Calpers triumph set to drive more reforms
By Dan McCrum
Published: February 24 2011 22:39 | Last updated: February 24 2011 22:39
Calpers claimed a high-profile scalp this week, as the largest US pension
fund by assets under management
won a shareholder vote to
improve corporate governance at
Apple, the second-largest
US company by market capitalisation.
The non-binding resolution should pave the way for similar reforms to the
way board members are elected elsewhere, correcting an anomaly that sees the
US as the last developed market not to impose majority voting for directors
on listed companies.
“Even Russia, that bastion of shareowner democracy, allows for some form of
shareholder director nominations,” says Anne Sheehan, director of corporate
governance for the California State Teachers’ Retirement System, which has
joined Calpers and Florida’s pension fund in the campaign.
Poison pills, golden parachutes and options backdating have all been tackled
over the past 20 years. However, with many of these governance battles now
won, the remaining question is the ability of shareholders to engage with
and police the companies they own.
“The US system is adversarial,” says John Wilcox of consultancy Sodali.
“Companies view governance as a set of obligations imposed from the
He blames this on the serial failure of US corporate groups to advocate
dialogue or a collaborative approach to shareholder rights. “The pattern of
governance reform is linear and uniform,” he says.
Abuses, such as excessive executive benefits, prompt complaints and calls
for reform. A lack of change prompts shareholders to press the Securities
and Exchange Commission or Congress for action, and after a big battle
companies are left with rigid and costly rules imposed.
The latest example of this is the fight for proxy access.
authorised the SEC to introduce rules allowing certain shareholders to
include their nominations for directors in a company’s own proxy materials
sent to shareholders.
Challenging a company would thus become much cheaper and accessible for
activist investors. However the US Chamber of Commerce is fighting the new
rules in court because it is fearful that the new rights will be hijacked by
special interest groups pushing a narrow agenda.
For now companies must contemplate other changes introduced as a result of
Dodd-Frank, including “say on pay” rules and an end to discretionary voting
of clients’ shareholder votes by stockbrokers.
The former had threatened to “suck all of the air out of the room this proxy
season”, says Pat McGurn of Institutional Shareholder Services, a proxy
adviser, as investors struggled to deal with several thousand companies
adopting the measure at once.
While some see it as a box ticking measure, Stephen Brown, director of
corporate governance for TIAA-CREF, which manages $453bn in assets, argues
that it is “a tool to have greater dialogue with the board on executive
An end to broker voting is more significant, according to Stephen Davis,
executive director of the Milstein Center for Corporate Governance, who
characterises broker voting as “legalised ballot stuffing”. “In some way
what Dodd-Frank is doing is placing an enormous bet on shareholder’s ability
to police the market on their own,” he says.
Efforts by the large funds are now moving toward improvements in the quality
of independent board members. At the same time the requirements on
shareholders have increased.
TIAA-CREF on Thursday published its first update to its governance standards
since 2007. Prominent among the changes was a shift from a the “rights and
responsibilities” of shareholders to their “duties and responsibilities”.
Mr Brown, argues that a shift is already under way.
“Since the summer we have seen many more companies reaching out to us. They
understand that we are in a new era and that there is a need to reach out to
“Dodd-Frank has encouraged those weren’t part of the trend to get involved.”