Tags: CalPERS | zombie | board | directors

FT: CalPERS Battling ‘Zombie’ Board Directors

By    |   Friday, 12 April 2013 10:13 AM

The nation’s largest pension fund, California Public Employees’ Retirement System (CalPERS), is fighting to eject “zombie directors” from corporate boards.

Many board directors remain on corporate boards even though they didn’t garner enough shareholders votes to remain on the board.

CalPERS found 52 directors who have failed to win shareholder votes but either stayed in place or were subsequently reinstated, according to the Financial Times.

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

For example, David Bonerman, founder of private equity group TPG, still sits on the board of CoStar, a real estate information provider, although he’s never won a majority of shareholder votes for three years.

If companies lack majority voting requirements, shareholders have little power to force out board directors. The pension fund, the Times reports, hopes to persuade the Securities and Exchange Commission (SEC) to issue proxy access rules that would help shareholders elect their own board directors and make it easier to eject board members.

“These zombie directors are the living dead case for why we need the proxy access that the SEC could not deliver,” Anne Simpson, head of corporate governance for CalPERS, told the Times.

CalPERS is also trying to reign in executive compensation. It has rejected compensation packages at 52 companies two consecutive years.

“The next stage is to hold the board accountable,” Simpson said.

Public companies must hold non-binding votes on executive pay, known as “say on pay.”

Shareholders usually approve pay packages, and the votes are only advisory. Still, say on pay provides shareholders a way to express dissatisfaction with management.

Authorized the Dodd-Frank Act, the SEC issued a proxy access rule, but a three-judge panel threw out the rule in Business Roundtable vs. SEC.

The judges agreed with the Business Roundtable and the U.S. Chamber of Commerce argument that the agency’s cost-benefit analysis was inadequate, marking the first time that the court had overturned a rule explicitly authorized by Dodd-Frank, reports the Washington Monthly.

“But the court never cited how exactly the agency’s 23-page economic impact report could have done better,” writes Washington Monthly editor Haley Sweetland Edwards. “It simply appeared to disagree with the agency’s policy choice — and that, apparently, was grounds enough to overturn the rule.”

The SEC has tried to implement the rule three times in the past decade, according to the Washington Monthly. “But each time it was cowed into submission by industry lobbyists claiming that the rule would destroy corporate growth,” Edwards says.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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The nation’s largest pension fund, California Public Employees’ Retirement System (CalPERS), is fighting to eject “zombie directors” from corporate boards.
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2013-13-12
Friday, 12 April 2013 10:13 AM
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