Westly Urges Change in CalPERS Voting Policy

The California Public Employees’ Retirement System should scrap a proxy-vote policy targeting companies that allow auditors to perform non-audit work, state Controller Steve Westly said in a letter Monday to other CalPERS directors.

The blanket policy weakens CalPERS’ ability to pursue corporate governance reforms, Westly said in the letter. CalPERS should instead focus on companies in which the $166-billion pension fund has the biggest investments and which have the highest fees for non-audit services, he said.

CalPERS, the largest public pension fund in the U.S., has faced criticism for a campaign that has caused it to withhold votes for company directors including former U.S. Treasury Secretary Robert E. Rubin and billionaire investor Warren E. Buffett, a longtime advocate for shareholder rights. CalPERS this year has opposed directors for more than 80% of the companies in which it owns shares.

“As a national leader, we should not expect to win every cause we pursue -- but we need to make sure that we’re not tilting at windmills either,” Westly said in the letter. “Casting too many protest votes -- sometimes as a small minority of shareholders -- may be diminishing our effectiveness.”

CalPERS is increasing pressure on boards after corporate scandals at WorldCom Inc. and Enron Corp. over the last three years erased almost $300 billion of shareholder value.

The fund is trying to call attention to directors who don’t respond to shareholders and have business links to their companies.

Westly is urging the board to adopt a plan that scraps the policy while still singling out poorly performing companies with overpaid executives.

The California fund voted against reelecting Buffett to the board of Coca-Cola Co. Buffett’s Berkshire Hathaway is the largest investor in Coca-Cola, with an 8.2% stake. Buffett became a target because he was on an audit committee that gave contracts to the company’s auditors for tax services and planning. CalPERS says that giving non-audit work to auditors creates a conflict of interest. Buffett called CalPERS’ action “crazy.”

Other pension funds, such as those in New Jersey and Massachusetts, said the California fund was grandstanding and refused to vote against Buffett and some of the other directors opposed by CalPERS.