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The following criteria
deal with matters considered of a financial nature only. In
most cases they are general policy guidelines to voting shares
held at annual and special corporation shareholder meetings.
They are not designed to substitute for analysis and judgment,
which should be exercised as circumstances dictate. The guidelines
should not be regarded as mandatory, if local factors and
prudence suggest otherwise. Each issue will be reviewed to
ascertain surrounding facts, and exceptions may be made based
on the legal requirements of the countries, local conventions
or states in which the company is registered. It is recognized
that, in foreign markets, there may be practical difficulties
in obtaining notices of company meetings and that the timeliness
and disclosure requirements, which prevail in the U.S., are
often not evident. In those circumstances where adequate and
timely disclosure of information necessary to reach an informed
and meaningful decision is not possible, the responsible party
may abstain. It is also recognized that the decision to abstain
by the party responsible for voting the proxy may be due to
practical difficulties, to other financial criteria which
outweigh the benefits to be gained by voting or to practical
difficulties and circumstances beyond its control. Not withstanding
any limitations, it is expected that there will be no abstentions
on issues that may affect the economic value of the shareholdings.
It is expected that in all cases, the parties will make a
good faith effort to get the necessary materials, but it is
recognized that, in foreign markets, the means for obtaining
planned company meeting notices, dates and agendas, may not
be readily available. Nevertheless, a true and accurate record
shall be kept of the materials, which have been obtained,
and of how proxies have been voted or otherwise managed. This
record shall include, to the extent possible, a description
of unsuccessful efforts made to obtain materials and the reasons
why the efforts were not successful. It is understood that
it is the intent of the Teachers' Retirement Board to exercise
its voting authority, either directly or through other parties,
to whom it has delegated responsibility for voting proxies
according to their judgment of its best financial interests
whenever and wherever possible. While logistics or other factors
may sometimes interfere with this intent and principle, it
is the ultimate goal of CalSTRS to work with the indicated
parties to remove the barriers to voting all shares over time.
Every financial organization that provides
investment banking services and is retained or utilized by
the California State Teachers’ Retirement System (CalSTRS)
should adopt the terms of the Investment Protection Standards.
On April 28, 2003, the New York Attorney General, the Securities
and Exchange Commission, the New York Stock Exchange, NASD,
and the North American Securities Administrators Association
announced a settlement with ten of the nation’s largest investment
firms (hereinafter “the Global Settlement”), the terms of
which significantly reduce the conflicts of interest between
research and investment banking. In retaining and evaluating
any such financial organization, CalSTRS will give significant
consideration to whether such organization has adopted the
Investment Protection Standards.
The Investment Protection Standards include,
but are not limited to, the following:
- Severing the link between compensation for analysts and
investment banking
- Completely separating research and investment banking,
including physical separation. Research will not report
directly or indirectly to or through Investment banking.
- Requiring that research have its own dedicated legal and
compliance staff.
- Requiring firms to create and enforce firewalls reasonably
designed to prohibit all communications between research
and investment banking.
- Prohibiting research from participating in efforts to
solicit investment banking business. Analysts may not participate
in “pitches” or investment banking sponsored road shows.
- Prohibiting investment banking input into analyst compensation;
- Establishing written criteria (exclusive of investment
banking input) to be used for compensation decisions.
- Compensating analysts in significant part based on the
quality and accuracy of their work.
- Investment Banking shall have no input into an analyst’s
evaluation.
- Decisions concerning compensation shall be documented.
- Creating a review committee to approve all research recommendations.
- The review committee will review all changes in ratings,
if any, and material changes in price targets, if any, contained
in the firm’s research reports.
- The review committee will conduct periodic reviews of
research reports to determine whether changes in ratings
or price targets, if any, should be considered.
- The review committee will monitor the overall quality
and accuracy of the firm’s research reports.
- Requiring that upon discontinuation of research coverage
of a company, firms will disclose the coverage termination
and the rationale for such termination.
