Boa tarde. Bem-vindos aos Estados Unidos. É um grande prazer estar com vocês aqui hoje.

Good afternoon. Welcome to the United States. It's a pleasure to be with you today.

I would like to thank the Brazilian Institute of Corporate Directors and the Brazilian Association of Public Companies which have honored me with an invitation to speak to you today. It's important to gather like this to share ideas, experiences, and generate dialogue between our countries.

I'm here to speak to you about corporate governance in the United States and around the world. I would like to take this time to step back and review some of the catalysts that are beginning, or perhaps already have, opened the doors to a new age of corporate governance. More importantly, I want to turn your attention to some of the new patterns of ownership and shareowner activism that, in my opinion, will increase the use of corporate governance globally.

Please note that I use the word shareowner, not shareholder. In my opinion, we are long-term owners of these companies – the patient capital – not simply passive holders of shares.

I plan to cover three topics today:

• First, I'd like to give you a brief overview of the California Public Employees' Retirement System, better known as CalPERS – our purpose, our structure, and some of the factors that influence our organizational behavior.

• Second, I'll discuss CalPERS Corporate Governance Program in the United States and how it has expanded internationally.

• Finally, I'd like to leave you with a few thoughts to ponder concerning the future of corporate governance globally, as we approach the 21^st century.

What is CalPERS?

CalPERS is America's largest pension fund. We are the second largest in the world. We manage assets totaling more than $140 billion. Our mission is to provide for the financial and health security of over one million public employees and their families by providing for their retirement and health benefits. This is the most important factor to remember – the driver behind all of our decisions. It is the critical fact that we internally cannot forget, despite the visibility that our actions have in the investment world.

One third of our active members are state employees and their families. Another third are from the ranks of classified school employees. The remainder are local government employees. And almost a third of our total membership is retired.

We were established in 1932 as a defined benefit plan. A defined benefit plan is a retirement program that sets a benefit calculated on a formula, often a percentage of final average pay, times years of service, based on retirement age. In other words, CalPERS is a prefunded system, and one of the few that is nearly fully funded.

Although CalPERS manages $140 billion, this is not one dollar (or one Real) too much. These assets are tied directly to the liabilities we face -- that is, the benefits that we are obligated to pay our participants. We face a tremendous obligation in the next century, as the largest segment of the US population (those born the decade immediately after the second World War) prepare to retire. CalPERS assets are invested with the goal of ensuring that there will be sufficient money available now, and into the future, without experiencing unnecessary or unexpected risk.

Currently, our earnings from investments contribute the lion's share of funding needed to pay out 4.5 billion dollars in benefits yearly. Nearly 70 cents on every dollar in our fund comes from investments, with the remaining 30 cents equally from two sources: the taxpayers and the contributing members.

The return on our investments is largely due to our asset allocation decision. It is essentially the starting point and most important component for us to achieve successful returns on our investments. Currently, our asset allocation consists of approximately $37 billion in fixed income, $98 billion in equities and $6 billion in real estate. More than $560 million is invested in South America.

Our trust fund is managed by a 13-member Board of Administration, consisting of elected and appointed members including the State Treasurer and State Controller. I have served on the CalPERS Board of Administration for 27 years, including 10 of those years as President of the Board.

In this time, I have witnessed the public pension industry grow into one of the most important, visible and growing sources of investment capital not only in America, but also in the world. As I speak to the members of CalPERS – both young and old – I always wrestle with the question that plagues fiduciaries: How do we guarantee future financial security?

At CalPERS we have no greater responsibility than the prudent management of our portfolio. We are under considerable and constant pressure to increase returns by pursuing every possible strategy to increase the value of companies in which we invest. As fiduciaries, we must discharge our responsibilities in accordance with the twin duties of loyalty and care. This is analogous to the duties of the directors of a corporation to its shareowners.

The duty of loyalty is sometimes referred to as the "sole purpose" doctrine. This means that the board and other CalPERS fiduciaries must act solely in the interest of members and beneficiaries. For this reason, CalPERS cannot base its corporate governance activities on social or political causes. Instead, we must focus on the "bottom line" of enhanced shareowner returns.

Under the duty of care, the board and other CalPERS fiduciaries must manage the fund as a "prudent investor" -- this means with the care, skill and diligence that a prudent person, familiar with the matters, would exercise under similar circumstances in managing a pension fund of like size.

As a large institutional investor with stock in over 1,600 American companies and over 750 companies outside the United States, we have become long-term shareowners of major corporations. High transaction costs associated with selling equities, larger portfolios, and more money to invest have all created incentives for us to buy and hold. In a sense, we have become the patient capital of companies. The idea of simply selling shares in the face of disgust – at a considerable cost to the System – has given way to the realization that being an agent for change makes better economic sense.

