Tag Archives | Brown

Elect Flaherman and Brown to CalPERS

Keep CalPERS healthy; vote for Flaherman and Brown. Ballots have been mailed out to more than 1.5 million CalPERS members. They must be received by October 2nd to count. This is probably the most important election the $333B+ System has ever held, given how the board isolated and ostracized current director J. J. Jelincic for doing his job.  I voted for Michael Flaherman and Margaret Brown. I recommend all members do the same. Take action today.

Questions? Contact [email protected] and [email protected] before and after the election. Flaherman and Brown won’t hide from members once elected. Both have also been endorsed by J. J. Jelincic, the only current board member who routinely asks the tough questions of staff and others on the Board. Continue Reading →

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Guidewire Software (GWRE) – Proxy Score 33

GuidewireGuidewire Software Inc ($GWRE), which provides software products for property and casualty insurers, is one of the stocks in my portfolio. Their annual meeting is coming up on 12/4/2014. ProxyDemocracy.org had collected the votes of two funds when I checked and voted on 12/1/2014. Sorry for the late post. Tomorrow is the last day to vote online. I voted with management 33% of the time and assigned them a proxy score of 33.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Guidewire Software 2014 proxy in order to enhance corporate governance and long-term value. Continue Reading →

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Proxy Access Avoidance: Subversive or Accelerating Preemption?

The other day I included mention of a project by J.W Verret (Truth on the Market) who promises 16 posts in a series of strategies on how to avoid complying with proxy access once it is enacted. His postings are defended by someone I normally consider at least somewhat rational, Stephen Bainbridge. One of Verret’s latest, suggests that if directors are elected through proxy access at a company, the majority board members could set up an executive subcommittee to do all the substantive work of the board, thus freezing out directors nominated and the elected by shareowners from any significant decisions.

To me, this smacks of a violation of the duty of good faith. After working on proxy access for so long (Les Greenberg and I submitted our original petition in the summer of 2002), Verret’s tactics seem especially venal to me, so I posted a bit of a rant (New Resources: Sustainability Quotes, Crisis Timeline, Cal Corp Law & Proxy Access Avoidance and here in response to Bainbridge.

Verret apparently plans 13 more posts on the subject, although he posted something of an answer to critics on July 29th (Corporate Blog Smack Down 2010 over my Proxy Access Defenses). Those critics were Nell Minow (see Another Misguided Piece from Professor Bainbridge) and J. Robert Brown (Access and a Desperate Response). Both are well worth reading.

It looks like Bainbridge may be entering with a series of his own recommendations. For example, see Using Board Qualifications to Defang Proxy Access, 7/29/10, where he proposes companies could limit directors to those holding $250,000 worth of stock. As one commentator wrote,

How would this work in practice when most companies simply grant new directors sufficient shares of stock to meet their minimum ownership requirements within the required period of time (e.g. five years)? A board would be hard pressed to do so for all its members except for those elected via access.

Of course, in most cases involving proxy access we can expect the company to be under some financial distress, since shareowners aren’t likely to invoke access at a company that is doing well. If Bainbridge is expecting all director’s to pony up their own funds to purchase substantial shares in the company, he may not only be limiting access candidates but others as well. For example, I was once asked onto a board where the company was entering bankruptcy. Both nominating committees and shareowners seeking access would likely be blocked by Bainbridge’s suggestion.

Part of me says we shouldn’t give the ideas of Bainbridge or Verret to circumvent proxy access laws any more publicity, since maybe there are company leaders crazy enough to take their advice. However, after reading Brown response, I’m almost thinking that any such challenge may just add strength to the movement for greater shareowner democracy because it would likely lead to further preemption of Delaware law, should the courts there go along with these “defenses.” Dodd-Frank gives the SEC broad authority regarding proxy access requirements. Circumvention could easily lead to a real push for further access and to more than 25% of the seats.

