SACRAMENTO, Calif. - The $98 billion California Public Employees' Retirement System, which has shaken up dozens of boardrooms in the United States, now plans to stir things up at many of the largest foreign companies in its investment portfolio.
Officials of the giant public fund will ask trustees March 18 to approve a systematic corporate governance program in the United Kingdom, France, Germany and Japan, where the fund has its largest foreign stock holdings.
The staff recommendations follow a study started in August to examine "the costs and benefits of being active (overseas) and also to recognize that we can't export shareholder activism as it is," Kayla J. Gillian, deputy general counsel, said at a recent proxy conference in Washington.
The findings recommend the fund create a separate corporate governance program for each of the four countries.
"We want to avoid the notion of the 'ugly American' that we know best," said Richard H. Koppes, deputy executive officer and general counsel, in an interview.
The fund's proposal to aggressively protect its holdings in foreign companies follows numerous studies showing that watchful shareholders can prompt companies into taking action that directly result in higher stock prices. It is prompted by the system's plans to boost its foreign stock holdings to one-fifth of total assets; foreign stocks already comprise about 17% of its total portfolio, Mr. Koppes said.
Also, foreign markets are ripe for such a corporate governance program, the report noted, because top brass of foreign corporations rarely feel the heat from their shareholders and are more likely to "pursue interests that diverge from those of their shareholders."
The fund's international corporate governance program is budgeted around $200,000.
The fund already has been active internationally since 1990, when it began voting on issues brought up at annual shareholder meetings of foreign companies in its portfolio. In recent years, the retirement system has routinely voted against "egregious" proposals offered by managements of foreign companies, but Mr. Koppes said the approach was "hit and miss" based on the issues and companies involved.
What the fund plans now is to team up with local institutional investors or shareholder groups to develop a set of principles it would like companies to adopt in each of the four countries. For example, in the United Kingdom, it might call on companies to adopt the Cadbury Committee report and the Greenbury Codes of Best Practices; in France, it might ask companies to comply with the Vienot recommendations, the report stated. In Germany, it might stress a one-share/one-vote policy. And, the fund might also ask local groups in Germany and Japan to develop voluntary codes for companies to adopt, akin to those in Britain and France.
The California fund's board would have to approve the principles.
Unlike the United States, where the fund analyzes the performance of all of the companies in its portfolio and targets laggards, such an approach might not work overseas, Mr. Koppes said.
"In all cases, good corporate governance principles would be something that you could apply across the board, and therefore don't have to target any company," he said.