Private engagement has more influence on company behaviour and performance a new study of CalPERS’ corporate governance reveals.
Analysis by Wilshire Associates has found that because privately engaged companies are more receptive to reform and move more quickly to better governance standards, the turnaround in their stock performance is quicker.
It found that the turnaround in stock performance for publicly-engaged companies is not apparent until close to two years from engagement.
Wilshire measures the performance results of all companies publically and privately engaged from 1999 to 2009.
The study found that in the past 11 years, privately-engaged companies significantly outperformed the companies named on the public focus list for one, three and five years after CalPERS made the initial contact.
The performance of all companies engaged through the focus list program produced a cumulative return of 11.59 per cent above their benchmark after three years, and 4.77 per cent after five years.
Until 2009, the $223 billion Californian fund employed a combination of public and private engagement that included 59 companies on a public focus list and 110 which were engaged privately.
In 2009 there were 14 new companies privately engaged and none were named to the public focus list. In late 2010 the fund decided to abolish the focus list and exclusively engage companies privately.
The investment committee meeting in November was the first time it had received a corporate governance program report incorporating the focus list program analysis, proxy voting quarterly report results, and updates on principles for responsible investing, financial market reform and policy.
Meanwhile CalPERS has indicated that improving its ranking for Principle 1 of the UNPRI – which states: “We will incorporate ESG issues into investment analysis and decision-making processes” – will be a measureable outcome of the total fund ESG integration initiative of 2012.