City & Business: Out and proud and pushing for profit
Sunday 30 March 1997
Calpers has been building relationships with European and Japanese institutional investors in an attempt to develop a consensus on a corporate governance agenda. Last week Kayla Gillan, Calpers' general counsel, was in London preaching the governance gospel. Her preaching, she admits, was to the converted. Ms Gillan has nothing but admiration for corporate governance in this country.
While there is no doubt that standards of governance have improved significantly in Britain, there is a danger of complacency creeping in. There was just a sense from Ms Gillan that she had been told ever so politely that our grandmothers already know how to suck eggs. So while the general mood of her meetings with institutions was one of unmitigated commitment to ever firmer governance there were still indications that perhaps Calpers was pushing things just a little too far.
For instance, Calpers believes that boards should have a majority of independent directors. This causes difficulties for British institutions. An independent director, in Calpers' view, is much more robust than a non-executive director. The British do not think it feasible to have a majority of independent directors.
It would be a shame if institutions misinterpreted Calpers' fierce promotion of governance as an example of pushy American interference. Calpers has been careful not to be seen to trying to export its code lock, stock and barrel. For example, the fund's infamous "outing" of underperforming companies has never been taken outside the US. Publishing an annual list of the10 worst companies in the Calpers portfolio attracts much attention and has proved to be a very effective tool. This is seen by many institutions as excessive and "un-British". They prefer understated, covert pressure to get things done.
In fact, there is no great difference between the Calpers and the British approaches. Calpers' list of underperformers is but the final step in a six-month process.
It first approaches companies privately, pointing out that it is the duty of management to run the business effectively on behalf of shareholders. This is normally the catalyst for a reversal of fortune. Independent analysis shows that Calpers' intervention has a quite dramatic impact on performance. A study by Wilshire Associates revealed that 62 companies targeted by Calpers had on average underperformed the Standard & Poors Index by 85 per cent in the five years before they were outed. In the five years after Calpers intervened the same stocks outperformed the S&P Index by 33 per cent. This brought an extra $150m a year in returns to the fund - not bad for a programme that costs $500,000 a year to run.
Calpers is planning to introduce a similar approach to its investments in Britain. It will not happen immediately, but is very much part of Calpers' governance thinking.
What is most surprising, then, is that very few British companies have taken the trouble to acquaint themselves with Calpers. No doubt an unfortunate oversight that will soon be rectified. The Calpers Effect can be extremely beneficial for a company. It is better to acquire this benefit than have it thrust upon you.
Listen to the Oracle
WHO better than Larry Ellison, chairman and chief executive of software giant Oracle, to launch the first electronic virtual takeover bid? Ellison, in a personal capacity, and a band of investors have made it known that they may be interested in taking control of Apple, the struggling computer company. Bid battles on the information super highway are clearly different to those fought in more conventional territory. In a virtual bid the first thing you do is not appoint a merchant banker but set up an e-mail address.
The next step, it seems, in Ellison's bid strategy is to canvass the views of Apple staff, shareholders, customers and anyone else on the future of the company. Correspondents are asked via e-mail whether Apple can benefit from new management and what should be the single top priority if the Ellison investor group were to secure control.
This is an extremely efficient way of preparing for a bid. If enough people, particularly shareholders, indicate their support then Ellison will no doubt be encouraged to take the takeover into the real world.
This kind of behaviour would not be warmly embraced by our Takeover Panel. But in this electronic age who is to say that the virtual bid will not become more commonplace? It may not be an issue for the Panel now, but it will become one.
A real windfall
With the opinion polls still indicating a Labour victory at the general election the prospect of the imposition of a windfall tax draws ever nearer. Perhaps the Labour manifesto will shed some much-needed light on the practicalities of what will be a more complex tax than many have assumed - but that may be hoping for too much.
Opposition to the tax has been quite muted. The utilities, who are expected to bear the brunt of any levy, remain quite sanguine. Although they do not relish a tax that either shareholders or customers, or both, will have to pay for, they are quite prepared to keep a low profile providing the burden is reasonable and does not become an annual event.
Of more concern is stability in the regulatory regime. The utilities believe that more lasting damage would be done by an upheaval of the regulatory framework. If the price for consistency in regulation is a windfall tax, then it is well worth paying.
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