- Prohibiting investment banking input into company-specific
coverage decisions (i.e., whether or not to initiate or
terminate coverage of a particular company in research reports
furnished by the firm).
- Disclosing in research reports whether the firm has received
or is entitled to receive any compensation from a covered
company over the past 12 months.
- Each quarter, firms shall publish on their websites a
chart showing their analysts’ performance, including each
analyst’s name, ratings, price targets, and earnings per
share forecasts for each covered company, as well as an
explanation of the firm’s rating system.
- Establishing a monitoring process to ensure compliance
with the standards.
- Each firm shall conduct an annual review to provide reasonable
assurance that the firm is in compliance.
- CalSTRS reserves the right to request an independent
audit or confirmation of compliance with these Standards
and in the case of those firms party to the Global Settlement,
a copy of the report prepared by the Independent Monitor.
Note: Upon approval by CalSTRS of a firm’s
plan or policy, these Standards are to be implemented consistent
with the timeframes established in the Global Settlement.
In submitting plans, a firm may propose a specific alternative
method for complying with one or more of the Standards, which
will be considered only if such alternative method is consistent
with the intent of the Standards and achieves the same substantive
objective.
CalSTRS will give significant
consideration, in retaining and evaluating money managers,
as to whether such managers are abiding by the following:
- Money management firms must disclose periodically any
client relationship, including management of corporate 401(k)
plans, where the money management firm could invest State
or Pension Fund moneys in the securities of the client.
- Money management firms must disclose annually the manner
in which their portfolio managers and research analysts
are compensated, including but not limited to any compensation
resulting from the solicitation or acquisition of new clients
or the retention of existing clients.
- Money management firms shall report quarterly the amount
of commissions paid to broker-dealers, and the percentage
of commissions paid to broker-dealers that have publicly
announced that they have adopted the Investment Protection
Standards.
- Money management firms affiliated with banks, investment
banks, insurance companies or other financial services corporations
shall adopt safeguards to ensure that client relationships
of any affiliate company do not influence investment decisions
for the money management firm. Each money management firm
shall provide the State Investment Officers with a copy
of the safeguards plan and shall certify annually to the
State Investment Officer that such plan is being fully enforced.
- In making investment decisions, money management firms
must consider the quality an integrity of the subject company’s
accounting and financial data, including the its 10-K, 10-Q
and other public filings and statements, as well as whether
the company’s outside auditors also provide consulting or
other services to the company.
- In deciding whether to invest State of Pension Fund moneys
in a company, money management firms must consider the corporate
governance policies and practices of the subject company.
The principles set forth in paragraphs 5 and 6 are designed
to assure that in making investment decisions, the money management
firms give specific consideration to the subject information
and are not intended to preclude or require investment in
any particular company.
1.
The Audit Committee has a unique role in the capital
markets and the overall governance structure. The Audit Committee
shall have at least 3 members and no more than 5. The Audit
Committee shall adopt a formal, written charter and provide
a report that references the charter and disclosure, in the
company’s annual report/proxy statement whether the Audit
Committee has complied with its charter responsibilities.
Any amendments to the Audit Committee charter shall be reported
to the shareholders in the annual report/proxy statement.
The Audit Committee members must have full access to company
financial documents. The Audit Committee shall regularly evaluate
the relationship between management and the external and internal
auditors.
2.
The Audit Committee shall have responsibility and authority
to select, retain/replace and evaluate the external auditor,
including any issues that may impair the external auditor’s
independence and direct the scope of the duties to be performed.
The Audit committee and the Board of Directors, as the fiduciary
representatives of shareholders, are the ultimate authority
to which the external and internal auditors are accountable.
3.
