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The California Public Employees’ Retirement System (CalPERS) today named five companies to its 2008 Focus List to highlight the pension fund’s concerns about stock and financial underperformance, and corporate governance practices.
This year’s list includes The Cheesecake Factory, a restaurant company; Hilb Rogal & Hobbs, an insurance-brokerage firm; Invacare, a health care equipment supplier; and La-Z-Boy and Standard Pacific, both in the household durables and homebuilding sectors.
“We’re shining the light on lackluster portfolio companies over serious governance and financial performance issues,” said Rob Feckner, CalPERS Board President. “Besides having sub-par stock performance, these companies refused to address corporate governance issues that have a bearing on how they perform in the market.”
CalPERS has pending shareowner resolutions this year to eliminate staggered boards of directors at The Cheesecake Factory, Hilb Rogal & Hobbs, La-Z-Boy, and Standard Pacific.
“We hope these companies will work with us to improve their governance practices,” said George Diehr, Chair of the CalPERS Investment Committee. “Our goal is to improve stock performance, financial health, and alignment with company owners.”
The Cheesecake Factory, based in Calabasas Hills, California, underperformed industry peers by 140.5 percent in the five years ending February 2008. CalPERS opposes its supermajority voting requirements for passing various company amendments and staggered board terms that make it difficult to hold directors accountable. CalPERS also seeks a “clawback” policy to recoup executive compensation based on fraudulent behavior or erroneous performance figures, a majority vote policy for directors in uncontested elections and the right of shareowners to act by written consent on an issue outside the annual meeting.
Hilb Rogal & Hobbs of Glen Allen, Virginia, underperformed peers by 42.3 percent over the five years ending February 2008. CalPERS opposes its supermajority voting requirements, its staggered or “classified” board, and the absence of majority vote and clawback policies.
Invacare, based in Elyria, Ohio, trailed peers by 122.7 percent over the five-year period. The pension fund wants the company to declassify its board so directors will stand for election at the same time, and to adopt a majority vote policy.
La-Z-Boy, Monroe, Michigan, lagged peers by 40.9 percent over the past five years. CalPERS wants the company to declassify its board.
Standard Pacific, of Irvine, California, trailed peers over the past five years by 79.4 percent. CalPERS is seeking declassification of the company’s board, elimination of its supermajority requirements and adoption of a majority vote policy.
To select Focus List companies, CalPERS begins by screening hundreds of public companies and ranks them based on total stock return, capital efficiency measures, and governance practices. CalPERS engages many of these underperformers to improve their governance practices, particularly in the area of director accountability.
Research shows that improved corporate governance leads to performance gains, over time. Wilshire Associates studies of the “CalPERS Effect” of corporate governance have found that the stock values of companies on the Focus List generally outperform the Standard & Poor’s 500 Index later.
CalPERS is the nation’s largest public pension fund with assets totaling more than $235 billion. The System provides retirement and health benefits to approximately 1.5 million State and local public employees and their families.
Additional Resources
Cheesecake Factory Inc. Fact Sheet
Hilb Rogal & Hobbs Company Fact Sheet
Invacare Corp. Fact Sheet
La-Z-Boy Fact Sheet
Standard Pacific Corp. Fact Sheet
