"While we applaud Mr. Reed (NYSE Chairman) for taking on the huge challenge to reform the NYSE, I am unfortunately obliged by my own fiduciary duty to oppose this end result," Sean Harrigan, President of the CalPERS Board of Administration, said in letters to each Commissioner of the U.S. Securities and Exchange Commission (S.E.C.).
Harrigan said John Reed's plan to reorganize the NYSE Board falls far short of meaningful reform and "will likely not increase investor confidence."
"First, there are no provisions which would guarantee adequate representation on the board by the ultimate customers of the exchange - investors.
"Secondly, the regulatory structure is not sufficiently independent.
"Third, the dual structure is overly complex and will likely not be effective."
Harrigan said approximately one-third of the seats on Reed's proposed "main board" should be investors. Otherwise, he said investors wouldn't have a voice on the vital Audit, Compensation, and Nominating committees.
Besides appealing to the S.E.C., Harrigan and CalPERS Chief Executive Fred R. Buenrostro Jr. met with Reed in what Harrigan characterized as "a frank and open discussion" about the reorganization plan, including a provision to retain self-regulation.
"The regulatory framework is doomed for lots of reasons," Harrigan said. "The foremost reason is that board members who will ultimately be accountable for regulatory actions against members are beholden to those members for jobs."
While he said Reed's reorganized eight-member main board would include "good, fine people, there is no structural requirement that any of the seats must be filled by representatives from the investing public.
"And I might add, there are no public pension fund officials on that board, yet public pension funds trade billions and billions of dollars on the exchange."
Harrigan said Reed's proposed dual structure of a main board and advisory board "is nothing more than shuffling the deck chairs, in my opinion. The ultimate irony is that when you add all those people to the main board, you just about have the total number of board members you have on the NYSE today."
Harrigan said he would ask other public pension funds to join CalPERS in urging the S.E.C. to reject Reed's proposal, and expressed hope that "investors everywhere will join in my call to build upon Mr. Reed's good intentions and develop bulletproof reform. That, in my mind, is what's needed to restore investor confidence."
CalPERS, which has assets of $154.2 billion and 1.4 million members, has been in the forefront of investors urging reform of the NYSE, which was widely criticized for poor governance and for granting a $188 million pay package to previous Chairman Richard Grasso.
Click here to download the CalPERS Letter to SEC Commissioners about NYSE Proposal.
Click here to download the CalPERS Position Paper on NYSE Proposal.