All members of the Audit Committee will be persons
whose past/current employment experience/education demonstrates
expertise in finance and/or accounting, including being or
having been a CEO or other senior executive officer with financial
oversight responsibilities. The Board of Directors shall provide
a written and signed statement in the annual report/proxy
statement, attesting that it has determined that the members
of the Audit Committee have the expertise in finance and/or
accounting necessary for the execution of its oversight and
monitoring duties. The Board of Directors shall attest in
this statement that the Audit Committee members can read and
understand fundamental financial statements, including a company’s
balance sheet, income statement, and cash flow statement.
The Board of Directors shall assess the adequacy of the Audit
Committee on an annual basis. This report should have the
same protections offered by the SEC in its “safe harbor” for
the existing Executive Compensation report included in the
proxy statement.
4.
CalSTRS supports the limitation of non-audit services
that an external auditor can provide to an audit client. If
non-audit services other than taxation issues are provided
and disclosed, CalSTRS shall cast a negative vote against
that auditor’s continuance. External auditors that also have
direct investments in audit clients or affiliates of audit
clients will not be considered as Independent Auditors/Accountants
and CalSTRS shall cast a negative vote against the auditor’s
selection/adoption.
5.
CalSTRS supports limiting external auditor firms to
seven consecutive years of audit service to portfolio companies.
- Generally, information and circumstances permitting,
votes are to be cast in favor of annual election of all
directors and against staggered terms. Exceptions may be
made as circumstances dictate or when pertinent information
is unavailable. Once all shareholders have decided through
the voting process that the board should be staggered, nominees
should be elected based on their qualifications and merits,
though CalSTRS' interest may argue for actions proposing
the repeal of staggered terms.
- Generally, votes are to be cast in favor of simple majority
approval, of shares outstanding, as appropriate for merger
proposals. Proposals seeking higher percentages may be approved
only if approval is in the financial interest of CalSTRS.
Exceptions may be made when pertinent information is unavailable.
For example, a proposal which sought to reduce the super
majority requirement from 80 percent to 66 2/3 percent would
generally receive a favorable vote; whereas, a proposal
to increase the vote required from a simple majority to
a higher percentage would generally not receive a favorable
vote.
- It is concluded that corporate board members primary responsibilities
should be to direct the companies in the interest of all
the shareholders. Any proposed director qualifications should
relate to a prospective director's capacity to function
on behalf of all the shareholders; to the extent that such
qualifications are disclosed, votes are to be cast on this
basis. However, as a matter of policy, CalSTRS supports
the concept of an independent non-executive chairman, who
has not had a substantive employment relationship with the
company in the past five years. Shareholder proposals which
seek a non-executive chairman will generally receive support
and may be introduced on behalf of CalSTRS.
Sitting directors who have been on the board for a full
year and who have not attended at least 75% of the meetings
will receive a negative vote. In such cases, CalSTRS will
split its votes on the issue of directors and vote against
the individual nominee. In casting its vote regarding directors,
the financial performance of the subject corporations will
be reviewed and, if long-term underperformance relative
to the market and industry group are severe, a negative
vote may be cast for the entire slate of directors.
a. It is concluded that since the Audit Committee is
a subset of the entire Board of Directors, the performance
of the Audit Committee is the responsibility of the
entire Board of Directors. The Board of Directors must
provide active and independent oversight of all of its
review committees, such as Audit, Nominating, Compensation
and Governance. All persons who serve on Audit Committees
must be unaffiliated, independent directors, whose only
material relationship to the company is the directorship.
In recognition of the unique expertise and time commitment
required for the Audit Committee, CalSTRS supports the
view that members of the Audit Committee should receive
greater compensation than other Board Committees. The
Board of Directors should also consider limiting the
term of Audit Committee service, by automatic rotation
or other methods.
