CalPERS Report Card Raps Some Knuckles : Shareholders: Pension fund issues grades to top corporations after asking about the independence of their boards of directors.

By THOMAS S. MULLIGAN

Oct. 8, 1994 12 AM PT

TIMES STAFF WRITER

Walt Disney, Wal-Mart Stores, MCI Communications--go stand in the corner!

The California Public Employees Retirement System--the nation’s largest public pension fund--released a report card Friday ranking 200 of America’s largest corporations on their responses to a survey on one of CalPERS’ pet issues: “corporate governance,” or the power and independence of corporate boards of directors.

Impressed by a 28-point policy statement General Motors Corp. adopted last spring to boost the clout and involvement of its board, CalPERS mailed a letter in May to the chairmen and -women of the 200 companies.

The letter asked whether their companies had undergone similar soul-searching, and the report cards issued Friday outline the survey’s results.

The worst grade--F--went to Disney, Wal-Mart, MCI and 38 others that failed to respond. Slightly better F+ marks went to 15 companies that CalPERS said “at least sent a letter, but (it was) essentially a ‘brushoff.’ ”

In fact, CalPERS was more interested in whether companies were analyzing the issues than whether they might have reached sensible conclusions. “The thought process is the key,” said Richard Koppes, CalPERS general counsel. “We wanted to know, are the lights on?”

The lights were on at 15 companies; they were awarded A+ grades for “excellent responses.” CalPERS said it granted top marks to firms that submitted comprehensive lists of guidelines, similar to GM’s, and demonstrated that their boards were involved in developing the rules. Bonus points went to responses that were signed by the chair.

Among the A+ winners were AirTouch Communications, Chevron, Exxon, First Interstate Bancorp, IBM and Time Warner.

Another 31 firms--including Amgen, Pacific Gas & Electric and Wells Fargo--received A’s for providing excellent guidelines, but not necessarily with board input.

CalPERS said it was pleased that 36% of the companies received either A+ or A grades, but added that it was especially impressed that more than 79% responded to the survey.

Some might consider it arrogant of CalPERS to hand out Fs to busy captains of industry because they didn’t drop everything and send a reply.

Not a bit, Koppes said in a telephone interview. “We own almost 1% of every one of these companies,” he said. “The fact that they didn’t even respond says something about what they think of their shareholders.”

With its $80-billion pension fund, CalPERS is more gorilla than gadfly. It has frequently used its financial clout to pressure and embarrass companies into being more responsive to shareholders.

But some companies found the grading process unfair.

“We don’t want to pick a fight with CalPERS, but we feel a tiny bit blindsided,” said Kenneth S. Stewart, corporate secretary of SCEcorp, the Rosemead-based parent of Southern California Edison, which received an F for not replying.

SCEcorp is working out its own set of corporate governance guidelines, Stewart said. But at the time of the survey, “we weren’t ready to give them a fully articulated response,” he said.

“I’m speechless that we didn’t respond,” a spokeswoman for Disney said. She said she would try to get a fuller explanation but had not come up with one as of late Friday.

AMR, the Dallas-based parent of American Airlines, thought its F+ grade was undeserved, spokesman Al Marucci said. “We have an active board that is closely involved in all activities of American Airlines,” he said.

At F-rated Oracle Systems in Redwood Shores, Calif., general counsel Raymond L. Ocampo Jr. said the company did not receive the original letter and began formulating a response when a follow-up arrived from CalPERS in late August.

Subsequently, he said, CalPERS has failed to return Oracle’s phone calls. “We’re a little miffed,” Ocampo said.

Report Card

The California Public Employees Retirement System handed out ratings Friday to 200 of the nation’s largest public companies, based on the firms’ responsiveness to shareholders and other issues of corporate governance. More firms got Fs, for failing to respond or dismissing the inquiry, than A’s, for developing governance guidelines.

A+ (Excellent Responses)

1. AirTouch Communications

2. Chevron

3. Cisco Systems

4. Dayton Hudson

5. Exxon

6. First Interstate Bancorp

7. FPL Group

8. IBM

9. J.C. Penney

10. Kmart

11. Merck