CalPERS Identifies Six Laggard Companies on 2006 Focus List

According to a press release, the six companies are:

• Brocade Communications of San Jose, California;
• Cardinal Health of Dublin, Ohio;
• Clear Channel Communications of San Antonio, Texas;
• Mellon Financial of Pittsburgh, Pennsylvania;
• OfficeMax of Itasca, Illinois; and
• Sovereign Bancorp of Philadelphia, Pennsylvania.

“The stock performance and governance of these companies is unacceptable to us and other shareowners,” said Rob Feckner, CalPERS Board President, in the release. “We are urging them to make such improvements as requiring majority voting for directors, removing excessive takeover defenses that prevent shareowners from amending company bylaws, and accounting for their performance.”

CalPERS screens more than 1,800 US corporations from its internal equity portfolio. The pension fund then narrows the list of candidates to 15 to 20 companies based on their long-term stock performance, corporate governance practices, and an economic value-added (EVA) evaluation. CalPERS uses EVA and stock performance to identify companies where poor market performance is due to underlying company specific operating performance problems as opposed to industry or extraneous factors alone.

Traditionally, companies listed on CalPERS annual Focus List have seen their stock turn around after being named, a result known as the CalPERS effect.   A recent study reported that the effect is not as great as it once was, however (See The CalPERS Effect Is Weakening).

“In the coming months, we will continue to work with these companies to find ways to turn them around,” said Charles Valdes, Chair of the CalPERS Investment Committee, in the release. “We know that this kind of engagement leads to higher returns, positive leadership changes, more transparency, and much better accountability to shareowners and regulators.”

The 2006 Focus List and fact sheets on the six companies are here .