Pension Funds Seek Disclosure of Votes on Governance Issues

Large pension funds say they plan to keep pressing for corporate governance reform regardless of whether mutual funds and other institutional investors join the fight.

Some pension officials also want to turn up the heat on private institutional investors by forcing them to disclose how they vote on governance issues that are placed on annual company proxy statements.

Major public pension funds, including the $150-billion-asset CalPERS, the California Public Employees’ Retirement System, long have used their financial clout to pressure individual companies that the funds believe are failing to boost shareholder value.

Now, CalPERS is calling for an overhaul of company auditing procedures to prevent future Enron-style implosions.

The fund plans to submit proposals for accounting reform to Congress, the Securities and Exchange Commission and the Financial Accounting Standards Board.

CalPERS also has proposed a commission of legislators, regulators and investors to consider ways to expose conflicts of interest among Wall Street brokerages, corporate auditors and others.

“For more than 10 years CalPERS has made constructive attempts to improve corporate governance in the U.S. and abroad,” said William D. Crist, president of the fund’s board of administration. “Enron teaches us that in spite of these efforts, shareholder value can be destroyed by faulty corporate governance. It clearly is time for us to tighten the screws.”

CalPERS, like many of the biggest pension funds, is primarily an “index” investor, meaning it aims to hold on to stocks for years or even decades. That gives the fund greater incentive to monitor corporate performance.

Some managers of pension plans and socially directed funds say they are encouraged by the new interest other fund managers are showing in corporate governance. But they say dramatic changes in the level of investor involvement will take time.

“We’ve had some discussions with [mutual fund] money managers who were badly burned by Enron, [focusing] on issues such as auditor independence,” said Damon Silvers, the AFL-CIO’s associate general counsel, who often represents the labor union on pension fund issues. “I wish we could say we have firm commitments that they will become more involved.”

Still, he said, “Over the last decade a number of money managers have revised their proxy-voting guidelines to be more responsive to shareholder resolutions.”

Many fund firms, such as Vanguard Group, publicize their proxy-voting policies on their Web sites--but not necessarily their company-specific votes.

The shareholder advocacy firm Fund Democracy has joined with pension funds and socially directed fund companies such as Domini Social Investments and Calvert Asset Management to ask the SEC to require fund managers to disclose not only their proxy-voting policies but also their votes, so investors can see where their funds stand on governance issues.

“Proxy voting is the most direct means by which individual investors--either directly or through financial intermediaries like mutual funds--can influence corporate behavior,” Domini founder Amy Domini wrote in a letter to the SEC.