Archives: December 1998

OECD Corporate Governance Guidelines have been released in draft. They will not give detailed prescriptions for national legislation but rather delineate basic principles to serve as reference points for efforts to evaluate and improve each country’s regulatory framework. The guidelines cover five broad headings:

• the rights and responsibilities of shareholders;
• the role of stakeholders in corporate governance;
• the equitable treatment of shareholders;
• disclosure and transparency and
• the duties and responsibilities of boards.

While primarily aimed at governments, the guidelines will also provide guidance for stock exchanges, investors, private corporations and national commissions on corporate governance as they elaborate best practices, listing requirements and codes of conduct. Your comments will be taken into account on the next revision of the draft guidelines, following another meeting of the Task Force in late January 1999. A revised draft will be posted on the Internet following that meeting.

The OECD posting includes Guidelines with boxes to enter your commentary and hyperlinked annotations to help understand the reason(s) for each guideline. You can also view the Guidelines in pdf format without the boxes and annotations. We would appreciate copies of your comments. Please send to jm@corpgov.net.

John Chevedden, shareholder activist, has provided us with a copy of his resolution introduced at underperforming Raytheon to improve its corporate governance competitiveness through annual election of all directors. We’ve placed a copy of the resolution in our forums section. Let us know what you think.

David Brown of the Ontario Securities Commission – Remarks to the Institute for International Research…discusses “regulatory arbitrage” and other concepts focusing on improved corporate governance of mutual funds.

LENS merges with Hermes. The merger, to be completed next year, comes soon after the successful launch in March ofHermes Lens Asset Management. Hermes plans to refocus the Lens fund, to be renamed the Hermes Lens US Fund, as an activist fund suitable for major global investors who are long term owners of US equities. The Hermes Lens US Fund will continue to invest exclusively in publicly traded North American equities. BT Pension Scheme, which owns Hermes and is the UK’s largest pension fund, has agreed to increase its investment in the Hermes Lens US Fund up to US$100 million. The announcement follows last month’s news that Hermes has entered into a Global Corporate Governance Alliance with CalPERS, the largest public pension fund in the US. (12/14, press release)

AFL-CIO to target executive compensation in 1999 proxy season with a new focus on linking performance-based pay to industry indexes and requiring discolsure of relations with executive compensation consultants or firms. (see IRRC, Corporate Governance Highlights, 12/18) IRRC also provides excellent coverage of audit committees and the possible recommendations of the Whitehead/Millstein committee.

Repricing is again spotlighted by Patrick McGurn in the 12/18ISS Friday Report. McGurn reports on who beat the 12/15 deadline for repricing “free from fear” of possible FASB changes. He also outlines recent innovations designed to make repricings more palatable to shareholders, and a Towers Perrinstudy of the reasons for repricing. Dan Konigsburg covers a first-of-its-kind corporate governance conference in Bucharest, Romania.

Towers Perrin, in another study finds, “Companies around the world are seeking to link their reward systems with corporate and individual performance. An increasing number of employers are offering variable pay programs such as stock options and other long term incentives, in order to attract and retain key employees.”

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Levitt’s call for a “cultural change” which focuses on the long-term interests of the corporation instead of trying to meet Wall Street’s short-term expectations is outlined in December’s CFO magazine. CFO reports on a recent conference survey which reports that 45% had been asked to misrepresent financial results; 38% did so. 78% had been asked to use accounting rules to cast results in a better light. Half acceded to the request. The article includes a review of Levitt’s 9 point plan with commentary. (Misreporting Results)

Investors are increasingly moving to stock indexes. In 1993 index funds cornered 2.6% of all new investments in bond and stock mutual funds. In the 1st 10 months of 1998, they have attracted 17.1%. (Sacramento Bee, 12/21/98)

Directorship’s “DataBank” reports a move toward greater ethnic/national diversity in the boards of the Fortune 1000. Since 1992, Asian and Hispanic board members have more than doubled; Black board members have almost double. Still 220 Black, 83 Hispanic and 37 Asian board members out of a total of 7,135 demonstrates many corporations aren’t taking advantage of the benefits diversity can bring.

