Prof' Andrew T' Williams, Ph'D'

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Corporate Governance Challenges

• Prof. Andrew T. Williams, Ph.D.
• Co-Director
• Center for the Study of Fiduciary Capitalism
• Saint Marys College of California
• Moraga, California

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Challenges

• Corporate Governance Challenges
• Traditional Perspective
• Universal Owner Perspective
• Sovereign Wealth Fund Challenges

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Corporate Governance I

• Corporate Governance I traditional concerns
• Ownership Revolution pioneered by CalPERS,
  CalSTRS, CII, and other active institutional
  investors
• Focused on
• Ownership rights
• Board structure
• Take over defences
• Executive pay
• Majority voting for directors
• Getting the herd to run

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Corporate Governance I

• Much good work has been done over the years no
  one doubts the positive relationship between good
  corporate governance and good financial
  performance.
• But as gains get made, the opposition stiffens
  from left and right
• Ability to nominate directors
• Broker voting for directors
• Restriction on commodity trading
• Divestment movement Sudan, Tobacco, Terrorist
  Countries, Etc.
• Particular Challenge Taking CG I concerns across
  borders as portfolios become world portfolios
  rather than national portfolios

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Corporate Governance II

• Corporate Governance II
• Governance issues in a context broader than the
  board room.
• Grows out of the universal owner insight
• Universal Owners are institutional investors that
  own broadly diversified, often indexed
  portfolios, often with long term obligations
  (e.g. STRS and PERS)

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Universal Owners

• Thus they own a cross section of the economy
  internalizing positive and negative externalities
  
• Some Implications
• Consider externalities
• CG externalities
• Climate change externalities
• Look at issues that affect the portfolio as a
  whole
• Sub-Prime Mess bubbles
• Accounting Standards
• Financial market rules and regulations
• Foreign and minority shareholder rights

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Corporate Governance II

• CalPERS / CalSTRS are universal owners and they
  have pioneered CG II issues
• Particularly in the area of the environment in
  general and climate change risk in particular
• Investor Network on Climate Risk
• Carbon Disclosure
• Green Real Estate
• Environmental Company Engagement program at
  CalPERS
• CG II concerns often fall under the rubric of
  responsible investment. That is environmental,
  social and governance (ESG) issues (UNFI-PRI).

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Sovereign Wealth Funds

• Topic De Jour Growing Rapidly
• In many ways like pension funds some explicitly
  have a pension mandate
• A Challenge Avoid getting caught in the growing
  international standard setting movement which
  would reduce market access and which would lump
  pension funds with SWFs.
• An Opportunity SWFs and many pension funds are
  universal owners thus they have many interests
  in common (good CG, market access, protection of
  minority and foreign shareholder rights).
• One of the historic lessons from STRS / PERS
  activism is that cooperation can produce benefits
  for all.

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Corporate Governance Challenges

• Prof. Andrew T. Williams, Ph.D.
• Co-Director
• Center for the Study of Fiduciary Capitalism
• Saint Marys College of California
• Moraga, California