- Generally, votes are to be cast against blanket requests
for limitations of liability and indemnification protection
of directors and officers. Generally, such requests allow
the protected individual to escape liability even if he
or she is found by the courts to have been grossly negligent
in the performance of his or her duties as a director and/or
officer of the corporation. It is concluded that it is not
in the best interest of shareholders to grant such protection
on an across-the-board basis. Exceptions may be made as
circumstances and legal requirements dictate.
a. Legal requirements and circumstances permitting, positive
votes may be cast for management-sponsored proposals requesting
increased indemnification of directors and officers due
to damage caused by violations of the duty of care, so
long as the director/officer satisfied a "good faith"
standard. Broader protection may be supported, provided
there is a reasonable basis for support.
b. Legal requirements and circumstances permitting,
positive votes may be cast for increased indemnification
proposals where a director/officer defense is unsuccessful,
unless there is a final legal/court determination that
the director/officer acted in bad faith and not for a
purpose that he or she could reasonably believe was in
the best interest of the company. Broader protection may
be supported, provided there is a reasonable basis for
such support.
c. Legal requirements and circumstances permitting, negative
votes may be cast against company proposals that request
the elimination or limitation of directors' liability
for acts evolving from negligence, or other violations
of the duty of care that go beyond reasonable standards,
except in markets where local conventions suggest otherwise.
- may be withheld for the entire slate of directors if
a majority of the candidates are also corporate officers.
Votes may be cast against the entire slate of directors
if a majority of the candidates are also corporate officers
or have been company corporate officers in the past. Additionally,
votes may be withheld when it appears that the existing
board has been remiss in the performance of its oversight
responsibilities. In the absence of adequate or definitive
information, CalSTRS will cast its vote based on the surrounding
circumstances and the judgment of the responsible party.
Finally, negative votes may be cast when committees, such
as the nominating, compensation and audit, are not composed
of independent directors.
- Votes are generally to be cast against the payment of
fees to inside directors. Votes are generally to be cast
against proposals granting retirement benefits and/or stock
options or stock grants to outside directors, except in
markets where local conventions suggest otherwise. However,
proposals which seek to pay outside directors' fees in stock
instead of cash will receive a positive vote. In the absence
of adequate or definitive information, CalSTRS will cast
its vote based on the surrounding circumstances and the
judgment of the responsible party.
- Votes may be withheld for directors who may have an inherent
conflict by virtue of receiving consulting fees from a corporation
such as legal counsel and investment bankers who underwrite
the corporation's securities. It is concluded that outside
directors should remain independent in order to serve the
best interest of all shareholders. In the absence of adequate
or definitive information, CalSTRS will cast its vote based
on the surrounding circumstances and the judgment of the
responsible party.
- Generally, votes should be withheld for the entire slate
of proposed directors when management is proposing a series
of defensive measures which serve to insulate incumbent
management and hinder the ability of mergers or takeovers
to proceed. In the absence of adequate or definitive information,
CalSTRS will cast its vote based on the surrounding circumstances
and the judgment of the responsible party.
- Where director candidate(s) are employed by a company
having a 20 percent or greater interest in the subject company,
the director candidate(s) will be considered insiders. Should
the majority of the director candidates be insiders or have
conflicts of interest, votes may be withheld for the entire
slate of candidates. In the absence of adequate or definitive
information, CalSTRS will cast its vote based on the surrounding
circumstances and the judgment of the responsible party.
- Generally, shareholder proposals requesting the board
of directors to establish a nominating committee for the
selection of director candidates are to receive a favorable
vote. CalSTRS believes that all important review committees
such as nominating, audit and compensation should be entirely
staffed by independent directors. Proposals and/or actions
which seek to have such a structure established may be initiated
or supported by CalSTRS. In the absence of adequate or definitive
information, CalSTRS will cast its vote based on the surrounding
circumstances and the judgment of the responsible party.
- Proposals which seek to limit the tenure of directors
should receive a negative vote. Proposals which require
directors to own a minimum amount of company stock in order
to qualify as a director or to remain on the board should
receive a negative vote. In the absence of adequate or definitive
information, CalSTRS will cast its vote based on the surrounding
circumstances and the judgment of the responsible party.
- Whenever possible, votes will be cast in favor of cumulative
voting proposals as required for governmental pension funds
under California law (Section 6900, Government Code).