The same issue includes a reflective article by William T. Allen on the balancing act of government in maintaing free markets. He reminds us that laws protecting large corporations from competition have eroded all around us (from airfares to telecommunications). Recent developments which have weakened the power of corporate executives include: the growth of institutional investors, amendment of rule 14a8 to allow shareholders to confer, and the development of a well-funded M&A industry. The downside may be higher agency costs and insufficient labor market incentives for workers to invest in specialized training. (December 1998)

Cozy ties of corporate directors coming under fire. St. Petersburg Times updates a 1996 survey of area business ties and finds that improvements are “almost undetectable at midsize and smaller public companies such as those that dominate the Tampa Bay market and much of Florida.” (St. Petersburg Times, 12/21/98)

Americans lose $1 million an hour to securities fraud, as Ted Fishman points out in “Up in Smoke,” because of their own greed and the promise of an “insider’s advantage.” (Harper’s Magazine, 12/98) To lift ourselves from this morass shareholders must view stocks as evidence of corporate citizenship rather than racetrack betting slips. Unfortunately, the responsibility of shareholders to vote in corporate elections has been obscured by our complacency with an undemocratic corporate governance process which offers no alternative to voting for or against the board’s handpicked cronies. Any shareholder with $2,000 worth of stock can submit a shareholder, under the provisions of SEC rule 14a-8(a)(1), but there are severe barriers to nominating a board member.

Institutional investors hold about 60% of the stock in major companies and have a fiduciary responsibility to vote on behalf of investors. Activists such as the California Public Employees Retirement System (CalPERS) have done an excellent job of reforming corporate governance. Yet, reformers should also head their own words and avoid conflicts of interest.

The CalPERS Board, for example, has repeatedly rejected petitions to ban gifts from those doing business with the System. The chairman of the investment committee has declared personal bankruptcy twice but remains in office, even though California law disqualifies him as a trustee (see Section 15643(f) of the Probate Code). CalPERS corporate governance principles encourage corporations to restrict the number of boards their members sit on. Yet, one of its own board members (who has served for 28 years) serves on nine other investment boards. In recent elections, the current president was allowed to alter his ballot statement to address that of his opponent, in an apparent violation of regulations. Although the board is wisely considering moving administration of future elections to another state agency, such as the Secretary of State, they are also considering one member’s suggestion that challengers be prohibited from including any criticism of incumbents in future ballot statements. Transparency is apparently good for corporations but not for the CalPERS board.

Yes, financial crimes are less interesting to a television audience than “presidential sex or murdered child beauty queens.” As Fishman implies, even our own crooks can’t be trusted. Maybe it’s time we took a “governing” approach to our investments instead of a gambling approach.

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NACD published their Board Guidelines in the December edition of Director’s Monthly. Its sure to become a reference for no-for-profit organizations. The issue also includes a readable article by Charles A. De Monaco, governance Implications of the Bestfoods and Caremark Decisions on Corporate Compliance Programs. These important cases should be familiar to all directors. In addition, NACD has placed its Seminar and Symposium Calendar on their site. Coming soon to a city near you. Check it out.

SEC to study “pay to play” at public pension funds. New York State Comptroller H. Carl McCall, who runs the state’s pension system and was the subject last year of a page-one WSJ story detailing money-management firms’ contributions to his campaign. Pay to play was also the subject of SB 1753 by California State Senators Schiff and Hayden which takes effect on January 1. (see WSJ, 12/17/98, C1)

Effectiveness of independent directors at mutual funds questioned. Last year, Louis G. Navellier beat back an attempt by the board of directors on the Navellier Aggressive Small Cap Equity Fund to remove him as manager. Last week, Donald A. Yacktman successfully used a proxy vote to remove the mutinous boards of two Yacktman funds. Mutual fund directors are required to go back to their constituencies to have a vote on their decisions. (see CBS MarketWatch SoapBox, Dec 11, 1998)

Disclosure of fund manager compensation urged by Dr. Paul B. Farrell, mutual funds editor of CBS MarketWatch. The SEC is inching closer to creating parity between the disclosure requirements for fund managers and corporate executives. Farrell urges readers to contact the SEC and speed up the process. (see CBS MarketWatch, Your fund manager is paid too much: But don’t count on the SEC to force disclosure, Dec 11, 1998)

FASB concluded its initial review of practice problems associated with APB Opinion 25 on accounting for stock options issued to employees. The Board will issue an Exposure Draft of a proposal interpreting the Opinion in the first quarter of 1999. The proposed effective date would be the issuance date of the final Interpretation (expected to be in September 1999). However, if adopted, the Interpretation would be applied prospectively but would cover events that occur after December 15, 1998. The Board has tentatively concluded that once an option is re-priced, that option must be accounted for as a variable plan, giving rise to compensation expense for subsequent changes in the stock price, from the time it is re-priced to the time it is exercised.

