Company Stock Could Become Governance Focus

January 16, 2002 ( - Employer stock practices could come under some new pressure from two of the nation's largest pension fund investors.

California state Controller Kathleen Connell, who is on the boards of both the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS), has proposed tougher corporate governance policies that will focus on employer practices with company stock in their retirement plans, according to Dow Jones.  The two funds represent more than $280 billion in assets.

Four Proposals

In a letter to pension fund officials, Connell recommends four specific changes to each fund’s corporate governance policy – which would be applied to any publicly traded company in which CalPERS or CalSTRS ‘holds a significant equity stake.’

  • employees would not be required to invest in their company’s defined contribution retirement savings program
  • employees who choose to participate would have the option to receive the match in a form other than the company’s stock. 
  • no more than 10% of a participating employee’s savings may be invested in the company’s stock.

‘Enron is only the tip of the iceberg here,’ Connell said, according to the report.  ‘What’s happening with Enron is not specific to Enron, with respect to investing in these defined contribution plans. I’m concerned with a domino effect if other major Fortune 500 companies begin to have a devaluation of their assets in a falling economy.’