Pensions & Investments is right to call on mutual funds to reveal potential conflicts of interest that may be a factor in their proxy voting (Editorial, April 17). However, many such funds hold shares for only for a few months. They are unlikely to ever be anything more than reluctant corporate watchdogs. The long-term solution lies not with so-called "independent director" oversight of compensation committees but with directors who are "dependent" on shareholders. Even more crucial is the need for long-term shareholders to exert their rights as owners.
Public pension and index funds have become the permanent owners. Public pension funds alone hold 10% of the equity in publicly held corporations. Yet, few have ever suggested candidates for corporate boards. In 2002 I petitioned the Securities and Exchange Commission to allow shareholders to place their candidates on the corporate proxy. The SEC subsequently proposed an "equal access" rule that received more support than any in their history, especially from public pension and SRI funds.
The proposal was killed by the Business Roundtable, whose 160 CEOs understandably didn't want to yield power. However, the SEC did adopt a rule that requires corporations to disclose if their nominating committees have received recommended nominees from a 5% shareholder or group. Corporations are also required to report on the disposition of such requests. To date, that provision has been invoked twice. It should be invoked to replace the compensation committee chair at every company that has awarded outrageous pay. If elected to the board of the California Public Employees' Retirement System, one of my top priorities will be to work with the Council of Institutional Investors to make that happen.
publisher and editor, Corporate Governance, and
candidate for CalPERS board of administration
Elk Grove, Calif.