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CalPERS Case Introduction

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					        CalPERS Case: Introduction

The CalPERS portfolio:
1. What is CalPERS’ Investment strategy?
2. How has CalPERS allocated its investment assets
   w.r.t. the investment strategy?
3. What is the difference between managing
   investments by Indexing (passive) versus Active
   Management of investments?
4. Why has CalPERS focused on passive
   management of its investments?
                   MBAO 6600 - Executive
                      Compensation
         CalPERS Case: Introduction

CalPERS porfolio (continued):
5. Would your investment approach be different if
  you were managing pensions for GE or IBM?

CalPERS values/goals:
1. What do you think about CalPERS social and
  financial responsibility criteria that it applies to its
  investments? Who benefits from this?

                      MBAO 6600 - Executive
                         Compensation
  CalPERS Case: Corporate Governance

What is CalPERS approach to corporate
 governance?

What does this approach do for CalPERS
 stakeholders? Who benefits? Who loses?

Why doesn’t CalPERS just vote their shares by
 selling them as many other large shareholders do?

                   MBAO 6600 - Executive
                      Compensation
  CalPERS Case: Corporate Governance

How does CalPERS influence the companies it
  targets? What strategies does it apply? Were they
  successful?
Examples:
•
•
Do you agree or disagree with the targets and issues
  CalPERS selected in 1991 such as: GM, ITT,
  Avon, Texaco, WR Grace, Scott Paper.
                    MBAO 6600 - Executive
                       Compensation
   CalPERS Case: Executive Pay Issues

Why did CalPERS identify Executive Pay as a
 governance issue for its target companies?

What issues involving Executive Pay did CalPERS
 seek to change? Examples?

How successful was CalPERS in being a catalyst for
 change in the practice of executive pay?

                   MBAO 6600 - Executive
                      Compensation
     CAlPERS Case: Take Away Points

1.
2.
3.
4.
5.




               MBAO 6600 - Executive
                  Compensation
        CAlPERS Case:Governance
CalPERS Approach to Corporate Governance:
1. Select target firms that commit a governance “sin”
  - no more than 12 targets per year.
2. Criteria:
   a. High institutional ownership of stock.
   b. High amount of CalPERS ownership.
   c. Poor performance of firm.
3. Tools: shareholder resolutions, proxies,
  shareholder advisory committees.
                   MBAO 6600 - Executive
                      Compensation
     CAlPERS Case: Takeaway Points

1. Institutional Shareholders have some influence on
  corporate governance.
2. CalPERS uses the media to focus public opinion
  on targets and motivate board members to protect
  their reputations by being proactive vis a vis the
  CEO and entrenched managers.
3. Index investing is becoming more prevalent,
  creating incentives for more active institutional
  shareholders such as CalPERS.
                   MBAO 6600 - Executive
                      Compensation