As part of an annual exercise to help boost the performance of underachievers – also carried out by the California Public Employees’ Retirement System (CalPERS) – CalSTRS specified the five companies as a way to help focus attention on financial and corporate governance issues that have been problems.
“We want to work with them and motivate them so that they are stronger companies, and their shareholders are rewarded,” said Christopher Ailman, CalSTRS chief investment officer, in a Web statement describing the list. “In the end, these Workplan businesses must ask themselves if their current practices are preventing their shareholders from getting returns.”
Ailman told the Sacramento Bee that discussions with the companies have been specific. “The common thread … is very high level of executive compensation,” Ailman told the newspaper. “These companies’ financial performance has been extremely weak. The executives know that.”
The list by the $133 billion fund includes:
- Compuware Corp. of Detroit
- Level 3 Communications Inc. of Broomfield, Colorado
- Sirius Satellite Radio Inc. of New York
- Solectron Corp. of Milpitas, California
- UnumProvident Corp. of Chattanooga, Tennessee.
Some company officials downplayed the fund’s list saying many financial and corporate governance issues already have been addressed. “This is really ancient history,” Jim Sabourin, spokesman for giant disability insurance provider UnumProvident, told the newspaper. “We’ve gone through a significant financial and operational restructuring. Our stock has improved 43.8 percent in the last two years.”
Studies have found that targeted companies often gained additional stock value months and years after first appearing on the list.
This spring, a new CalPERS report said that cumulative share prices of all companies put under the spotlight since 1992 had gained an additional 12.6% three months after making the list and 48.18% a year later. “Over a period of time, the results actually can be quite spectacular,” Ailman told the Bee. “Over decades, you see a significant change over how corporate America behaves.”
To generate the list, CalSTRS reviews hundreds of US companies in its long-term, or passive, domestic stock portfolio. US stocks account for 43% of the fund’s investment portfolio. The targeted companies are evaluated on their one-, three-, and five-year stock performances as compared with industry rivals. CalSTRS also reviews corporate governance, including executive pay and corporate board practices.