- Generally, information, legal requirements and investment
analysis permitting, votes may be cast against proposals
which would grant preemptive rights to shareholders and
in favor of proposals which would eliminate such rights.
In some markets, preemptive rights result in a loss of financing
flexibility and are likely to deter companies from fulfilling
one of their functions, which is to raise capital advantageously.
However, in some markets it is believed that the removal
of preemptive rights result in a loss of financing flexibility.
Thus, the party responsible for executing the vote must
exercise his or her best judgment on this matter.
- Stock options and incentive compensation plans must have
the overriding purpose of motivating corporate personnel
and should, by design, encourage long-term behavior in opposition
to short-term behavior. It is not in the interests of shareholders,
employees or the companies to support unnecessarily high
compensation costs, as this will result in making the companies
uncompetitive with consumers and providers of capital. To
insure that such plans are aligned with shareholders’ interest,
attention should be paid to corporate performance. Exceptions
may be made when pertinent information is unavailable or
when legal requirements do not permit execution of this
principle.
- CalSTRS believes that shareholders should have the
right to review and decide on all equity-based compensation
plans and that, failing shareholder approval, such plans
should not be implemented. CalSTRS believes that this
standard should not only apply to companies whose shares
are listed on exchanges, but to OTC companies as well.
CalSTRS supports a more egalitarian distribution of
incentive compensation among employees, but insists
that the total compensation cost to shareholders be
reasonable.
-
When
reviewing stock options and incentive compensation plans,
the Fund will pay careful attention to the net dilution
that will be suffered by shareholders as a result of
the plans’ implementation. This dilution calculation
will be based on the Capital Asset Pricing Model and
will have as its components, the risk-free rate of return
in evidence at the time the plan is being reviewed,
the equity risk premium in evidence at the time the
plans is being reviewed and the stock’s beta. The
CAPM return for the company would be the sum of the
risk-free rate plus the equity risk premium, multiplied
by the beta and reduced by whatever the dividend yield
is on the stock. When the options are exercised and
the company gets to deduct the gain on exercise and
the company’s marginal tax rate is considered, the company’s
cash flow and profit should increase by some multiple
of the gain and the tax rate.
-
On exercise,
once consideration has been received for the options
shares, the company can use it to buy back additional
shares. The net dilution will be the difference between
the original grant and the shares that the company buys
back. This model would account for risk; options in
risky stocks are worth more and will cost shareholders
more than options in less risky stocks; net dilution
on higher beta stocks will be higher than the net dilution
experienced on lower beta stocks. In-the-money options
will produce higher net dilution than the same number
of out-of-the-money options or indexed options.
-
CalSTRS
will favor the establishment of Non-Qualified Stock
Option (NQSO)) over Incentive Stock Options, because
NQSOs are more advantageous to shareholders in that
the gains derived from them are deductible by the issuing
corporation. CalSTRS intends to apply the broad-based
equity compensation standard to the companies that annually
constitute the Russell 1000 Index. CalSTRS will not
support any equity compensation plans where shareholders
will suffer greater than 20 percent net dilution, or
where greater than five percent of the total equity
compensation granted is to the top five executive officers.
When companies are presenting the performance metrics
that will be used for these equity compensation plans,
such measures should be easily identifiable and have
validity for shareholders; at a minimum, growth in earnings
per share, return on equity and total return should
be included as performance measures. Additionally, there
should be threshold levels in any equity compensation
plan and they should be clearly explained in the proxy
statement and the plan document that is provided when
such plans are presented for approval. This means there
must be some level of performance for which employees
will receive no reward.
-
Awards
of equity compensation would only be generated on the
portion of performance achieved above the threshold
level. Executives and employees receive salaries and
they ought to deliver some threshold level of performance
before they receive any additional compensation, no
matter its form. The broad-based equity compensation
plans will be allowed a greater net dilution rate of
20 percent rather than the 15 percent that is allowed
for companies outside of the Russell 1000. However,
net dilution rates will be reviewed with an eye towards
the companies’ past practices, as well as the current
practices of comparable companies in the same industry
or of the same approximate size.
