Calpers and Calstrs, the giant pension funds in California, are
beginning to take a more aggressive role in the operation and
election of corporate boards.
Activist investors like Carl C. Icahn, Daniel S. Loeb and William
A. Ackman are getting deep-pocketed imitators.
Some of the biggest public pension funds, which have sought to
influence companies for years, are now starting to emulate these
investors by engaging with, and sometimes seeking to oust, directors
of companies whose stock they own.
Anne Simpson, director of corporate governance at the California
Public Employees' Retirement System, the largest United States
pension plan, with $279 billion in assets, said "board coups" this
year that led to the departure of directors at Hewlett-Packard,
JPMorgan Chase and Occidental Petroleum showed "how shareholder
activism is evolving from barbarians at the gate to acting like
The retirement fund, known as Calpers, is one of several big
United States public funds that have played roles in shareholder
uprisings in recent years at companies that included Chesapeake
Energy, Nabors Industries and Massey Energy. While some of the
revolts were led by labor groups or activist investors, Calpers has
often cast its votes alongside them.
Ira M. Millstein, a lawyer who specializes in corporate
governance at Weil Gotshal & Manges, said it was significant that
"the biggest pension fund in the U.S. is taking an activist role,
going to companies that aren't doing well and saying, 'You really
ought to change."'
The second-largest public fund, the $176 billion California State
Teachers' Retirement System, went so far as to co-sponsor a proposal
with the activist fund Relational Investors to break up the Timken
Company, the maker of steel and bearings, criticizing the outsize
representation of the founding Timken family, which held three of 11
board seats while holding 10 percent of the stock. Four months after
the proposal won a 53 percent vote, Timken acquiesced to a breakup
Anne Sheehan, director of corporate governance at the teachers'
retirement fund, known as Calstrs, said pension fund "activism and
engagement has stepped up quite a bit more as a result of the
financial crisis when we all lost a lot of value. As universal
owners, how can we not assert our rights and develop a relationship
with companies in our portfolio?"
The big public funds have successfully campaigned in the past
decade for the right of shareholders to elect each director
individually by majority vote on an annual basis, more recently
using the procedure to seek the ouster of directors who receive a
heavy no vote. While the companies often are not legally bound to
replace directors who do not win a majority, some directors have
One of the last big holdouts against majority voting was Apple,
where Calpers waged a three-year battle with steadily increasing
shareholder votes, which culminated in Apple's agreement in 2012 to
allow electing directors by majority vote.
The adoption of majority voting "has made directors far more
willing to engage," said Ann Yerger, executive director of the
Council of Institutional Investors. Nell Minow, the co-founder of
the governance advisory firm GMI Ratings, said there had been "a
shift in tactics" among big activist investors "from shareholder
proposals to engagement and director replacement."
This year may have marked a "pivot point where the central focus
of shareholder activism shifted" to "direct challenges to board
members," according to a report in August by Institutional
Shareholders Services, which advises investors on proxy voting and
other governance issues.
At JPMorgan, for example, Calpers and other investors backed a
call by Change to Win, a labor group, for the ouster of three
directors on the board's risk committee whose qualifications were
questioned after the bank suffered a $6.2 billion loss on what
became known as the London whale trades. …