director to be elected/re-elected to the board.