CalSTRS Board Adopts Updated Corporate Governance Principles

News release Ricardo Duran

WEST SACRAMENTO, Calif. – The California State Teachers’ Retirement System’s (CalSTRS) Investment Committee adoption last week of updated Corporate Governance Principles, sets the stage for an active proxy season in 2015.

CalSTRS has long supported proxy access—a shareholder’s right to nominate candidates on the company’s proxy. The updated principles, for the first time, specify CalSTRS support of proposals giving a group of shareholders, owning three percent of a company’s shares for at least three years, access to board nominations and to the company’s proxy statement. The CalSTRS Corporate Governance Principles lay out the basis for how the fund carries out its corporate governance initiatives. The Investment Committee adopted the updates at its February 6 meeting.

“CalSTRS has steadfastly supported the 2011 rule, proposed by the Securities and Exchange Commission, that allows shareholder groups access to board director nominations with what we call a three-and-three ownership structure,” said CalSTRS Director of Corporate Governance Anne Sheehan. “We firmly believe this is the most appropriate threshold for proxy access.”

The 2011 SEC rule, 14a-11, was subsequently nullified by an appellate court that determined the commission had done insufficient cost-benefit analysis. CalSTRS has since supported proposals seeking proxy access in accordance with the SEC ruling that grew out of post-financial crisis reforms.

Without a universal rule from regulators, CalSTRS and like-minded institutional investors have waged proxy access efforts, company by company.

“CalSTRS will, in the coming proxy season, support any shareholder proposal that includes a three-and-three group structure,” said Ms. Sheehan. “Our intention is to oppose any proxy access proposal with a structure more onerous than three-and-three ownership by a group of shareholders.”

CalSTRS Corporate Governance unit will also urge fellow shareholders to withhold their votes from company directors who either exclude a three-and-three shareholder proposal from the proxy statement, or who deliberately preempt such a shareholder proposal with one of their own that establishes more excessive thresholds.

The recent decision by the SEC to suspend issuing no-action letters this proxy season opens the door for companies to allow options for shareholders when voting to establish proxy access thresholds.

The California State Teachers’ Retirement System, with a portfolio valued at $188.8 billion as of December 31, 2014, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 879,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. 

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