CalPERS’ effect persists: Wilshire analyses focus list performance

CalPERS will review all elements to the methodology of its successful focus list in the coming months, as the latest study by Wilshire shows companies on CalPERS’ radar over the past 23 years have had a total return turnaround of 32.5 per cent on average.In Wilshire’s annual review it looked at the companies’ performance for the five-year returns before and after CalPER’s attention, and found they retuned 12.7 per cent above their benchmark for the five years after their “initiative date”, or 2.4 per cent on an annualised basis, compared with 83.3 per cent below benchmark for the five years before CalPERS focus, or -30.1 per cent annualised.

Since inception of the focus list 23 years ago, the fund has targeted 142 companies, with the number of companies on the list in any one year ranging from four to 11.

The review of methodology and consideration of new engagement opportunities for shareowner intervention, is triggered by a belief that now is an opportune time to complete a comprehensive review due to recent market developments and regulatory reform.

As part of the review input will be sought from academics, external managers, governance data providers and staff.

According to a paper to be presented to the investment committee next week, the annual Wilshire study on CalPERS corporate governance program has shown the “CalPERS effect” on targeted company share prices persists and that the fund’s “involvement has generally stopped the rapid erosion of performance results”.

Wilshire conducts an annual analysis of CalPERS corporate governance effectiveness by measuring the stock returns of companies placed on the focus list.

At the moment the focus list process involves an initial screen which includes 40 per cent stock performance, 30 per cent return on invested capital, and 30 per cent corporate governance criteria; from the lowest-ranked 50 companies, 15 preliminary focus list companies are selected; these are approved by the investment committee; then staff meets with the focus list company representatives and requests specified governance reform; staff then develops focus list and monitoring list company recommendations based upon each company’s response to CalPERS requested governance reform; the investment committee gives the final recommendation; CalPERS publicises the focus list companies; and monitoring continues for up to three years representing extended engagement of prior focus list and monitoring list companies.

The companies on the focus list for 2009 were Eli Lilly, Hill-Rom Holdings, Hospitality Properties Trust, and IMS Health;

For 2008 they were: Cheescake Factory Inc, Hilb Rogal and Hobbs Company, Invacare Corporation, La-Z-Boy, Standard Pacific Corporation.

For 2007 they were: Corinthian Colleges Inc, Dollar Tree Stores, Eli Lilly & Co, EMC Corp, International paper Corp, Kellwood Corp, Marsh & McLennan Co, Sanmina0SCI Corp, Sara Lee Corp, Tenet Healthcare Corp, Tribune Co.