CalSTRS Retired Educator - Winter 2007 eNewsletter

Some say corporate greed has become as American as big business, Wall Street and the stock market. Such a negative conclusion is not entirely true, but it’s the perception many people – especially investors – have of the way business gets done in the board room and on the trading floor. And why shouldn’t you believe the worst about business? The nightly news is filled with stories about the likes of Enron and WorldCom. Movies and music glorify acquisition by any means. It’s enough to make you feel powerless to do anything about unfair practices or incompetence by corporations in the world of investments.

Corporate Governance Is the Antidote

There is an antidote. It’s called corporate governance. Concern about things such as exorbitant executive compensation packages, the amendment of bylaws without shareholder approval or the dilution of company stock value to discourage hostile takeovers have prompted investors to embrace the concept of corporate governance. We believe a better run, better governed company generates the best financial results in the long-haul for shareholders. As members of CalSTRS, continuous, positive returns in our portfolio mean a secure retirement for you. That is the essence of corporate governance.

How We Got Here

The idea of corporate governance is one that was born nearly two decades ago out of the actions of corporate raiders such as T. Boone Pickens, Ivan Boesky and Carl Icahn. They broke the traditional rules of how corporate shareholders and corporate management played the stock market game. Their intent – and they excelled at this – was to acquire undervalued corporations and break them into parts that were greater in value than the sum of the whole. In 1986 alone, there were nearly 3,000 mergers. Not surprisingly, corporate management viewed these influences as destructive to the company, the workers and their own personal job security. Management threw up protective defenses in the form of “golden parachutes for management, “poison pills” to prevent takeovers, split stock with super voting rights and classified boards. All were intended to protect management and to ward off the true but painful valuation of a company’s economic value. In the end, these mechanisms only reduced shareholder value, entrenched management, insulated the board of directors and angered shareholders.

<< Home || Next Page >>

[1][2]