-
Generally,
CalSTRS intends to use the net dilution standard to
permit higher net dilution in companies where the long-term
performance metrics have been higher, on a relative
basis, to comparable companies and lower net dilution
in companies where the long-term performance metrics
have been lower, on a relative basis, to comparable
companies and to encourage minimum vesting periods of
five years. CalSTRS will continue its practice of voting
against granting discounted options greater than 85
percent.
-
Generally, proposals which only seek to enable corporations
to comply with the tax code deductibility rules regarding
executive pay are to receive a favorable vote. Exceptions
may be made in the instance of mega grants, unclear links
between performance, performance hurdles that seem too generous
given past history and no defined peer group by which to
judge performance of the subject corporation. Tandem stock
options, stock appreciation rights and purchased options
may receive a negative vote. Generally, tandem options are
a combination of stock options and another type of long-term
incentive such as restricted stock or phantom stock. This
vehicle can allow for cashless exercise, depending upon
the executive choice of exercise or payment. CalSTRS is
opposed to cashless exercise. Purchased options are usually
purchased for a percentage of the grant value and are payable
at the time of grant. The exercise price is set below the
fair market value of the underlying stock. Indexed options
will be supported by CalSTRS.
- Votes are generally to be cast against executive incentive
stock option plans which would result in greater than 15
percent of the outstanding shares of the corporations represented
by the Russell 2000 being reserved exclusively for the executive
stock option plan, except in markets where local conventions
suggest otherwise. This figure includes shares proposed
for a new plan or amendment plus shares reserved under all
existing plans, plus all shares under option but not yet
exercised. Typically, no greater than two percent dilution
per year for the life of the plan should be experienced
by shareholders. Exceptions may be made when pertinent information
is unavailable or when legal requirements do not permit
execution of this principle. CalSTRS favors the use of Nonqualified
Stock Options as they are more beneficial to the shareholders.
- Votes are generally to be cast against executive incentive
stock option plans which would sell shares to executives/employees
at a price of less than 85 percent of market value at the
time of grant, unless a lower value may be legally offered.
- The Sarbanes-Oxley Act of 2002 has prohibited loans to
executives of listed companies; however it is unclear whether
the prohibition will be extended to OTC companies. Votes
are generally to be cast against executive incentive stock
option plans which would grant loans to such executives
for the purpose of exercising stock options. Exceptions
may be made when pertinent information is unavailable or
when legal requirements do not permit execution of this
principle.
- The Sarbanes-Oxley Act of 2002 has prohibited loans to
executives of listed companies; however it is unclear whether
the prohibition will be extended to OTC companies. Votes
are generally to be cast against executive incentive stock
option plans which would grant loans to such executives
to settle tax liabilities associated with the exercising
of incentive stock options. Exceptions may be made when
pertinent information is unavailable or when legal requirements
do not permit execution of this principle.
- Votes are generally to be cast against Restricted Stock
Option Plans, outright stock grants or other arrangements
to such as pyramiding, stock appreciation rights and cashless
exercise. Votes are generally to be cast against proposals
which would allow the Board to replace or reprice underwater
options without shareholder approval. Exceptions may be
made when pertinent information is unavailable or when legal
requirements do not permit execution of this principle.
- Executives are defined as the five most highly compensated
executive officers of a company and its subsidiaries, and
such other senior-level executive and management employees
who are designated to receive executive incentive compensation,
apart from that which is given to general employees. Exceptions
may be made when pertinent information is unavailable or
when legal requirements do not permit execution of this
principle.
- It is the responsibility of the companies to clearly,
understandably and adequately explain the plans and their
effects with examples where necessary in order to fully
define intent. However, where time permits, inquiry may
be made about corporate proposals which are not clear. If
the information available and/or obtained is not considered
clear or adequate, votes cast will be based on the surrounding
circumstances and the judgment of the responsible parties.