In its coverage on 12/11/98, ISS notes the announcement “may lead companies to reprice in the next few days to beat the deadline, but for now, the market’s continuing surge appears to have stemmed (but not stopped) moves to reprice options.” In the same issue of the ISS Friday Report, Ed Maddern, who I had the pleasure to meet in Hong Kong, adds a few notes on highlights from the conference there. Significantly, Ed points out that most of the panelists argued that “before the issues of a diverse indepdent board and a more democratic company can be considered, Asian companies must work on improving accounting standards and disclosure levels.” He concludes his remarks with the following:

Finally, while the topic of the conference was the governance of comapnies, some Asian speakers expressed concerns of the imposition of Western governance standards by American and British investment funds. With all the dicussion about management accountability to shareholders, the speakers wondered to whom these funds are accountable.

In a private correspondence following up the conference,Geoffery Nicoll of the University of Canberra, also recently expressed his view that an important shift in focus is occurring as more in the field recognize the importance of governance of the fund managers and pension funds themselves. Geoff predicts the relationship between these important share owning structures and corporate management will be increasingly relevant to the principles of corporate governance.

IRRC reports the AFL-CIO’s Office of Investments now has 12 staff members, including 2 focused full-time on shareholder advocacy work. Recently, they have focused on conflicts of interest among compensation committee members and dead hand pills. Future focus may be on the right of shareholders to call special meetings.

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Bribery of foreign public officials to win or retain business will become a criminal offence in more than a dozen industrialised countries in February 1999. In Austria, Bulgaria, Canada, Finland, Greece, Germany, Hungary, Iceland, Japan, Norway, South Korea, the United Kingdom, and the United States prosecutors will have the authority to pursue the suspected corrupt behaviour of their companies abroad. “Beyond the criminalisation of corrupt acts abroad, it is now time to also improve accounting and auditing standards, end tax deductibility of bribe payments and act against the abuse of offshore financial centres for shady business practices,” said Peter Eigen, chairman of Transparency International.

With OECD countries about to sign on to antibribery statutes similar to the Foreign Corrupt Practices Act (FCPA) in the U.S., CFO magazine warns that joint ventures continue as an effective vehicle for bribing foreign officials. CFO cites Freeport-McMoRan’s experience in Indonesia as a good example. Freeport’s complex deal gave a Suharto-controlled group a 4.7% stake in Freeport’s Grasberg mine. In return, the Suharto group paid $315 million, most of it borrowed. Under the agreement, if Nusantara can’t repay the interest on the loans from dividends it receives as a shareholder, Freeport will make up the difference. “The issue is, what is it in tangible form that the joint partner brings to the table in return for the equity that the partner receives?” explains Frank Vogl, vice chairman ofTransparency International. “If the only thing that person brings to the table is connections and access, I’m not sure what the difference is between that and the outright payment of bribes.” (see The Globe and a Hard Place, 11/98)

Egypt’s Economy Minister, Youssef Boutros-Ghali, embraced good principles of corporate governance, including transparency, predictability, consistency and accountability. “It’s not obvious how you institutionalise these principles,” but working towards that goal would be a large part of the solution. Although more than 70% of Egypt’s economy is in private hands, corporations would set the standards for the economy as a whole. (Dec 9, Reuters)

Investor Relations Business leads off their 12/7 issue with an item about Guy Wyser-Pratte leading a move to target hundereds of companies for binding poison pills with the help of SWIB and several labor funds next season. Pat McGurn of ISS notes that 70% of institutional shareholders are inclined to support such measures. In other news from IRB, SEC is considering a proposal to require directors to certify financial statements, electronic proxy voting may double this year (2% to 4%), and changing your trading symbol in the internet age can be hazardous to your wealth, as one firm’s stock lost half its value when its large retail base couldn’t find the stock on their favorite internet sites. (greco@tfn.com)

American Society of Corporate Secretaries offers advice tp joint Blue Ribbon panel of the New York Stock Exchange and the National Association of Securities Dealers. Audit committee should work independently of management. (Excite News, 12/09)

Canadian Securities Administrators the need to articulate standards of governance for fund management similar to the standards set out in the Dey report for governance of public corporations. (see David Brown’s Remarks to the Institute for International Research)

CREF withdrew its resolution at Disney calling for a “substantial majority” of directors who are completely independent of the company, as well as key board committees made up of only independent directors. The company has made progress and promising to do better. (CBS MarketWatch Dec 8, 1998)

CalPERS voting is complete and the preliminary results of the Board elections are in. William Crist, the current President, retained the state/university employee seat. Michael Flahermanretained his seat, elected by pubic agency members. Rob Feckner was newly elected by school members.

