SACRAMENTO, Calif. - The $110 billion California Public Employees' Retirement System is seeking to strengthen corporate governance principles that are under attack in the United Kingdom and nearing a crucial period in France.
The system's investment committee gave support to corporate governance efforts in those countries by approving what it calls separate country market principles for those countries for the first time.
The principles are CalPERS' first steps in implementing an international corporate governance program. The retirement system, a significant international investor, approved the framework for such a program early in 1996.
The country market principles could be highly significant for foreign countries because of the tendency of U.S. pension funds to follow CalPERS' lead on corporate governance issues.
The support comes at an important time for Tony Blair, who has made corporate governance a key platform for the U.K.'s Labour Party. Mr. Blair is a strong candidate to replace Prime Minister John Major in the upcoming elections there.
The country market principles for the United Kingdom call for:
Existing governance codes to be upheld and strengthened;
Future governance panels in the United Kingdom to include institutional investor representatives, including at least one institutional investor based outside the United Kingdom and demonstrating a commitment to good governance principles;
Formal counting of all shareholder ballots with a formal, documented announcement of the outcome;
Strengthening management accountability to corporate owners through the director-shareholder relationship; and
Separate chief executive and chairman positions, a majority of independent directors, key committees composed of independent directors only, and appropriate training for directors.
For France, the country market principles call for:
French corporate boards to carry out their responsibilities to all shareholders including minority shareholders;
The Vienot corporate governance recommendations to be implemented and for annual disclosure to shareholders of companies' compliance with Vienot or lack thereof to be a listing requirement of the Paris Bourse;
Periodic review of French corporate governance practices including a Vienot committee review in 1998 as foreseen by the Vienot report;
Several points for strengthening management accountability to corporate owners through the director-shareholder relationship; and
Greater number of independent directors, disclosure of substantive information on proposed director nominations and key committees occupied by independent directors.
The Vienot report contains findings of the Conseil National du Patronat Francais and the Association Francaise des Enterprises Privees, France's two main employer associations. It recommended voluntary corporate governance principles, including that each corporate board should have a minimum of two independent directors.
Corporate governance issues are facing increasing opposition in the United Kingdom. The Confederation of British Industry, representing leading British industry executives, has called for the Hampel Committee to not make any radical changes to existing corporate governance rules. The Hampel committee is the successor to the Cadbury committee on corporate governance in the United Kingdom. The Hampel committee is reviewing the code of boardroom conduct set out by the Cadbury committee.
Some U.K. corporate executives believe existing corporate governance rules are sufficient. They fear the Hampel committee will introduce more regulations.
Critics of corporate governance in the United Kingdom claim corporate governance has become time-consuming and costly.
But supporters of corporate governance claim more rules are needed, and existing rules need to be followed. Last August, supporters claimed that some U.K. companies ignored key corporate governance recommendation seeking to cap generous executive bonus schemes.
In France, the government "has not yet shown its hand " on whether it will submit more far-reaching corporate governance measures in a bill headed for Parliament, according to a CalPERS staff report
However, the report said France is leading continental Europe in implementing corporate governance reforms.
Corporate governance has gained interest in France partly because of prolonged recession in that country. Some French leaders think corporate governance will make French companies more competitive globally.
Also, the French government is privatizing some of its most important companies. Corporate boards are shifting focus to shareholders from politicians.
Country market principles for the California fund are expected on Germany and Japan later this year.
The fund's corporate governance efforts are being formulated on a country by country basis to identify the best corporate practices for specific markets and to recognize differences among countries.