- Corporate proposals to reduce stock option share prices
for management should be given close scrutiny. If it appears
the request arises out of a broad market decline affecting
all companies, favorable consideration is possible. If the
stock has underperformed the market and it is concluded
the causes were management decisions, a negative conclusion
would be probable. Such proposals will be considered on
a case-by-case basis.
- Generally, any attempt to create an unusually favorable
compensation structure in advance of the sale of a company
should be opposed; however, such proposals will be considered
on a case-by-case basis.
Generally, employee stock purchase plans,
savings and investment plans or thrift plans are to receive
a positive vote, so long as exercise or purchase price is
not less than 85 percent of fair market value on the date
of grant or purchase and no loans are made for the purposes
of settling payment for shares or any tax liability arising
from exercise or purchase of such shares. Shares issued and
reserved with respect to such plans shall only be done when
necessary and for the specific uses of the plans. However,
such proposals will be considered on a case-by-case basis.
Generally, ESOP 's, which are funded by
the debt of the corporation and/or which represent large percentages
of the outstanding shares or cause substantial dilution to
ownership and voting power, are to be given a careful review.
In the absence of any extraordinary or beneficial (to CalSTRS)
circumstance, these plans should not be approved. Shareholder
proposals which seek to have a vote on all such plans should
receive a positive vote.
- CalSTRS wants all offers evaluated on its behalf, which
are presented for any company in which it invests. To the
extent that adequate information is available and legal
requirements and investment practices permit, defensive
tactics should be opposed. Each proposal should be reviewed
on its own merit, as nothing written here should be constructed
as a substitute for the judgment of the responsible party.
These defensive tactics may be, but are not limited to:
a. Golden parachutes.
b. Poison-pill preferred.
c. Lock-up options.
d. Super majority voting provisions, with the exceptions
noted above in Section B (2).
e. Fair price or minimum price provisions.
f. Unequal voting rights based on length of ownership
of stock.
g. Requiring that shareholders only be allowed to act
at meetings rather than by written consent.
h.Requiring that all offers be approved by the company's
management and/or Board of Directors before offers are
submitted to shareholders.
i. Requiring that only the Board be allowed to increase
its size, or that a super majority of all outstanding
shares is necessary to create a larger Board, and allowing
the Board to fill vacancies on the Board in between
meetings, without shareholder approval.
j. Requiring that directors may only be removed for
cause, usually on the basis of a supermajority vote,
and that directors be allowed to fill vacancies for
full terms rather than the remainder of unexpired terms.
k. Providing for a set of designated "alternate"
directors to be appointed to any mid-term vacancy.
l. Requiring that the power to call a special meeting
of the shareholders be vested in the Board and/or the
chairman exclusively, or providing that such a meeting
can only be called after a demand by a supermajority
of stockholders, or increasing the number of shareholders
necessary to constitute a quorum at an annual or special
meeting.
m. Adopting supermajority voting provisions for transactions
between the target company and an "interested shareholder."
n. Requiring that the percentage vote requirement be
based on all outstanding shares entitled to vote and
not on votes actually cast.
o. Enacting redemption provisions where if any person
owns a certain percentage of stock pursuant to a hostile
tender offer, which is opposed by the management and/or
Board of Directors, the other shareholders have the
right to have their shares redeemed by the company at
a specified price.
p. Requiring the Board and/or senior management to
consider social, economic and "other factors"
when evaluating a bid for the company rather than basing
its decision solely on the price being offered.
q. Granting a director who is the Chairman or Chief
Executive Officer a second or tie-breaking vote.
r. Reincorporating in other states solely for the purpose
of seeking protection against tender offers and takeovers.
s. Issuance of new common and preferred shares and
placing the issues in so called "friendly"
hands, sympathetic to management.
t. Assuming large amounts of debt which will impair
the capital position of the corporation, in order to
repurchase the corporation's stock and avoid a tender
offer.
