11 Companies Make CalPERS List of Corporate Governance Shame

March 15, 2007 (PLANSPONSOR.com) - Sara Lee, Eli Lilly, Tribune Company, and Marsh & McLennan were among the 11 companies that made the California Public Employees' Retirement System (CalPERS) list of underperformers in sectors such as retail, electronics, pharmaceuticals and media.

According to a press release by the pension fund, CalPERS starts the screening process by looking at the underperforming companies in the pension fund’s largest equity portfolio, the CalPERS 2500 Index Fund. To gauge financial performance CalPERS uses stock performance and economic valued-added (EVA) evaluation to identify companies where poor market performance is due to underlying company specific operating problems as opposed to industry or extraneous factors alone.  

The companies on the list have defied CalPERS after the pension fund asked them to make certain changes to their corporate governance practices and business models.

“The longer term performance of all 11 companies is at least 20% behind their peers, and they have resisted appeals to change corporate practices that make their boards unresponsive to shareowner interests,” said Rob Feckner, CalPERS Board President, in the press release. “In several cases, their entrenched boards refuse to discuss our grievances.

The other companies which made the 2007 list include: International Paper, Tenet Healthcare, EMC, Dollar Tree Stores, Corinthian Colleges, Kellwood and Sanmina-SCI.

According to CalPERS, some of the offenses by the 11 companies include:

  • Baked good manufacturer Sara Lee and drug company Eli Lilly don’t afford shareowners an opportunity to amend bylaws by employing restrictions used by only 4% of S&P 500 companies.
  • Corinthian Colleges , International Paper and Tribune Company have classified boards and other objectionable governance practices. For instance, International Paper would not declassify its board after 79% of shareowners voted in favor of the amendment at its 2006 Annual Meeting.
  • Tenet Healthcare would not remove supermajority voting requirements for articles of incorporation;
  • Sanmina-SCI would not agree to adopt a clawback policy to recapture bonus and incentives payments in the event of officer fraud or misconduct;
  • EMC has resisted efforts to change excessive pay practices.