CalPERS Presses For Financial Market Reform

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CalPERS Presses For Financial Market Reform

CalPERS Presses For Financial Market Reform

CalPERS encourages and supports global reform to protect investor interests through legislative, regulatory, securities exchanges, and investor forums. Looking ahead, we believe the current market climate presents a window of opportunity for CalPERS to exhibit leadership in shaping market reform to protect investors from a future market meltdown of this magnitude. CalPERS believes that addressing certain reforms are critical and will contribute to the restoration of confidence in the capital market system. As a matter of importance, CalPERS has contributed to supporting the establishment of a regulatory financial market system designed to instill trust, integrity, and confidence in the investors, beneficiaries, and stakeholders of the global capital markets through the following action items:

In conjunction with leading public pension funds and plan sponsors in the United States, developed financial regulation principles, aimed at restoring trust, the "Principles of Financial Regulation Reform" (PDF, 74 KB), which included the following key elements: 1) greater disclosure and transparency, 2) true regulatory independence, 3) an increased and effective shareowner voice in the capital markets, 4) earlier identification by regulators of issues that give rise to overall market risk that threaten global markets, and 5) the preservation of institutional investors' freedom to invest in the full range of investment opportunities.
As an active member of the Council of Institutional Investors (PDF, 252 KB), CalPERS signed onto a letter urging U.S. Congressional leaders (PDF, 738 KB) to consider a number of key corporate governance improvements for inclusion in financial market regulatory reform legislation. The corporate governance improvements considered to have the greatest impact for financial market reform legislation include: 1) Majority Voting Standards in Director Elections, 2) Shareowner Access to the Proxy for the Purpose of Nominating Directors, 3) Abolishing the ability of Brokers to vote uninstructed broker proxy votes, 4) Establishing a board structure under the leadership of an Independent Board chairperson, 5) Board use of Independent Compensation Advisers, 6) annual Advisory Shareowner Vote on executive pay, 7) stronger executive compensation Clawback provisions, and 8) Severance pay limitations that ensure greater pay-for-performance alignment.
CalPERS voted in favor of the Council of Institutional Investors' endorsement of the July 2009 Investors' Working Group report entitled U.S. Financial Regulatory Reform: The Investors' Perspective (PDF, 80 KB). The report provides an investor perspective on recommendations to improve regulation of the U.S. financial markets focusing on four major areas that the financial crisis has revealed to be fundamentally flawed: 1) Strengthening and reinvigorating existing federal agencies responsible for policing financial institutions and markets and protecting investors and consumers; 2) filling the gaps in the regulatory architecture and in authority over certain investment firms, institutions and products; improving corporate governance at U.S. financial companies and 4) designating a systemic risk regulator, with appropriate scope and powers.
On March 19, 2010, CalPERS joined CalSTRS, the Colorado Public Employees Retirement System, Richard Breeden, and Ira Millstein in a national press event urging lawmakers to support reforms (PDF, 20 KB) as described in Senator Dodd's legislation. Key Financial Reform, "Do's and Don't" (PDF, 55 KB) were articulated.
On March 22, 2010, the U.S. Senate Banking Committee approved Chairman Christopher Dodd's "Restoring American Financial Stability Act of 2010." CalPERS cross-asset class staff will continue to be a resource to U.S. legislative staff as the full Senate debates the legislation. The Act favorably addresses nine of CalPERS twelve 2010 Financial Market Reform Objectives summarized as follows:

CalPERS Reform Objectives	Restoring American Financial Stability Act of 2010
Proxy Access	The Securities and Exchange Commission (SEC) may issue rules permitting proxy material use by shareowners for board nominations.
Majority Vote for Director Elections	Resignation of a Director receiving less than a majority vote in an uncontested election.
Say-on-Pay	Includes a non-binding shareowner vote on a proxy resolution to approve an executive compensation plan.
Systemic Risk	Establishes a "Financial Oversight Council," to identify and monitor market systemic risks.
Derivatives Regulation	Provides authority to regulate over-the-counter derivatives. Requires central clearing, exchange trading and transparency provisions.
Credit Rating Agency (CRA) Reform	Provides SEC authority over CRAs, with disclosure, accountability and expertise provisions along with support of alternative payment models.
Hedge Fund Registration	Requires registration of hedge funds managing more than $100 million.
SEC Independence	SEC self funding.
Consumer Financial Protection Agency	Creates an independent unit within the Federal Reserve to regulate consumer financial items.