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September 2009 Workshop:
John Chiang's Opening Remarks

In March 2008, California State Controller John Chiang requested CalPERS to consider a new initiative to address corporate board diversity. Subsequently, in September 2009, CalPERS and CalSTRS organized a workshop to constructively discuss broadening the director pool of talent. The goal was to not only gain feedback from the workshop, but to also create a working group that would meet again in person on November 18th, 2009 in Washington DC hosted by the International Corporate Governance Network, just before their fall meeting which has board-shareholder dialogue as the main theme.

John Chiang's Opening Remarks:

CalPERS and CalSTRS have a renowned history in corporate governance reforms. In the wake of the worst corporate scandals in recent history, we have worked to make corporate boards less of a tool of the Chairmen and CEOs, and more of an open and independent voice the company's shareholders who truly own the company. The reason why we are here today is because there is broad agreement that a diverse corporate board is good business. That understanding has assembled a very inclusive group today that is comprised of shareowners, companies, search firms, labor, and leaders in corporate governance. Thank you for taking part in this important discussion

When we talk about board diversity, we are talking about more than the traditional notions of gender, age, nationality and race. We are talking about a broader range of thoughts, perspectives, and competencies that define good leadership teams. It is about getting past the country club mentality and avoiding the common playbooks that can lead to catastrophes in the marketplace.

As shareholders, we want the companies we invest in to be thinking about how to achieve long-term success. We know that companies need different combinations of talent at different stages of their development. We know that boards can become settled. They can descend into "group think" or lose the will to challenge an executive. Diversifying the board is about adding dynamic conversations, avoiding the "check-the-box" mentality, and recognizing that business in the 21st Century is a global game – that boards can bring new perspectives into the mix, and draw upon experience which is relevant in a multicultural world where customers, suppliers and investors will be from around the globe.

For businesses, board diversity is all about tapping into talent. I think from our experiences at CalPERS and CalSTRS, the early indications are promising. But really, if you are searching for the best and brightest – why limit yourself to half the population?

We are also here because time is of the essence. Our timing is also important because shareowners are potentially on the brink of having the ability to nominate directors to corporate boards.

This is a historically significant reform that will enable investors to hold boards accountable. If this rule is approved, nominating directors will be a big step for shareowners that will strengthen accountability and also require a higher level of engagement. And proxy access will give us the opportunity to ensure that boards recognize that diversity can give them a competitive advantage.

With proxy access, we have an opportunity to do what is good – and do it in a way that makes shareowners responsible partners. Remember when the Enron's, Worldcom's and Tyco's brought pension fund activism to frenzied levels – when corporations would say "Go Away" to the concerns of investors, and shareholder activists would respond with a one-dimensional "Fire the CEO"? We know from the past that neither approach makes the boardroom more effective or more accountable to shareholders.

We would run the risk of repeating history if shareowners used proxy access to only vote "no" when presented with a failing board. The key is to show that you know how to build a company up. Doing what is good means being able to deliver an alternative. It is not effective or responsible for shareowners to wait for the Annual General Meeting and hope they can just vote down candidates offered up by management. We need a pool of talent which is diverse, international in experience, and at its core qualified in order to deliver for owners. And we have other channels at our disposal that will foster open and honest dialogue between shareowners and the corporate community – we have opportunities in our conversations with nominating committees, we have engagement, and when we vote "no" or withhold our vote from boards we should be thinking positively about how we can help lead companies to fish from this pool of talent for recommendations. We know we get nowhere when we are the lone voice shouting from the rooftop, and we are more successful when use our voice in the process to offer up a solution.

While we want proxy access, we do not need to wait. Majority voting is becoming is quickly becoming the norm in leading companies. A majority of S&P 500 companies have adopted some form of provision to ensure that democracy applies on director elections. With majority-voting boards are becoming more attentive to their owners, and boards are increasingly asking their shareholders for their opinion on potential board candidates. There are formal and informal channels that we have at our disposal – so we need to build that pool of talent regardless of whether proxy access arrives in 2010 or 2011.

My question to you is what can we do to help search firms and nominating committees attract real, diverse talent? Thank you, and I am going to turn the floor over to Anne Simpson, the Senior Portfolio Manager of Global Equities at CalPERS, to discuss what we hope to achieve today.