Legal action is still pending in the case of the state/university employee seat since it appears that Crist used his influence to violate election regulations. The editor of this publication, James McRitchie, opposed Mr. Crist in the election and came in second out of a field of four. A protest panel has been formed to hear the case but overturning the election outcome isn’t considered likely (one positive is that not being on the board will allow more time to focus on this publication).

Mr. Crist was allowed to change his candidate statement, the main campaign piece, six weeks after the final deadline. After reading my statement, he apparently became alarmed and requested an opportunity to revise his statement to address my own. Last year when a candidate requested changes, staff responded: “We will not be making the changes…we do not provide any special privileges nor accommodations for any person, including our Board incumbents.” Although the rules governing election had not changed, this year it appears special privileges were granted and CalPERS members were robbed of a fair election process. Let’s hope such unethical behavior does not continue at CalPERS. A board that apparently wants to set corporate governance standards for the world should first look to its own practices. (Sacramento Bee, 12/10/98)

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Ralph Ward’s December Boardroom Insider carries some musings about the recent Hong Kong International Corporate Secretaries Conference. “There was some lively debate on the major governance issues of the day stakeholders vs. shareholders, relations with big institutional investors. However, the HK company secretaries seemed eager for more on the essentials of boards — disclosure, board structures, board evaluation. I detected a genuine worldwide movement for better governance, but also support for developing some common, international ground rules on board duties and operations (though none of us could reach a consensus on how, what, or who would enforce them).”

My own sense was that while those in Hong Kong were genuinely interested in the direction of large institutional investors, such as CalPERS, and the rise of “relational investors,” such as LENS, they were more focused on the fundamental issues facing family controlled businesses. According to Gordon Jones, the Registrar of Companies, 90% of Hong Kong’s 676 listed companies have a single or family member controlling at least 25% of capital and over half have a shareholder with at least a 50% stake. In an increasingly global economy, Hong Kong corporate governance standards are still, largely, local. Businesses who are not in the market for international capital see little advantage to adopting transparency measures. Why provide information to your competition? Yet, regulators appeared concerned that if Hong Kong is to serve as an international financial center, reforms must be put into place.

The Stock Exchange of Hong Kong has been active in corporate governance and their Chief Executive, Alec Tsui, outlined a series of accomplishments. In 1993 the exchange adopted a code of best practices, calling for at least two independent directors and other reforms. All issuers were encouraged to set up their own corporate governance principles. In 1994 guidelines further outlined disclosures regarding executive compensation and defined independent directors further. In 1996 the code was revised again to include an audit committee, appropriate briefings for directors, and encouragement for their further education. The code is not mandatory but companies will be required, in the coming year, to report their progress on creating an audit committee in interim and annual reports. In addition, I believe he mentioned that some of the exchanges requirements would be given statutory backing next year.

Donald Tsang Yam-kuen, Hong Kong’s Financial Secretary, indicated that 140 directors had recently been suspended for not meeting standards and that 25 remained suspended. Gao Xi Qing, Deputy Chief Executive with the Bank of China, brought home to me just how recent some developments are on the mainland. He indicated that is has only been since 1992 that accounting rules were established in China. Previously, companies worked with planners who only worried about production, not price.

The most common perspective was that director education is the driving need at this point. Andrew Sheng Ten-Tao, Deputy Chef Executive of the Hong Kong Monetary Authority, emphasized the need not only for information transparency but also for education. He welcomed recent “town-hall” type meetings which improved the capacity of investors, employers and regulators to make intelligent decisions. Benchmarks are needed to compare local and international performance. In the final analysis, there is a tradeoff between transparency and proprietary information which is not disclosed. The net result is a continuing need to build trust based on the integrity of character and mission.

Mervyn King, of South Africa, gave a broad somewhat sociological analysis of corporate governance. Focusing on the history of the corporation, the earth as a finite resource and then mapping the internal and external stakeholders, as well as conceptual forces such as law, political opinion and the media. He said we are moving away from a purely financial backward looking focus on the balance sheet to a more forward looking scorecard approach which weighs factors such as innovation and learning, internal processes and technologies, and customer service. Successful companies will be driven by values, an ethos which will pervade its image, reputation and relationships. Successful boards will know their mission, will have prioritized their values, risks and performance areas.