CalPERS Board strongly believes that using a passive strategy to select stock does not mean that we have to be a passive owner. We believe that we have a duty to our participants to put just as much effort into being an active owner as in deciding to become an owner in the first place.

To fulfill these duties, we use corporate governance activism to improve performance in the United States and abroad. Corporate governance, and the responsibilities of proxy voting that are a part of shareholder activism, are not just goals of public pension funds. The idea that good corporate governance and shareowners interests should become the "touchstone" for corporate directors has also been espoused by the U.S. Securities & Commission, ERISA and many other institutional investors.

I will now discuss our corporate governance program in the United States and how we have expanded it internationally.

CalPERS defines corporate governance to be the "relationship among valuable participants in determining the direction and performance of corporations." The primary participants are: shareowners, company management (led by the CEO) and the board of directors. We recognize that this may sound like an overly "American" definition because it does not expressly mention other stakeholder groups (the community, company employees, suppliers, and customers). In CalPERS view, companies that are operated with long-term shareowner returns as the primary goal will, ultimately, also reward other stakeholders. Companies that are driven by short-term goals don't reward anyone in the long-term. We believe that companies that elevate these other stakeholders to the same level as shareowners are simply diffusing accountability.

We began our corporate governance program in the early 1980's as a direct response to the takeover frenzy in corporate America. It began simply as objections by a few shareowners to certain company actions that were considered to be self-serving. Companies created anti-takeover devices and procedural obstacles that were viewed more as protecting the corporate status quo than serving the long-term interests of shareowners.

A debate quickly ensued over whether shareowners -- particularly institutional investors who were accused of being transitory and only interested in short-term profits - had a right to participate in decisions concerning the long-term viability of a corporation.

In late 1989, CalPERS began working closely with the US Securities and Exchange Commission. This relationship led to the 1992 reform of executive compensation disclosure and proxy solicitation reforms. These reforms paved the way to elicit support from other shareowners through communication and to work together to bring about change.

As our corporate governance program evolved, we moved away from a specific-issues approach to focus on company performance. And we have been successful.

Our corporate governance program in the United States has exceeded our own expectations over the past decade. We have witnessed changes at corporations such as General Motors, American Express, Sears and Kmart, to name a few. Within each company, there are internal forces who are working to effect necessary change. CalPERS, and other investors, represent catalysts for change; our attention on the company management acts to empower these internal change agents, who ultimately have the power to produce results.

One of the most prominent studies of economic value achieved through shareowner activism is documented in a study performed for CalPERS pension consultant Wilshire Associates. The study, which was published in the Journal of Applied Corporate Finance in 1994 and later updated in 1996, demonstrated that CalPERS corporate governance efforts targeted at underperformers substantially improved our return on investments. It looked at the stock performance of 62 companies that we targeted between 1987 and 1995. During the five years immediately before our first contact, these companies underperformed the Standard & Poor's (S&P) 500 Index by an average of 85 percent. But with CalPERS first contact five years later, the companies outperformed the S&P 500 by an average 33 percent.

More importantly, we have estimated that the improvement of the 62 companies has resulted in approximately $150 million US dollars, annually, in added returns at a cost to run the program at less than $500,000 annually.

We believe that the impact of the corporate governance movement within the United States goes beyond the stock price of these 62 companies. No company – and no CEO of a company, nor any director – wants to receive close scrutiny from CalPERS. Boards and management are voluntarily and proactively taking steps to improve their own accountability and independence. Simply put, the American corporate culture has changed; good governance is now something that is being institutionalized and valued.

Recently, CalPERS Board reaffirmed this belief by adopting a set of US Corporate Governance Principles and Guidelines. These principles represent the evolution and ongoing development of CalPERS corporate governance program. They also represent the foundation for accountability between a corporation's management and its shareowners and will serve as a tool to further advance this relationship.

The principles include a definition of an independent director and a number of criteria that specify higher standards for individual directors. We believe:

• independent directors should comprise a substantial majority of seats on a board;
• no director may also serve as a consultant or service provider to the company;
• competing time commitment of directors should be specifically addressed by each company; and
• a mix of director characteristics, experiences, and diverse perspectives should be reflected on each board.

The core principles and guidelines also recommend potential duties for an independent chair and a lead independent director of a board.

Our hope is that these principles will further strengthen independence of America's boardrooms and influence the corporate governance movement toward greater consensus on corporate governance standards. We believe the accountability reflected in these principles is needed as American corporations compete in the next century.

As successful as corporate governance has been for CalPERS, we realized we could do even more. We quickly began turning our attention to the state of corporate governance in the international markets.

Over the last decade, we have witnessed a change in capital markets worldwide. Continually, we see a move away from traditional forms of financing and a collapse of barriers to globalization of the capital markets.

The end result is that corporations from around the world are beginning to compete with each other in every market. This competition is forcing corporations to reduce labor and capital costs, improve productivity and change the way they do business. In order to survive, corporations are tapping capital in the international markets.

