The California Public Employees' Retirement System (Calpers) reportedly is recruiting scores of executives who could serve as members of poorly performing corporate boards of companies in which the $200 billion pension fund holds shares.
The plan is linked to rules changes for corporate boards coming from the Securities and exchange Commission, The Wall Street Journal reported. The proposal is causing headaches for Wall Street firms and the attorneys they use to defend them during proxy fights that could cost millions, because those changes could give Calpers and other investors greater board influence, according to the Journal.
The new proxy rules are reportedly intended to reduce the costs associated with proxy fights by giving shareholders direct access to other shareholders by using the company's own communications materials — in essence giving challengers what they see as a more level playing field with company-nominated directors.
SEC Chairman Mary Schapiro and some hedge funds, unions and public pension funds that support the new proxy access rules hope it will make corporate boards more accountable to shareholders.
Opponents believe the new rules will give too much power to groups who already have a strong influence on shareholders and fear that directors nominated by Calpers could be beholden to the fund instead of to shareholders as a whole.
Senate Banking Chairman Christopher Dodd is pushing to set a threshold for shareholders to gain proxy access to nominate their own candidates in corporate elections by requiring shareholders to own at least 5 percent of outstanding shares for at least two years, according to a summary circulated by Dodd's staff, the Journal reports.
The reported plan comes days after Calpers voted to ask California's government for an additional $600 million in funding to bolster its finances.
The vote by the Calpers board comes as Governor Arnold Schwarzenegger and lawmakers face the arduous task of balancing the state government's books, which requires closing a budget gap of more than $19 billion.
The request by Calpers for more money will increase the state government's contribution to the retirement system for its next fiscal year, which begins July 1, by 18 percent to $3.9 billion.
The cost of California's public pensions has become a top political issue in the state — so much so that Schwarzenegger has said he will not sign a budget plan unless it has provisions to reduce those costs.
Calpers, the biggest U.S. public pension fund, has said it requires more state money because its members are retiring earlier and living longer, and because of investment losses during the recession.
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