CalPERS Puts New Pressure on Companies : Advocacy: The pension fund bypasses CEOs and goes to outside directors in seeking to promote corporate changes at ‘dirty dozen’ firms.
The $71-billion California Public Employees Retirement System is taking its vaunted shareholder advocacy to an increasingly influential audience: the outside directors.
Instead of negotiating quietly with chief executives behind the scenes to promote changes in corporate strategy, fund officials said Friday that they have recently started meeting alone with independent directors of companies that the fund contends are in need of bottom-line improvements. They also plan to push shareholder proposals advocating changes in corporate governance.
CalPERS, as the giant, Sacramento-based pension fund is known, on Friday issued its annual “dirty dozen” list of companies targeted for action. Changes sought by CalPERS range from complete corporate overhauls to better marketing to shifts in the makeup of boards of directors. The aim is to improve returns for the more than 950,000 pensioners and state employees who invest in these companies through the fund.
CalPERS officials, who began contacting the 12 targeted companies last September, said outside directors at seven of them have already met with fund officials and have agreed to their suggestions.
They are Boise Cascade Corp., Champion International Corp., Mac Frugal’s Bargains Close-outs (based in Dominguez), Polaroid Corp., Time Warner Inc., Westinghouse Electric Corp. and Sears, Roebuck & Co.
“Independent directors can and want to effect change that betters a company,” Dale M. Hanson, chief executive of CalPERS, said in a statement. “They just have to know it is within their power to do it.”
Boise Cascade, for example, has agreed to ease an anti-takeover provision and to work with CalPERS to develop a “benchmarking” study that would compare its performance to that of other paper products companies.
Meetings are scheduled or are being discussed with Advanced Micro Devices, Chrysler Corp., International Business Machines Corp., Pennzoil Co. and Los Angeles-based Sizzler International.
At AMD and Chrysler, CalPERS has filed shareholder proposals seeking to require that the company chairperson be an independent director.
CalPERS’ latest tactic once again puts it in the vanguard of shareholder advocacy, one activist said. Other pension funds often follow its lead.
“Chief executives over the last few decades captured the boards, and the shareholders lost control by default,” said Ralph V. Whitworth, president of the United Shareholders Assn. in Washington.
But other shareholder advocates indicated that they expect to continue to seek changes by working directly with management.
“The CEOs on our list have been extremely forthcoming and helpful,” said Kit Bingham, director of research at Lens Fund, a Washington investment fund aimed at capitalizing on improvements at under-performing companies. “(We have seen) no need to go over their heads.”
Some companies bristled at being linked by CalPERS with such troubled entities as IBM and Sears.
“To lump AMD in . . . indicates a lack of awareness of our performance,” said John Greenagle, a spokesman for AMD, a Sunnyvale chip maker. “We are extremely profitable.” In 1992, the company made $245 million on $1.5 billion in sales.
