SACRAMENTO, Calif. - The $91 billion California Public Employees'
Retirement System, which has delivered some knockout blows to American corporations, now is throwing punches in some international corporate governance contests.
The California system has voted against several of what it called "egregious" proxy proposals at international companies.
Executives at the big public pension fund have been pushing shareholder rights and corporate responsibility for years in the United States. Now, as fund officials had promised, it is increasing its international corporate governance presence.
Only last month, William Crist, board president, told a group of financial executives in London that the pension fund would be taking a soft and gentle approach in international corporate governance until it better learns how international corporations do business. Some foreign fund managers have been concerned the fund would immediately export its tough-talking American corporate governance approach.
How the retirement system might look at international corporate governance issues can be gleaned from a report on its 1994-'95 proxy season.
The pension fund took issue with companies from Belgium to Japan, and it showed that, as in the United States, the giant pension fund is willing to take strong action at the corporate and executive board level and is willing to enforce what it thinks should be international corporate standards.
What impact the negative votes had on the international corporations was "hard to tell," said Jose Arau, principal investment officer of the California fund.
Although the pension fund lost each of the proxy contests, Mr. Arau said the fund "only wanted to make a statement....and say 'we don't like what we see."
Mr. Arau said he didn't know how close the voting was on the various proxy contests. He said fund officials did send some letters to the corporations informing executives of the system's position on various proxy issues.
Among the pension fund's votes:
It voted against the election of two former directors and top executives to the board of The Nomura Securities Co. Ltd., Tokyo. The nay vote came, the report said, because the directors, who also were company executives, had been involved in corporate scandals and resigned.
"The election of these directors, by rewarding unethical behavior, sets a bad example, not only for Nomura, but also for the Japanese business establishment," the report said.
It voted against a proposal of Bekaert Group, Kortrijk, Belgium, to approve discharging Bekaert directors and auditors of responsibility for the last fiscal year. That negative vote was prompted by news that former Bekaert director Anne Bekaert had been accused of tipping off her husband regarding a planned one-time dividend.
It voted against a BTR PLC, London, proposal to renew the company's articles of association to recognize best conduct practices.
The BTR proposal was "seemingly innocuous," the report said. But the proposal would permit the company to sanction shareholders who have not disclosed their holdings in excess of 0.25% of shares outstanding, rather than the more typical level of 3%.
The sanctions include cessation of dividend payments, cancellation of voting rights and refusal to register a transfer of shares. The compliance period for disclosure also had been shortened - to 14 days from 28.
The BTR proposal also allowed board committees to be composed exclusively of company executives instead of directors.
It also voted against a proposal allowing directors at Compagnie de Suez, Paris, to formally discharge responsibility for the last fiscal year. The negative vote came because the company is under investigation by the COB, the French government's securities watchdog agency, for the manner in which the company's results were presented.
The giant U.S. pension fund also voted against another company proposal, this one accepting the consolidated financial statements.
Reuters Holdings PLC, London, asked shareholders to authorize minor and technical amendments to its articles of association. But the California pension fund voted against the amendments, contending one would be "detrimental to shareholders," the report said. The change would allow board committees to be composed exclusively of company executives.
"In our opinion, this substitution is a relinquishment of board authority, and it should not be tolerated," the report said.
In Germany, the retirement system voted against a proposal at Volkswagen AG, Wolfsburg, to issue up to 100 million deutsche marks nominal value of new non-voting preference shares. The fund opposes the issuance of such shares. Issuance of non-voting shares has been rising among some of the top European companies.
In Switzerland, the fund voted not to ratify a Union Bank of Switzerland proposal to ratify actions taken in the past year by the Zurich-based company's board of directors and auditors. The fund voted against the proposal because BK Vision, the bank's largest shareholder, filed suit against the company on the grounds that it violated Swiss laws requiring all shareholders to be treated equally.
The giant retirement system probably doesn't have as much clout internationally as it does in the United States. But that will change, because the pension fund is increasing its shares of international stocks to 20% from 12%, only a few percentage points below its domestic stock investment level.
And, the fund might be setting an example internationally as it has done domestically. Other U.S. pension funds could follow its lead (as they have done domestically) and take an active international corporate governance stance.
Currently, the system's board is in "the midst of a study" to determine whether the fund should "step up its activism" on corporate governance abroad in the United Kingdom, Germany, France and Japan, said Richard Koppes, deputy chief executive officer and general counsel.
That study is expected to be completed in a