There has also been a dramatic change in the level of institutional investment in the international markets as well. According to a recent news report in the American trade press, international investing by 200 of the largest US pension funds grew to more than $320 billion in 1997. This amount was an astounding 43 percent more than the level in 1996.

CalPERS entered into the international security markets in the late 1980s to seek better returns and achieve diversification of the Fund's investment portfolios. In December 1994, we decided to increase the System's asset allocation to international equities from 12 to 20 percent of the Fund's total portfolio.

The increase in international ownership combined with the rapid globalization of markets has had a number of important consequences for CalPERS.

As the size of CalPERS international holdings began to grow, we asked ourselves -- if we are going to exercise our ownership rights to increase returns to our trust fund in the United States, should we not extend these efforts to our investment in the international markets? Given our fiduciary responsibilities, are we free to ignore international corporate governance?

At the same time, we recognized that globalization was largely causing countries to reassess and adapt their corporate governance systems to a more competitive environment. The realization that economic and capital markets were quickly breaking down barriers to globalization presented a significant opportunity for us to share our domestic corporate governance experiences. Our hope was to influence the discussion as these countries adopted corporate governance.

As a first step in understanding the unique differences of the global markets, we conducted a study on the role of international corporate governance and increased performance monitoring of our international stock holdings. Based on the study, we adopted a formal international corporate governance program in 1996 focusing on the four countries with the System's highest equity exposure: Japan, France, Germany and the United Kingdom.

We followed the study with the adoption of a set of global governance principles. The principles focus on six basic concepts that are fundamental to free and fair markets throughout the world. They also reflect the core of the corporate/shareowner relationship. However, they do not impinge upon the legal, economic and cultural traditions of each country. Specifically, the six global principles address:

• director accountability to shareowners;
• transparent markets;
• equitable treatment for all shareowners;
• easy and efficient proxy voting methods;
• codes of best practices that defined the director-shareowner relationship; and
• long-term corporate vision which at its core emphasizes sustained shareowner value.

Recently, we adopted market-specific corporate governance for the United Kingdom, France and Japan. These principles are designed to complement the governance work already performed by investors within these countries -- the Cadbury Code and Greenbury Report in Britain, the Vienot report in France, and the principles identified by the Corporate Governance Forum in Japan. And earlier this week, we had our first discussion about our corporate governance principles for Germany.

All of these principles embody the growth and changes inherent in the corporate governance systems of these countries. Ultimately, they will serve as a tool to assist us in monitoring our international investments while pursuing better corporate governance for the companies in which CalPERS invests.

We've even applied our corporate governance philosophy in other investment markets as well.

In December 1996, CalPERS formed an historic partnership with the prestigious Asian Development Bank (ADB), committing $225 million to make long-term, direct private equity investments in the emerging markets of the Asian-Pacific region. This strategic alliance was an international first, both for CalPERS and the international multi-lateral bank. The investments were targeted to finance a variety of ventures, including industry and financial services in the region.

The unique aspect of the partnership is its investment criteria. The Asian Development Bank won't invest in companies that don't have good corporate governance practices, among other criteria. The criteria are considered to be an important part of the investment strategy. The Asian Development Bank and CalPERS believe that good corporate governance will give the partnership an important competitive advantage when competing for attractive investments.

Clearly, corporate governance has become a dominant and focused theme in the US and international markets, and increasingly abroad.

My last topic. Where is corporate governance headed? I'd like to offer a few thoughts.

We believe that the focus will be on the evaluation of individual directors; are they people with integrity and diligence; are they people who are truly independent of management and recognize the value of that independence.

I expect that the boards of the future will be populated with people who have diverse backgrounds and international experience. The right skill mix will become an essential component of board composition.

I believe the director of the future will have to work ten times as hard than today. Directors will have more responsibility, and potentially more liability, than in any time in the past. As a result, we need to expect that some of our current directors will chose to withdraw. We will need to find quality replacements, and perhaps even consider the feasibility of smaller boards. We will need to squarely face the issue of director liability -- how much is appropriate to instill accountability, while not too much to discourage qualified participation.

Finally, I believe corporations around the world will need to adopt good corporate governance practices to attract and retain foreign capital and compete globally. Global markets will only become more attractive to investors with corporate governance standards that are more representative of shareowners interests. Experience tells us that those willing to adapt and change will be rewarded.

CalPERS hopes that our US and international corporate governance program will stimulate further debate and discussion about proper corporate governance practices. We recognize that there are differences, but we embrace them.

Obrigado.

Our overriding goal is to assert our voice and share our experience in corporate governance globally. By working with investors, we hope that our voice and experience can help corporate governance systems grow in a way that focuses on maximizing long-term shareowner value.

Thank you.