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Two large pension funds may adopt tougher corporate-governance policies
By: Mitchell Benson Two of the nation's largest pension funds could adopt tougher corporate-governance policies to protect company employees and their retirement plans from future debacles such as Enron's, under changes proposed Tuesday by state Controller Kathleen Connell. Ms. Connell made her proposal Tuesday in letters to the lead counsels of the California Public Employees Retirement and California State Teachers Retirement funds. Ms. Connell is a member of each of the funds' governing boards. Calpers is the nation's largest pension fund, and the teacher's fund is the nation's third-largest. Calpers spokeswoman Patricia Macht says the board "is obviously concerned about this issue," and that Ms. Connell's recommendations "will be taken under advisement and will be discussed when the full board meets next on this issue." In her letter to pension fund officials, Ms. Connell recommended four specific changes to each fund's corporate-governance policy. As proposed, they would apply to any publicly traded company in which Calpers or the teachers fund "holds a significant equity stake," and require those companies to "adhere to higher standards of protection for employees' defined contribution plans." Ms. Connell didn't quantify what would constitute a "significant" equity stake. The changes are: For those employees who choose to do so, and where the company matches a percentage of employee contributions, the employees would have the option to receive the match in a form other than the company's stock. Again, for employees who choose to Within the bounds of federal rules and regulations, employees who choose to invest in company stock through a defined contribution program will always have the ability to liquidate that stock. Ms. Connell and Ms. Macht were unaware of any pension funds with such a corporate-governance policy today. But, Ms. Connell points out, the two California-based funds represent combined assets of more than $280 billion. "Surely," she said, "with that kind of clout, we are clearly the elephant in the closet here. If we do it, I think we can get pension plans across this country to do it." In her letter, Ms. Connell asked the lead counsels of the two pension funds -- general counsel Kayla Gillan at Calpers and chief counsel Christopher Waddell at the teacher's fund -- to survey their respective top 20 publicly traded stock holdings and report which companies, if any, currently adhere to her four proposed policy changes. "Enron is only the tip of the iceberg here," says Ms. Connell. "What's happening with Enron is not specific to Enron, with respect to investing in these defined contribution plans. I'm concerned with a domino effect if other major Fortune 500 companies begin to have a devaluation of their assets in a falling economy." Fred Main, senior vice president and general counsel of the California Chamber of Commerce, says "it's certainly appropriate for" the pension funds to have such concerns, but he said a quick review of Ms. Connell's recommendations makes him think "they may want to be tweaked a little bit." For example, limiting an employee's retirement-investment savings to 10% of the company's stock "may be a little low as an arbitrary number," Mr. Main said. "You may not want 100%, but 10% is a fairly modest amount." Mr. Main said he believes "there will be sympathy for" Ms. Connell's proposal among the pension fund boards, but that it's too soon to say whether they'll adopt them. Also, the state chamber's president, Allan Zaremberg, suggests that the state pension funds might want to wait until the federal government addresses these questions "on a national basis, so we can have uniform rules throughout the country." |
