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Press Release
November 15, 2010
CalPERS Adopts New Plan for Engaging Underperforming Portfolio Companies
Private Engagement, Proxy Resolutions Supersede Focus List
SACRAMENTO, CA–The California Public Employees Retirement System (CalPERS) today adopted a new strategy for engaging underperforming public stock companies through private contacts and proxy actions rather than by posting a public "name-and-shame" Focus List.
The Shareowner/Corporate Engagement Program keys on a finding by Wilshire Consulting that privately contacted companies outperformed those named to the CalPERS Focus List every spring over the past two decades.
"Last March, we didn't publish a Focus List because 14 of the companies that we engaged in the final round improved their stock performance and adopted sound governance practices," said Rob Feckner, CalPERS Board President. "The Focus List has served us well by calling public attention to some of the worst market players, but the time has come for a more effective approach. Many of our portfolio companies are adopting improved governance practices, and we're getting better alignment of interest with them than we experienced even a few years ago."
Wilshire found in a review of 155 companies between 1999 through 2008 that the 96 non-Focus List companies that CalPERS engaged only privately, significantly outperformed the 59 Focus List companies over five-year time periods, compared with benchmarks. On average, all companies contacted through the Focus List program, including those never placed on the list, generated a total cumulative excess return of 15.8 percent above their respective benchmarks after three years, and 9.4 percent after five years.
For the 2011 proxy season, CalPERS will use a new screening process to identify target companies for possible shareowner resolutions that in earlier years might have been placed on the Focus List.
The process will include these steps:
- CalPERS will review the performance of the top 500 U.S.-based public companies in terms of CalPERS market value ranging from $15 million to $1 billion, including stocks and corporate bonds.
- The pension fund initially will screen companies for total stock returns for one, three, and five years relative to a broad index and industry group.
- CalPERS will conduct a secondary screening for key governance factors, financial analysis and market expectations ??? including board independence, election practices, executive compensation, board diversity and skill sets, and environmental and social issues.
- CalPERS will sponsor or support shareowner resolutions addressing practices of selected companies that continue to resist positive corporate governance change.
"This approach expands our playing field with bigger companies than before," said George Diehr, Chair of the CalPERS Investment Committee. "It's consistent with our overall effort to stop the destruction of share value; to raise the bar for better environmental, social and governance practices by companies; and to comply with legislative mandates such as the federal financial market reform and Sudan and Iran divestment State laws requiring continuing engagement with some 40 portfolio companies."
CalPERS is the nation's largest public pension fund with assets of approximately $220 billion. The System provides retirement and health benefits to approximately 1.6 million State and local public employees, retirees, and their families. For additional CalPERS corporate governance information, including an analysis comparing the Shareowner/Corporate Engagement and Focus List programs, visit www.calpers-governance.org.
External Affairs Branch
(916) 795-3991
Patricia K. Macht, Director
Brad Pacheco, Chief, Office of Public Affairs
Contact: Clark McKinley, Information Officer
pressroom@calpers.ca.gov
Additional Resources
Wilshire Letter with Chart (PDF, 46 KB)
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