Bob Tricker, editor of Corporate Governance: An International Review, graphically illustrated the differences between dual, unitary and Japanese style boards. Historically, we moved from an entrepreneurial to a management system and are now headed towards a governance system of business organization.

Geoffrey Nicoll, of the University of Canberra, reviewed an empirical study which he and Roman Tomasic did in conjunction with the Australian Investment Managers’ Association. Their research pointed to the need to critically appraise the representation of collective shareholder interests by trustees and investment fund managers. There appears to be practical difficulties in exercising voting rights and passing through shareholder rights to beneficiaries, especially in Australia where investment management, in a corporate form, is more distinct from trusteeship. Nicoll points to a need for differential disclosure regimes for trustees and investment managers.

Elaine Sternberg provided a biting attack on stakeholder theory. Useful for me was her typology which categorized such theories into two innocuous varieties which point to observations about motivation or complexity and a third more pernicious type which insists that organizations be accountable to all their stakeholders. Sternberg left no doubt that giving management total responsibility for balancing competing stakeholder interests simply undermines accountability. Such systems leave total discretion in the hands of management, leading to authoritarian governance.

Author and editor Ralph Ward argued for improved international governance standards such as disclosure but warned against “boardroom imperialism.” “Improved governance need not overthrow current nation-based systems, but can rather invigorate them.” Ward’s approach, especially appropriate for Hong Kong, seemed to be to focus on the common details of boardroom procedures?building from the ground up.

Yve Newbold, of Heidrick & Struggles, focused on the need to add more women directors (currently 6.6% in Britain). Doing so would broaden the pool of qualified candidates. What stunned me during her talk was her statement that in her many years in the boardroom she cannot recall a debate on ethical morality. One of her major points is that we still have some distance to go to move many boards beyond the old system of patronage and excessive greed. Too many CEOs surround themselves with people who think like them. Boards which are more representative of their society by including women and minority members are better able to bring important issues to the boardroom that have been overlooked. Diversity of thought is more important than people who look different. Hers was clearly not a “managing” diversity attitude but one which values diversity, which implies internalization and integration. Clearly global corporations need a diverse board in order to relate to their customers and to get the most out of employees.

Robert Monks focused on the growing concentration of share ownership into funds managed by institutional investors which have an opportunity and a responsibility to keep an active watch on the companies in which they invest and taking action when mismanagement occurs. LENS and their new partnerHermes act as catalysts, often welcomed by a faction of the board. The funds empower directors to take action. As he has done in his many written works, Monks emphasized the potential of pension funds as long term investors, interested not only in making a profit but also in ensuring a safe, clean environment. Pension funds best represent universal interests. Anyone familiar with this site knows of my admiration for Bob Monks. Rewriting his discussion the night after the first day, Bob successfully integrated many of the major points presented by others and served to bridge gaps in the various paradigms.

Peter Dey, Chairman of Morgan Stanley Canada, spoke reflectively of his experience in producing the report “Where Were the Directors? Guidelines for Improved Corporate Governance in Canada.” I got the sense of a man who brought out the best in those working on the report by keeping a relatively low profile and valuing each individual’s contribution. The modest result was a document which provides directors with both an education and a backbone. Directors now have a consensus document to point to when seeking change and increased accountability. The Dey Report has facilitated internal self-actualization and transformation by boards with a minimum of outside interference.

Sir Ronald Hample, chairman of Imperical Chemical Industries plc, backed moves by the OECD to raise governance standards by providing proper perspective rather than precise guidelines. A meeting will be held in Seoul this spring to finalize the principles. Anthony Neoh, former Chairman of the Hong Kong Securities and Futures Commission wrapped up an excellent conference with a dinner address which pointed to a stock prospectus from early in this century which laid out everything in a couple of pages, from broad social philosophy to the proportion of profits which would go to the board, management and employees. He left many of us yearning for a simpler time when corporate governance issues were less complex and, most importantly, understood by all those involved. With conferences like this, I believe we will get there again…this time on a global scale. From the Sanskrit, “walk together, talk together all ye peoples of the earth. Then and only then, shall ye have peace.”

Special thanks to organizers, Ewin Ing, HKICS, Gordon Jones, Registrar of Companies, and Edward Chan, ICSA.Peter Tashjian, of HKCS, is also to be congratulated…he seemed to do most of the work. Of course, one of the most interesting aspects of the conference, as always, was the chance to meet others in the field. For me this included distant contacts, such as Soodesh Jowaheer, Manager of the Mauritius Offshore Business Activities Authority, as well as neighbors, such as Mark Latham, known for his proposal “The Corporate Monitoring Firm,” a mechanism for enabling a direct shareholder vote to choose an outside firm to nominate director candidates. Sometimes we have to go half way around the world to meet people who live an hour away.