In yesterday’s post (Proxy Access Blog Wars, And Introducing PA Defense #4), Verret recommended that boards adopt instant runoff voting (IRV) for their elections, which he calls the “Chinese Menu Ballot.” (One might assume from the name that he would require choices from various columns, whereas in fact, he call for IRV type ranking, so I am somewhat confused by the name he uses.) He appears to argue in favor of IRV, since it “would in some circumstances eliminate candidates for which a majority of shareholders have a strong preference against.” I find myself in actual agreement with this recommendation. I too, want consensus candidates and think IRV has a great many advantages for corporate elections. (see my May 2003 comment letter to the SEC)

In fact, for many years I have been advocating that CalPERS use IRV in its own elections. Several local governments already use IRV. Once the Secretary of State certifies ballot counting equipment at the state level, I think it is highly likely that CalPERS will adopt it for their board elections. Once they do, they may become strong advocates for IRV in contested corporate board elections.

Verret promises to “save the best for last.”

The final two defenses I will offer stand to completely subvert any of the benefits of proxy access.  The final two defenses I will propose will ensure that no investor will have any remaining incentive to nominate directors onto the corporate proxy under the SEC’s proxy access regime, and they will be certain to withstand challenge in both Delaware and the federal courts.

We’ll see. In the meantime I hope for more constructive suggestions, like post #4, for the posts in between.

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Former CalPERS Officials Sued for $95 Million

California Attorney General Edmund G. Brown Jr. announced his office has filed a civil suit against former CalPERS Board Member Alfred Villalobos, his company ARVCO Capital, and former CalPERS CEO Fred Buenrostro, charging them with fraud. Explained Brown,

Working as a placement agent for ARVCO, Villalobos spent tens of thousands of dollars to lavishly entertain key senior executives at CalPERS, who then influenced the Board to authorize investments that generated over $40 million in commissions to Villalobos. None of these actions were disclosed as required by law, as state pension holders and taxpayers have every right to expect.

According to the complaint, Villalobos influenced these CalPERS officials by, among other things, taking two of them on an around-the-world trip, taking another on a private jet trip to New York, and giving Buenrostro a $300,000 job and a condo when he left the pension fund.

Brown also obtained a court order to freeze Villalobos’ assets and place them in receivership to recover the more than $40 million in commissions that Villalobos earned during the period alleged in the complaint. Brown explained that the freeze order, granted yesterday, was necessary because Villalobos has transferred real estate suspiciously, has lost tens millions of dollars in high-stakes gambling, and maintains over 20 bank accounts. Among the assets placed under receivership are two Bentleys, two BMWs, a Hummer H2, art work worth more than $2.7 million, $6 million in yet-to-be-paid placement-agent commissions, and 14 pieces of real property in California, Nevada and Hawaii.

Specific charges allege that:

  • Villalobos and ARVCO falsely represented that they had the required securities licenses and complied with all laws;
  • Defendants gave, accepted, and failed to disclose gifts;
  • Villalobos and ARVCO submitted bogus disclosure forms.

In addition to a permanent order preventing the defendants from violating state securities and unfair competition laws, and the imposition of civil penalties, Brown seeks to recover the more than $40 million in placement agent commissions that Villalobos and ARVCO collected. The receiver appointed by the court will be charged with recovering the money. Brown’s Office acknowledges the full support and assistance of CalPERS and its special review headed by Philip Khinda, Esq., of the Steptoe and Johnson law firm.

See also, State sues 2 former CalPERS officials, LATimes, 5/6/10.

I want to thank the Attorney General and his office for taking the steps they have to protect our members and the pension system.  We are all working hard to address these issues.  Manipulation of this 78-year old institution cannot, and will not, be tolerated.  We will continue to work side-by-side with authorities in the pursuit of justice,

said CalPERS Board President Rob Feckner. Anne Stausboll, CalPERS Chief Executive Officer, said

we are deeply troubled by the apparant fraud committed against CalPERS.  My number one priority has been, and will continue to be, ensuring that the system and our members are protected against fraud and abuse. CalPERS has placed the internal investment officer mentioned in the Attorney General’s complaint on administrative leave.  We are heartened to have the Attorney General’s Office working with us and our special review team to right the wrongs that may have occurred. These matters underscore the importance of passing placement agent reform this year.  We urge the Legislature and the Governor to pass our bill so that no one will ever be able to profit inappropriately in the way the Attorney General set forth in his court papers.

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