Clout, Conflicts and Controversies: Everything about CalPERS is BIG

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Net Positive Benefits

“But in some of the more minute provisions within governance, you would be limiting the flexibility of companies to deal with things that should be addressed on a case-by-case basis. You have to be careful,” notes White,  “whenever you tinker with the recipe to make sure you get net-positive benefits from any change.”       

     CalPERS has already staked out a number of governance positions.  “We are in favor of separating the chairman and the CEO — as a rule,” White says.  “We are in favor of declassifying boards (i.e., eliminating staggered terms) — as a rule.  We are in favor of banning poison pills (a strategy that makes hostile takeovers prohibitively expensive) — as a rule.             

     “There are a lot of things in governance that you can address on a systematic basis like that.  But there are a lot of subtleties in how businesses work, factors that you can’t put into an equation for running a company,” says White.  “And we do recognize that, but that doesn’t change the effectiveness of, or whether or not we’re right, on our overall policies.”            

     The issue, White says, is accountability.  A board chaired by the CEO and lacking any other strong power base will likely be a weak board.  “The other directors tend to lose sight of their role in the oversight function and the need for separation of management and the board.  Does that mean we go after every company that has a combined chairman and CEO?  No, we’re not in the position to do that right now, and it’s not as easy as it might sound.”            

     Which doesn’t mean CalPERS won’t cause more headaches for CEOs, whether or not they’re also chairmen. In August, investment committee chair Feckner announced that CalPERS would campaign against overly generous severance pay for executives who sell their companies.  That’s part of an expected broader war on “excessive” executive compensation, expected to be launched soon with a focus list of errant companies.            

     Of course, at any number of companies the pay of the CEO has about as much relationship to the company’s financial performance as the snowfall in Halifax has to do with the Kings’ won-lost record. So for Anson and White, finding wayward companies on this basis should be a slam-dunk. 

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