Administration November 16, 2010

CalPERS Changes Corporate Engagement Strategy

November 16, 2010 (PLANSPONSOR.com) – The California Public Employees’ Retirement System (CalPERS) has adopted a new strategy for engaging underperforming public stock companies through private contacts and proxy actions.
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A CalPERS news release said the new approach replaces its public “name-and-shame” Focus List. The Shareowner/Corporate Engagement Program is based on a finding by Wilshire Consulting that privately contacted companies outperformed those named to the CalPERS Focus List every spring over the past two decades, according to an announcement.

For the 2011 proxy season, CalPERS will use a new screening process to identify target companies for possible shareowner resolutions that in earlier years might have been placed on the Focus List. The process will include these steps:

  • CalPERS will review the performance of the top 500 U.S.-based public companies in terms of CalPERS market value ranging from $15 million to $1 billion, including stocks and corporate bonds.
  • The pension fund initially will screen companies for total stock returns for one, three, and five years relative to a broad index and industry group.
  • CalPERS will conduct a secondary screening for key governance factors, financial analysis and market expectations – including board independence, election practices, executive compensation, board diversity and skill sets, and environmental and social issues.
  • CalPERS will sponsor or support shareowner resolutions addressing practices of selected companies that continue to resist positive corporate governance change.

“The Focus List has served us well by calling public attention to some of the worst market players, but the time has come for a more effective approach. Many of our portfolio companies are adopting improved governance practices, and we’re getting better alignment of interest with them than we experienced even a few years ago,” said Rob Feckner, CalPERS Board President.

Wilshire found in a review of 155 companies between 1999 through 2008 that the 96 non-Focus List companies that CalPERS engaged only privately significantly outperformed the 59 Focus List companies over five-year time periods, compared with benchmarks. On average, all companies contacted through the Focus List program, including those never placed on the list, generated a total cumulative excess return of 15.8% above their respective benchmarks after three years, and 9.4% after five years.

More information is at http://www.calpers.ca.gov/.

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