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Britain’s Trade Secretary Peter Mandelson suggested companies should put their remuneration policy to an annual shareholder vote and indicated this could become mandatory. He also discussed changing the rules governing directors’ elections, so they are elected annually, instead of every three years. (03 December 1998, This Is London)

Netherlands to introduce proxy voting, says Finance Minister Gerrit Zalm. Zalm also mentioned measures such as introducing guidelines on financial reporting and corporate strategy as well as openness about the functions filled by management board members. The reforms are based on recommendations of the recently released Peters Commission report about the business community’s advances in introducing corporate governance, intended to promote transparency and responsible business practices.

Cash balance pension plans are the subject of two articles in the 12/4/98 WSJ. The warning: for employees in their 50s and 60s, switching to a cash balance plan can reduce your pension from 20-50% or even more.

Britain’s companies aren’t complying with recommendations on voting disclosure set out in the Hampel report on corporate governance, according to a survey by Pensions Investment Research Consultants. Hampel recommended companies provide voting figures when asked to do so by shareholders; the survey found 49% of 350 large firms surveyed, failed to disclose the results of proxy votes at this year’s annual meetings. Hampel is having some effect; the survey showed a 12 percent gain in reporting since 1996. PIRC also found that 96% of shareholders vote in favor of management. (seeCompanies Breach Hampel on Votes Disclosure) PIRC will call for legal reforms, including:

• a duty to vote for institutional investors
• all votes at company AGMs and EGMs to be disclosed to shareholders on request, and the ‘show of hands’ to be abolished
• reform of AGM procedure to make it practical for shareholders to introduce resolutions.

Britain’s Auditing Practices Board found that directors and senior management were actively involved in most major frauds. In 65% of the cases, the “fraud” involved mis-stating financial data, often to buoy the share price. (see Fraud, 12/1/98, Financial Times) Trade Minister, Ian McCartney, indicated the government’s use of the Companies Act may be used to allow firms to e-mail messages to shareholders concerning the location of informaiton, such as annual reports, rather than mailing reports. (see E-commerce, 12/1/98, FT)

Britain’s Trade Union Congress (TUC), in conjunction with the Pensions and Investment Research Consultants (PIRC), said shareholder pressure could improve industrial relations and provide high standards of corporate governance in line with the government sponsored Greenbury report on executive pay. The TUC/PIRC guidelines said pension funds should ensure:

• auditors are properly independent and provide a statement on corporate governance codes of best practice.
• companies have at least 1/3, and preferably more than 1/2, non-executive directors. Companies should also separate the posts of chairman and chief executive and fully disclose and justify directors’ pay.
• executive share schemes are at least five years in duration and have targets well above average for peer group companies with directors having to risk their own money.
• employee share schemes are open to all staff, full and part time, and include a savings or loan scheme to promote broad take up.
• takeovers and mergers should be given full consideration and not solely left to investment managers to resolve.

See member trustees urged to take active role in shareholder voting.

CalPERS has announced an ambitious program in corporate governance in their 12th annual plan of action for the 1999 proxy season, according to an article in the 11/30 edition ofPensions&Investments.

The System will ask those on its focus list (to be announced early in 1999) to:

• hire independent consultants to evaluate the companies’ governance function and report to shareholders
• have their audit committees report to shareholders on issues affecting the independence of the company’s auditor
• disclose year 2000 compliance issues.

CalPERS is expected to sponsor academic research in areas such as the following:

• option grants- dilution impact, change in shareholder base
• option repricing- impact on staff retention, dilution
• voting rights- unbundled and traded separately.

CalPERS is to enhance its Web site to make it “among the pre-eminent corporate governance resources on the Internet.” Updated site to include:

• library of corporate governance literature with search capability
• compendium of corporate governance principles
• decisions on specific proxy votes so that others can consider CalPERS’ views
• detailed information on focus list companies, including performance of, communication with
• monthly “CalPERS Viewpoint” column of opinion pieces by board members and staff
• guest book so that visitors can subscribe to updates on selected topics.

CalPERS is also expected to:

• join those submitting shareholder resolutions prohibiting option repricing without shareholder approval.
• develop new discussions and relationships with investors, such as mutual funds, who have not traditionally been active owners
• collaborate with others on corporate governance publications and in accepting speaking requests.

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