For background, CalSTRS is the second largest public pension fund with over $134B under management. CalSTRS is a long-term shareowner and is considered a passive investor. Their mission is to act as the steward for California state teachers’ retirement funds—ensuring that California’s K-14 professors and teachers (kindergarten through community college) have sufficient funds available when they retire. Approximately half of CalSTRS’ portfolio is invested in equities across roughly 7,000 companies. Typically CalSTRS’ investment is around 0.5 percent of outstanding stock per company.
Anne’s comments were extremely important for directors of publicly traded companies, as CalSTRS leverages corporate governance practices to add value and minimize risk to their portfolio. CalSTRS looks to directors to oversee delivery of long-term growth and value for shareholders. It does not have a political agenda; it’s all about long-term value creation.
Aside from shareholder value creation, the goals of Anne’s team are focused on creating a dialogue with companies and boards. Importantly, the majority of CalSTRS requests are resolved through dialogue.
During our meeting last week, Anne provided a brief summary of recent proxy access rules—SEC Rule 14a-11 and amended SEC Rule 14a-8(i)(8)—and what they mean for directors. While many organizations have provided detailed descriptions of these rules, Anne emphasized the following four key points:
Boards need to proactively engage in shareholder communications and dialogue. While boards need to be aware of shareholders concerns and desires, boards do not have to do as all shareholders request. Frequently shareholders perceptions are simply based on not knowing why.
The new proxy access rules level the playing field.
If a board and/or senior management disregards and/or avoids a shareholder’s request for information, proxy access is the tool of last resort.
Proxy access is seen by large investors as the “ultimate weapon” to influence a board.
Net: If your board is looking for an independent, third party to help conduct a confidential and customized in-boardroom program on strategy, the current environment, or succession planning; or for assistance conducting CEO and/or director succession planning, or exchange-mandated board evaluations, NACD’s Board Advisory Services faculty of 100 percent current directors and leading governance experts is ready to help your board advance exemplary board leadership. NACD’s Board Advisory Services (BAS) team is poised to help boards perform as strategic assets for their shareholders and senior management.
With all the noise on the topic, I recently decided to spend some time asking Gib Hedstrom to give me the straight scoop about how boards address the issue of sustainability. Gib has been the “expert in the room” on these questions at more than fifty board meetings with major global companies, including Air Products, Ashland, and AlliedSignal (Honeywell). I asked him three simple questions. (OK, actually I asked him four):
What’s the best way for a board to define sustainability?
What do the “better boards” do in the area of sustainability?
As an individual director, what should I know about the topic? What questions should I be asking?
Here’s how Gib responded:
1. What’s the best way for a board to define sustainability?
Sustainability is about achieving enduring growth and profitability in the harsh face of 21st Century realities. The “new world order” of a swelling population, oil depletion, global warming, water scarcity, and economic turmoil makes this the fiercest competitive battleground for the next 20 years. It means rethinking everything.
It’s what I call “The Messy Transformation.”Most companies face significant risks. Yet whether you sell technology or transportation or consumer products – the opportunities are massive.
2. What do the better boards do in the area of sustainability?
The better boards bring sustainability into their deliberations about both risk and opportunity. On risk, they do three things:
Take a Business Portfolio Risk approach. For example, 20 percent of U.S. coal plants are scheduled to shut down by 2015. If that’s your energy source, it calls for a Plan B — and fast!
Encourage action on managing the relevant risk profile (short and long term) on Carbon Risk. For example, we see Samsung announcing that by 2013 it will cut by 50 percent the greenhouse gas emissions from its own operations and from the use of its products. We see Sony announce its plans to achieve a zero environmental footprint by 2050.
Keep Operational Risk management front and center. You don’t have to look far back in recent headlines for evidence about what a single disaster can do to your operations and public trust.
For the opportunity side, it’s about investment. Even in this uncertain financial climate, over $100 billion has been invested in renewable energy in the past two years. Companies like Cisco, IBM, Google and Microsoft are rushing to capture “smart grid” growth opportunities. P&G has a five-year goal to accumulate $50 billion in sustainable product sales by 2012, and will have “Sustainable Innovation Products” in 30 million U.S. homes by the end of this year. Bank of America recently announced it is ahead of schedule on its 10-year, $20 billion business initiative focused on addressing climate change.
3. As an individual director, what should I know about where a company stands on sustainability? What questions should I be asking?
At the next board meeting (or better yet, before it), ask these questions:
What would it look like to be a true sustainability leader? What would be the characteristics (e.g., zero waste, carbon neutral)? What would the portfolio look like (e.g., percent of sales from green products, services and solutions)? Is this just from our own operations or across our full supply chain?
Do we have a robust sustainability strategy and a multi-year plan that identifies our risks and opportunities? Our own sustainability scorecard?
So that’s what we hear from the true expert. Now, what does your board do?
The recent whirlwind of legislative and regulatory activity has made it obvious that boards must be ready to adapt to a constantly changing business environment. As boards react to the new regulations and restrictions, I’ve crafted a list of eight things boards can do now.
Focus on the business, especially during this time of economic stress and volatility
Evaluate engagement with stockowners to find ways to improve two-way communications with an emphasis on new technologies and methodologies