SACRAMENTO, Calif. -- The $133 billion California Public Employees' Retirement System wants to form international alliances for shareholder activism.
The alliance proposal, which could be approved by trustees on Oct. 19, would be a major change in the way the nation's largest pension fund could pressure companies to make changes.
CalPERS and other pension funds long have had an alliance in the United States through the Council of Institutional Investors. Now, CalPERS staff is suggesting alliances with investors in Germany, France, Japan and the United Kingdom -- countries in which CalPERS has become more active in proxy voting.
The proposal also calls for a kind of international investor reciprocity so institutional investors can be "louder and stronger," according to a staff memo to trustees.
"Each alliance participant will agree to generally support the other's 'home market' governance principles," said the memo from Bob L. Bolt, CalPERS senior investment officer for public markets, and Kayla J. Gillan, fund general counsel.
Sheryl K. Pressler, chief investment officer, and James E. Burton, chief executive officer, also support the proposal.
On many issues, CalPERS staff hopes to be speaking with one voice internationally. "Although each alliance relationship will ensure that participants retain the freedom to act separately and independently at their own discretion, the goal will be to build a relationship such that variances are infrequent," stated the memo.
"An alliance participant, when dealing with a 'home market' governance issue, will be speaking not only for its own fund, but also for the alliance's foreign participants," it added.
The proposal also would help CalPERS overcome a key problem it has encountered in international corporate governance: how best to act on governance issues in countries with which it is relatively unfamiliar. The memo suggests alliance members could take the lead in their home country, so corporate governance proposals "can be conveyed in the language and manner most likely to be influential in the market."
Rick Bennett, director of governance for LENS Investment Management, Washington, said such an international alliance "is the wave of the future." LENS, an activist money manager, buys stocks in underperforming companies and uses shareholder rights to make changes in the board and management.
Institutional shareholders need to invest globally, and "they want to ensure that the companies they are investing in are accountable to shareholders," Mr. Bennett said. To ensure accountability, shareholders have to develop international relationships, he said.
CalPERS also plans to expand its Internet Web site. The staff memo says the Shareowner Alert page, while well received, is "limited by its scope of information and architecture."
Fund officials suggest remaking the Web site by:
* Detailing information about the performance of its "Focus List" companies -- those it considers key underperformers among its stockholdings -- and providing information about communication with those companies.
* Establishing a library of corporate governance literature with an electronic search engine to find library items.
* Building a compendium of corporate governance principles from CalPERS and other organizations.
* Posting CalPERS' decisions on specific proxy votes so that other investors can consider them when deciding proxy issues.
* Publishing CalPERS' and other opinion pieces.
* Offering a guest book so visitors can receive update information from CalPERS.
An additional CalPERS staff idea is an outreach program. The pension fund would seek to develop new relationships and start dialogues with shareholders who have been historically passive, such as mutual funds.
The proposal also calls for publishing CalPERS' view on corporate governance issues in publications produced in collaboration with other activist investors, and accepting speaking engagements domestically and internationally.
Beside the outreach program, CalPERS staff wants to continue building relationships with regulatory agencies. Staffers propose sending comments on key issues affecting shareholder voting rights to the Securities and Exchange Commission, the New York Stock Exchange and the Financial Accounting Standards Board.
Staff also would send fund officials' views to members of Congress on issues affecting competition between the global securities exchanges.
Other recommendations include developing so-called cutting edge issues for inclusion in shareholder proposals.
The CalPERS staff recommends corporate audit committees retain an independent consultant to perform a corporate governance audit and report to shareholders.
The audit would describe issues affecting the independence of a company's auditor, such as the amount and kind of consulting work performed by the auditor.
The proposal also suggests companies share Year 2000 compliance issues with shareholders so that they understand the impact of those issues.
Finally, the staff suggested promoting academic research on current issues relating to corporate governance.
