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The California Public Employees’ Retirement System today announced plans to ask 58 of the top U.S. companies in its global equity portfolio to voluntarily adopt the majority vote standard in uncontested elections for corporate directors. If the companies fail to act they could face a shareholder resolution by the Pension Fund.
CalPERS will ask the target companies drawn from the Pension Fund’s largest holdings to adopt the corporate governance best practice where unopposed Board candidates be elected by a majority instead of plurality vote, which would be retained for contested director elections.
Under the plurality vote standard, shareowners can oppose candidates by casting “withhold” votes but have no voice in the outcome since candidates for uncontested seats need to receive only a single “for” vote.
“The majority vote standard is an effective tool to hold directors accountable for creating shareowner value and encouraging better shareowner-director communication,” said Rob Feckner, CalPERS Board President. “Many companies have already adopted this rule on their own, and we hope that others will do so in the coming weeks.”
To make way for a focused campaign on the majority vote standard, the CalPERS Board’s Investment Committee today removed the Pension Fund’s annual limitations on the number of shareowner proposals that staff is permitted to submit at CalPERS portfolio companies. The old limit was up to 10 proposals per year for governance issues and up to 20 proposals per year related to executive compensation.
As of September 2009, approximately 71 percent of S&P 500 companies and 50 percent of Russell 1000 companies had adopted some form of policy for director resignations or majority vote standards for director elections.
“The policy should include the required resignation for any director that receives a withhold vote greater than 50 percent of the votes cast,” said George Diehr, Chair of the Investment Committee. “We believe such a policy is necessary to fully represent the voting preference of shareowners going forward.”
For the initial list of companies, proxy votes and other corporate governance information, visit www.calpers-governance.org.
“This is not a shot gun approach,” said Anne Simpson, Senior Portfolio Manager, who leads the CalPERS Corporate Governance Program. “We expect a positive response from companies. Board members will welcome the positive mandate that majority voting brings. Too often, board appointments look more like a coronation than election. This sets the stage for accountability, which is critical for all sides.”
