Risk & Compliance

Calpers Rethinks an Activist Policy

The nation's largest pension fund was widely criticized for taking its policies to such extremes that it withheld its votes from Warren Buffett.
Stephen TaubMarch 16, 2005

The California Public Employees’ Retirement System (Calpers) announced plans to scale back one of its most aggressive activist policies.

Calpers stated that it will adopt the auditor independence proposals recently released by Public Company Accounting Oversight Board as a guideline for the pension fund’s proxy votes this season. Under its revised policy, the pension fund will withhold proxy votes from auditors who also advise their clients about tax shelters and other money-saving measures.

During last year’s proxy season, Calpers’s policy was to withhold its votes from audit committee members serving at companies whose auditors also performed such non-auditing services. The nation’s largest pension fund was widely criticized for taking this policy to an extreme when it withheld its votes from Warren Buffett, who sits on the Coca-Cola Co.’s board of directors. Indeed, last month Calpers named Rob Feckner to succeed Sean Harrigan — who faced outside criticism for his strong activist activities — as the pension fund’s president.

This year, according to Calpers, the pension fund has chosen not to single out and penalize those directors. The pension fund’s board, however, did give its investment staff the power to vote against individual corporate audit committee members “where there are signs of egregious behavior,” according to its announcement.

Calpers spokesman Brad Pacheco told Dow Jones that, for example, the pension fund might withhold votes when “a very high level of fees are being paid to the auditor. We’ll know egregious when we see it.”

In a separate policy statement, Calpers announced that it will seek to implement majority-vote policies for electing board directors at individual companies through company bylaw and charter amendments.

The pension fund added that it will pursue changes to state laws to implement majority votes where feasible and seek to implement the majority-vote concept at the Securities and Exchange Commission and major stock exchanges.

Last year, plurality votes — in which directors can be elected by the vote of a single share unless they are opposed by a dissident candidate — allowed 16 directors at nine corporations to remain on a board of directors despite receiving significantly less than 50 percent of the shares voting, according to Calpers.