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17 August 2010 Sacramento
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The California Public Employees' Retirement System's (CalPERS) engagement with companies on its annual Focus List significantly improved stock performance over the past 23 years, the CalPERS Investment Committee was told today.
"The data strongly show that CalPERS involvement has generally stopped the erosion of performance results," Wilshire Associates, the pension fund's prime consultant, said in a report to the Board. "CalPERS good governance campaign has added value to the share prices of targeted companies."
Since 1987, CalPERS has publicly named 142 companies to its annual Focus List based on underperformance in share value compared with industry peers, returns on investment and corporate governance practices.
For the five years prior to their placement on the Focus List, the companies produced average annual returns that fell 30.1 percent below their market industry benchmarks. But in the five years after listing, they beat those benchmarks by an average of 2.4 percent per year for "a dramatic turnaround from the poor returns shown by the Focus List companies prior to CalPERS' involvement," according to the report, "The 'CalPERS Effect' on Targeted Company Share Prices."
"This report validates our effort to improve the governance and performance of portfolio companies," said George Diehr, Investment Committee Chair. "It also shows a strong positive connection between sound corporate governance practices and long-term share value."
The number of Focus List companies in any given year ranged from 4 to 11 companies that emerged from a screening process applied to the CalPERS public stock portfolio and engagements in person and by letter with approximately 15 companies in the final selection phase. This year, CalPERS published no Focus List due to the success of the engagement process in which 14 of the 15 companies that were selected for engagement improved performance and governance practices. One company was not engaged because it was involved in a pending acquisition.
Overall, companies responded favorably to CalPERS concerns such as the need for improved board quality and leadership, majority voting in uncontested board elections, shareowners' advisory votes on executive compensation, and annual board elections.
The report noted that Focus List selection issues have changed over time. Initially, CalPERS corporate governance concerns were largely related to anti-takeover measures that protected companies from corporate raiders at the expense of share value. Later, CalPERS concentrated on long-term corporate performance and the practices that undermine it.
"In the coming months, we plan a comprehensive review of our Focus List process to reflect new engagement opportunities related to recent market developments, regulatory reforms and the success of the 2010 Focus List," said CalPERS Chief Investment Officer Joseph A. Dear.
"The data strongly show that CalPERS involvement has generally stopped the erosion of performance results," Wilshire Associates, the pension fund's prime consultant, said in a report to the Board. "CalPERS good governance campaign has added value to the share prices of targeted companies."
Since 1987, CalPERS has publicly named 142 companies to its annual Focus List based on underperformance in share value compared with industry peers, returns on investment and corporate governance practices.
For the five years prior to their placement on the Focus List, the companies produced average annual returns that fell 30.1 percent below their market industry benchmarks. But in the five years after listing, they beat those benchmarks by an average of 2.4 percent per year for "a dramatic turnaround from the poor returns shown by the Focus List companies prior to CalPERS' involvement," according to the report, "The 'CalPERS Effect' on Targeted Company Share Prices."
"This report validates our effort to improve the governance and performance of portfolio companies," said George Diehr, Investment Committee Chair. "It also shows a strong positive connection between sound corporate governance practices and long-term share value."
The number of Focus List companies in any given year ranged from 4 to 11 companies that emerged from a screening process applied to the CalPERS public stock portfolio and engagements in person and by letter with approximately 15 companies in the final selection phase. This year, CalPERS published no Focus List due to the success of the engagement process in which 14 of the 15 companies that were selected for engagement improved performance and governance practices. One company was not engaged because it was involved in a pending acquisition.
Overall, companies responded favorably to CalPERS concerns such as the need for improved board quality and leadership, majority voting in uncontested board elections, shareowners' advisory votes on executive compensation, and annual board elections.
The report noted that Focus List selection issues have changed over time. Initially, CalPERS corporate governance concerns were largely related to anti-takeover measures that protected companies from corporate raiders at the expense of share value. Later, CalPERS concentrated on long-term corporate performance and the practices that undermine it.
"In the coming months, we plan a comprehensive review of our Focus List process to reflect new engagement opportunities related to recent market developments, regulatory reforms and the success of the 2010 Focus List," said CalPERS Chief Investment Officer Joseph A. Dear.
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