Strong Voice for Financial Market Protections

Blog entry Jack Ehnes

The financial crisis has left deep wounds on families’ finances and continues to wreak havoc on America’s educational system through draconian budgetary actions. Having started to emerge from the crisis with some semblance of stability, the markets have once again shown great volatility in reaction to international events.

In traveling across the state and speaking with teachers about their retirement security, I’ve had audience members frequently ask, is there anything CalSTRS can do as an investor to reduce the likelihood of another crisis?

Part of National Debate

Tough question – but as a very large institutional investor, we can, in fact, influence the ongoing debate in Washington. Just last week, by a vote of 59-39, senators approved the Restoring American Financial Stability Act of 2010, which must now be reconciled with the bill adopted by the House in December. We received strong support from both Senators Feinstein and Boxer in understanding our concerns and voting in favor of the bill.

Leading up to this vote, CalSTRS took a leadership role in forging a coalition of like-minded investors throughout the country and in regularly urging members of Congress to keep the bill strong and protect investors.

Target Excessive Executive Pay

As the bill heads to conference committee, it retains key provisions that investors have sought for years. One provision, “say on pay” will allow shareholders to exercise an annual vote on the pay package of the corporation’s senior executives. Given the long standing excesses in executive pay, and it’s often seemingly disconnection to the company’s performance, this new right will certainly help to bring shareholder attention and review to a very controversial issue.

Shareholder Democracy is Key

The bill also affirms the authority of the Securities and Exchange Commission to issue rules providing shareholders access to the proxy to nominate directors. Shareholders have urged the SEC to take action on this for years and hope to see this brought to conclusion in 2010. If successful, this would mean large shareholders, like CalSTRS, would, under certain criteria, be able to directly nominate candidates for boards of directors. It provides investors with very important tools that will help ensure corporate boards are working in the shareholders’ interests.

This bill also reaches into several other very important areas, particularly around regulating risk and consumer protection. There is no doubt that there was an inadequate understanding of the level of risk that had permeated the financial markets and there lacked effective regulatory oversight of it. CalSTRS supports the directions taken in this bill to establish an overarching body to regularly assess financial risk in the markets.

Shareholder Protections Benefit Members

As fiduciaries we at CalSTRS must take a very active role in protecting this trust fund. Having a sound investment strategy is, of course, at the core, but we must also use our position as the second largest public pension fund in the country to convince policy makers to improve the overall system that will give greater benefit to protecting shareholders’ interests. And we will work vigilantly to get that accomplished.

For more information on the Restoring American Financial Stability Act of 2010, visit the Financial Stability website on Treasury.gov.