Pension funds and mutual funds, among other large long-term investors, should actively encourage companies to adopt corporate governance reforms that promote sustainable value and protect against market meltdowns, according to a TIAA-CREF policy paper issued today.
TIAA-CREF also warned against investors outsourcing their corporate monitoring and engagement “to third parties who may not have their same time frames or agendas,” according to the paper.
The paper's proposed reforms include allowing shareholders access to corporate proxy material to nominate directors, requiring a majority shareholder vote to elect directors, and an annual shareholder vote on executive compensation.
The policy paper states, “(S)imply selling stock in the face of inadequate performance is not the most attractive option. In active as well as passive segments of portfolios, investors should be vigilant in trying to prevent problems before value is lost and it is too late to sell, or increasingly difficult or expensive to address.”
“Shareholders must be more watchful and they must be empowered to act on behalf of their beneficiaries,” the paper states.
“It is imperative that large long-term investors such as retirement systems and mutual funds — to which millions of investors entrust their savings — encourage portfolio companies to adopt governing practices that promote sustainable growth and lead to long-term value creation,” Roger W. Ferguson Jr., president and CEO of TIAA-CREF, said in a statement about the policy paper.
Hye-Won Choi, senior vice president and head of corporate governance, said in the statement: “Potential steps that are being discussed in Congress and by the (Obama) administration that afford shareholders added rights are necessary, but just the first step. These new rules will bring about meaningful reforms only if shareholders use them responsibly to hold companies accountable for increasing long-term value.”
(Click here to view the paper.)