CalSTRS, CalPERS Target Supermajority Vote, Staggered Board at Brocade Communications
SACRAMENTO, CA – The California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) are seeking support for proposals to remove Brocade Communications’ supermajority vote requirement to make bylaw changes, and to let directors be elected annually.
The nonbinding resolutions at the company’s annual meeting in San Jose, California on April 15, 2009 are related since Brocade’s 67 percent supermajority vote threshold makes it extremely difficult to change the election process.
The CalSTRS resolution seeks to reorganize Brocade’s directors into a single class elected every year instead of three classes where they face election only once every three years.
CalPERS placed Brocade Communications on its 2006 Focus List of underperforming companies, citing a stock loss of 68 percent over the five years ending March 31, 2006. A nonbinding CalPERS proposal to remove the supermajority vote requirement received 53 percent approval of outstanding shares cast in 2006, but Brocade made no change and the Company’s stock price is down by 60.1% over the five years ending February 27, 2009.
“When you consider abstentions and broker non-votes, such a supermajority rule can be almost impossible to obtain,” said Eric Baggesen, CalPERS Senior Investment Officer, Global Equity. “In our opinion, companies most often use supermajority requirements to block initiatives that are opposed by management and boards but supported by most shareowners. It’s time to raise the bar for management accountability.”
The supermajority rule is a major obstacle to shareowner efforts to declassify the Brocade board.
“The staggered terms of board members, such as Brocade’s three-year terms, tend to undermine their responsiveness and alignment with the owners of a company, said Anne Sheehan, Director of CalSTRS Corporate Governance. “Research indicates that staggered terms for boards entrench directors and result in poor company performance.”
CalSTRS, which owned approximately two million shares of the company, has a $114 billion portfolio and is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California’s 833,000 public school educators and their families from the state’s 1,400 school districts, county offices of education and community college district.
- A copy of the CalSTRS letter to shareowners
CalPERS, which is the nation’s largest public pension fund with approximately $167 billion in market assets owns approximately 974,000 Brocade shares. It provides retirement benefits to more than 1.6 million State, school, and local public employees, retirees and their families, and health benefits to nearly 1.3 million members.
- A copy of the CalPERS letter to shareowners