- Each proposal will be evaluated on its merits, but if
it is determined that the sole aim of the proposal is to
entrench management, and wrest authority and control from
shareholders, a vote is to be cast against such proposals.
However, this guideline is no substitute for the judgment
of the responsible party.
- CalSTRS also opposes so-called "Omnibus Resolutions,”
where management offers one item which is beneficial to
shareholders, such as anti-greenmail, and attaches a "rider"
or other items such as the ones described above which are
not in the best interests of shareholders. In this situation,
a vote will be cast against the entire proposal. A letter
(where appropriate) to management may be written by the
designated party indicating displeasure with this "lumping"
and requesting that the issues be separated.
- Generally, votes are to be cast against proposals which
adopt or give the Board of Directors discretionary power
to adopt measures designed to deter takeover attempts or
other attempts to obtain control of the corporation by making
such attempts extremely financially unattractive or impossible,
unless such action has received the prior approval of the
shareholders of that company. However, such actions will
be reviewed on a case-by-case basis, and legal requirements
and circumstances will dictate CalSTRS vote on this matter.
- Reincorporation proposals will be examined on a case-by-case
basis.
- Authorization of increased shares generally shall be limited
to that amount which may be necessary for financing within
the next twelve months unless the corporation sets forth
other compelling reasons. It is deemed advisable to exercise
some control over authorized stock and issuance thereof
to allow shareholders input on acquisitions which could
change the fundamental characteristics of the company held.
Support will generally be given for authorization of up
to 15 percent in excess of the current outstanding stock.
However, such actions will be reviewed on a case-by-case
basis and legal requirements and circumstances will influence
CalSTRS' vote on this matter.
- In general, all shareholder proposals on financial matters
are to be given due consideration by CalSTRS and/or its
advisers. It is incumbent on the companies to respond adequately
to these proposals. An inadequate or casual response may
affect the responsible party's deliberations and weigh in
favor of voting for the shareholder proposal.
Not withstanding any other provision of the law, every state
agency owning common stock shall, when returning proxies to
a corporation, vote each proxy that is returned to the corporation.
Nothing in this section shall prohibit a state agency owning
common stock from abstaining on a corporate or shareholder
proposal and notifying the corporation in writing of the state
agency's desire to abstain on a corporate or shareholder proposal.
As used in this section "state agency"
includes the state, the University of California, and any
office, department, bureau, board, commission, agency or pension
or retirement system thereof.
Approved by Board: June 11, 1982
Amended by Investment Committee: June 7,
1985
Amended by Investment Committee: July 19,
1985
Amended by Subcommittee on Financial Proxies:
August 5, 1988
Amended by Investment Committee: October
7, 1988
Ratified by Teachers' Retirement Board:
October 22, 1988
Amended by Subcommittee on Corporate Governance:
March 11, 1992
Approved by Investment Committee: April
1, 1992
Ratified by Teachers' Retirement Board:
April 2, 1992
Amended by Subcommittee on Corporate Governance:
October 6, 1995
Approved by Investment Committee: October
6, 1995
Ratified by Teachers' Retirement Board:
October 6, 1995
Amended by Investment Committee: November
5, 1997
Approved by Investment Committee: November
6, 1997
Ratified by Teachers' Retirement Board:
November 6, 1997
Amended by Subcommittee on Corporate Governance:
April 3, 2002
Approved by Investment Committee: April
3, 2002
Ratified by Teachers’ Retirement Board:
April 4, 2002
Amended by Subcommittee on Corporate Governance:
July 10, 2002
Approved by Investment Committee: July 10,
2002
Ratified by Teachers’ Retirement Board:
July 11, 2002.
Amended by the Subcommittee on Corporate
Governance: July 9, 2003
Approved by the Investment Committee: July
9, 2003
Ratified by the Teachers’ Retirement Board:
July 10, 2003
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