SEC and Other Investigations of Illegal Trading: Calpers Targets Directors Who Neglect Holders

» Jen_ - Calpers Targets Directors Who Neglect Holders

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and one more requested article from Steve from 4/16/04 WSJ...

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Calpers Targets
Directors Who Neglect Holders

By AARON LUCCHETTI and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
April 16, 2004; Page C1

The nation's biggest public pension fund is escalating its campaign for better corporate governance, targeting directors it says don't act in the best interests of shareholders at 2,700 companies -- almost all of the U.S. corporations in its portfolio.

By withholding support for the re-election of certain directors on the boards of about 90% of its American companies, the California Public Employees' Retirement System, known as Calpers, is returning to its activist roots. Yesterday, the fund said it is targeting directors at Apple Computer Inc., including co-founder Steve Jobs and former U.S. Vice President Al Gore, as well as nine directors at Lockheed Martin Corp. This week, Calpers said it wouldn't vote to re-elect investment guru Warren Buffett to the Coca-Cola Co. board or Citigroup Inc. Chairman Sanford Weill to his own board. Other prominent directors soon will join the list.

The massive campaign stems from the pension fund's quiet decision last year to begin flexing its muscles again after a long hiatus during the stock-market boom of the 1990s. In the early 1990s, the fund complained about excessive executive pay, but the effort failed and pay soared.

Now Calpers believes accounting scandals at WorldCom Inc. (now MCI), Enron Corp. and Adelphia Communications Corp., among others, will give its campaign added weight. It is focusing on whether directors are doing enough to look out for shareholders, especially in how they select the accounting firms that audit their companies' books. Most of the directors targeted by Calpers this year approved of accounting firms serving as auditor when they also did consulting work for a company, an arrangement Calpers says could encourage auditing firms to approve questionable accounting.

"There is nothing more important to us than ensuring that the audit is done right," says Christy Wood, a senior investment officer at Calpers. "If we have no faith in the numbers, it's only a matter of time before we get more Adelphias and Enrons."

Ms. Wood disclosed the scope of the fund's campaign in an interview yesterday. Last April, the pension fund sent letters to companies putting them on notice that it would withhold votes from such directors, but the decision came so late in the proxy season that Calpers voted against directors at only about half the number of companies it is targeting this year.

The "vote no" campaign comes as the Securities and Exchange Commission considers a new rule to make it easier for large shareholders to nominate their own directors. Under the proposal, a 35% vote to withhold approval of a director would trigger a process to give a large investor -- or group of shareholders -- the right to put a director candidate on a company's proxy. If approved in its current form, the proposal would cover this season's elections.

"Governance is no longer considered political foolishness," says Sarah Teslik, executive director of the Council of Institutional Investors, a Washington group that represents more than 130 pension funds with more than $3 trillion of assets, including Calpers.

In today's environment, Calpers has "a much better shot at influencing companies than they did five years ago," Ms. Teslik says. Calpers says it is already hearing from many companies that it has targeted.

The campaign is being fueled partly by the political ambitions of Phil Angelides, California's state treasurer and a Calpers board member, who is considering running for governor of California in 2006.

Mr. Angelides, who was among the first public officials to call for the resignation last year of former New York Stock Exchange Chairman Dick Grasso, "has made no secret of the fact that he wanted to beef up" Calpers's corporate-governance program, says Patrick McGurn, a senior vice president of Institutional Investor Services, a proxy-advisory firm in Rockville, Md. "That has unleashed a lot of it."

Mr. Angelides says his main goal is representing California employees and retirees who have $166 billion invested through Calpers. As for his future, he says, "Good policy is most times good politics."

It remains to be seen how effective the campaign will be. Some other big public pension funds support Calpers's opinions but won't necessarily vote the same way.

TIAA-CREF, the retirement system for higher-education employees, and the New York State Common Retirement Fund, for example, agree with Calpers's position on auditors but are stopping short of withholding votes from all directors where there is a potential auditing conflict.

Alan Hevesi, the New York State comptroller who oversees the New York fund, says companies shouldn't be paying large consulting fees to their accounting firms but adds that he wouldn't automatically vote against directors who serve on audit committees of boards where it happens. "You want the freedom to factor in" specific nuances of each company's situation, he says.

Calpers's Ms. Wood says the effort will take time, adding that she would be satisfied if half of the companies in which Calpers owns shares changed their practices over the next two years.

Auditor independence isn't the only issue. Calpers is withholding support for Apple's entire board because it has "failed to implement a shareholder-approved proposal on options accounting," the fund says on its Web site. At Citigroup, the fund is withholding its vote for Mr. Weill because it argues he should be "held accountable" for costs incurred by the company to settle civil investigations of improper practices while Mr. Weill was chief executive.

Some big business groups take a different view of Calpers's activism. Withholding votes from directors at 2,700 companies "is absolutely overkill. It's wasting shareholders' money because companies have to fight these things," contends John Castellani, president of the Business Roundtable, a Washington group that represents major companies' chief executive officers.

"I'm struck with the absurdity of what they're doing," he says, citing Calpers's decision to withhold support for Mr. Buffett's re-election to the Coca-Cola board. "There's no one who would not say he's independent." Calpers withheld support from six members of Coke's audit committee, including Mr. Buffett, because it authorized the company's auditor to perform "nonaudit services."

Mr. Castellani suspects Calpers's burst of activism is intended to put pressure on the SEC to adopt the rule allowing greater shareholder democracy, which his group opposes.

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finally we're seeing a little poetic justice - eh Steve?....Jen

-- posted by Jen_