CalPERS stepped up its corporate governance activity this year, including lifting the limit on shareholder proxy proposals it could file and targeting eight major financial institutions on risk-related concerns and 58 other firms on adopting a majority-vote standard.
Its corporate governance efforts already have realized some success, notably for what the fund did not do.
The $209.1 billion California Public Employees' Retirement System, Sacramento, will not issue a focus list this year, the first time since it began — in 1988 — the public identification of companies for poor shareholder performance and corporate governance.
CalPERS was considering 15 companies in the screening process for the 2010 focus list, Clark McKinley, CalPERS spokesman, said in an interview. But the companies improved their shareholder performance and governance practices after CalPERS' corporate governance staff had discussions with all but one of the companies' officials, he added. The remaining company is in a pending acquisition, he said.
Each of the 14 companies had positive stock performance for the 12 months ended Feb. 26.
CalPERS declined to release the names of the companies. It does not publicly identify the companies during its engagement process, Mr. McKinley said. It does so only if it should decide to put them on its focus lists.
“So it worked,” Mr. McKinley said of the fund's process. “The whole point is not to embarrass them but to get improvements, and it worked.”
A study by Wilshire Associates Inc., a CalPERS consultant, shows CalPERS' focus list companies outperformed the fund's benchmarks by an average 15.4% five years after they were placed on the focus list, Mr. McKinley said in a statement saying that no list would be issued this year.
CalPERS has “no plan to abandon the focus list process,” Mr. McKinley said in the statement.
Fund officials are in discussions with eight major financial institutions on corporate governance and risk issues, Mr. McKinley said in the interview.
Although the eight didn't underperform their peers — a metric of the focus list screening — CalPERS has concerns about their corporate governance and performance, and initiated the discussions with the companies, Mr. McKinley said.
Through the corporate discussions and other communications, CalPERS seeks “to better understand each company's response to the challenges posed by financial market instability and use these high-level meetings to develop CalPERS' 2010 proxy votes” decisions, Mr. McKinley said in another statement in response to an inquiry.
CalPERS also is asking 58 top U.S. companies to adopt voluntarily a majority-vote standard to elect their directors in uncontested elections.
“CalPERS has not filed any shareowner proposals to date related to the majority voting initiative,” Mr. McKinley said in the statement. “We are currently in various stages of dialog with each of the 58 companies.”
To make way for the majority-vote standard initiative, the CalPERS board on March 15 eliminated the pension fund's annual limit on the number of shareowner proposals staff members are permitted to submit. The limit was 10 proposals per year for governance issues and 20 proposals per year related to executive compensation.
CalPERS has won a majority of shareholder support on two proposals it has filed.
A majority-vote standard proposal CalPERS sponsored at Graco Inc. before the retirement system began its initiative achieved support of 63% of shareholders April 23. Karen P. Gallivan, Graco vice president, general counsel and secretary, couldn't be reached for comment on what action the Graco board might take in light of the vote.
At Hospitality Properties Trust, CalPERS won 91% support of shareholders for its proposal calling for annual election of directors.
Timothy A. Bonang, HPT vice president, investor relations, couldn't be reached for comment.
In director elections this year, through May 11, CalPERS opposed about 9% of nominees, compared with about 12% in all of 2009.