The California Public Employees’ Retirement System, which holds $7 billion in debt and equity in companies participating in a federal bailout program, asked Congress to support shareowner efforts to improve the governance practices of America’s public companies.
“Corporate governance reform is a vital part of the financial market stabilization process for companies that are participating in the Troubled Assets Relief Program (TARP),” Anne Simpson, Senior Portfolio Manager for CalPERS Corporate Governance, said in remarks prepared for a congressional panel hearing.
“We’re urging government, as a fellow shareowner, to help us develop and use tools to hold corporate boards accountable, embrace corporate governance best practices and thereby ensure alignment of interests,” she told the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform.
Simpson said that CalPERS, the nation’s largest public pension fund, has a strong financial interest in how they are governed, even as they move out of the program.
She said TARP recipients can improve their share value by adopting governance best practices, as indicated by research showing the improved value of companies placed on the CalPERS Focus List of underperforming companies the past 15 years.
“Wilshire Associates found that after the first five years of engagement by CalPERS, the companies concerned averaged excess returns of 15 percent above their benchmark return on a cumulative basis,” Simpson said. “We believe this kind of transformation is possible for TARP recipients, and that we can foster transparency and accountability not only for TARP companies but for the entire market.”
She said well-governed corporate boards will hold directors accountable to shareowners; are transparent in terms of operating, financial and governance information; follow the one-share, one-vote principle; and focus on long-term rather than short-term returns.
They also have independent directors with strong skills sets and diverse backgrounds, executive compensation packages that are tied to performance and submitted to shareowners for annual non-binding approval, and allow shareowners to place their board candidates on company proxy election ballots.
“CalPERS strongly supports the SEC’s (U.S. Securities and Exchange Commission) efforts on the proxy access issue and applauds the House and Senate for endorsing the SEC’s authority to introduce reforms,” she said.
CalPERS has approximately $200 billion in market assets and owns shares in more than 9,000 companies. It provides retirement benefits to more than 1.6 million State, school and local public employees, retirees and their families. For more about CalPERS, visit www.calpers.ca.gov. For additional CalPERS corporate governance information, visit www.calpers-governance.org.