Shareowners can be instrumental in encouraging responsible corporate citizenship. CalPERS believes that environmental, social, and corporate governance issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, and asset classes through time.) Therefore, CalPERS joined 19 other institutional investors from 12 countries to develop and become a signatory to The Principles for Responsible Investment (Appendix B).

CalPERS expects developed and emerging economy companies whose equity securities are held in the Fund's portfolio to conduct themselves with propriety and with a view toward responsible corporate conduct. If any improper practices come into being, companies should move decisively to eliminate such practices and effect adequate controls to prevent recurrence. A level of performance above minimum adherence to the law is generally expected. CalPERS believes that Boards that strive for active cooperation between corporations and stakeholders⁶ will be most likely to create wealth, employment and sustainable economies.

CalPERS recognizes that adopting formal corporate governance principles, such as the ICGN Principles, may not be appropriate for every company in emerging capital markets due to differing developmental stages, ownership structure, regulatory structure, competitive environment, or a myriad of other distinctions. However, with adequate, accurate, and timely disclosure of environmental, social, and governance practices, shareowners are able to more effectively make investment decisions by taking into account those practices.

Good governance and sustainable development are mutually achievable. While companies in emerging markets should strive to meet the governance practices presented by the ICGN Principles, CalPERS recommends those emerging markets companies focus first and foremost on practices that promote economic, environmental, and social sustainable development. Thus, companies in emerging capital markets should formalize a reporting mechanism by which sustainable development practices can be disclosed to stakeholders, including shareowners.

CalPERS recommends companies in emerging markets adopt the following:

1. Corporate Economic, Environmental, and Social Responsibility Sustainability Reporting Guidelines: Corporations strive to measure, disclose, and be accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development. It is recommended that corporations adopt the Global Reporting Initiative Sustainability Reporting Guidelines ⁷ to disclose economic, environmental, and social impacts.

IV. Conclusion

By adopting the Global Principles of Accountable Corporate Governance, CalPERS strives to influence the market through advancing the corporate governance dialogue while also providing an educational forum by representing a foundation for accountability between a corporation’s management and its owners. With continued experience and communication between corporate managers and owners, the issue of accountability can become – if not resolved – more clear.

"As conflict – difference – is here in the world, as we cannot avoid it, we should, I think, use it. Instead of condemning it, we should set it to work for us... So in business, we have to know when to ... try to capitalize [on conflict], when to see what we can make it do.... [In that light] it is possible to conceive of conflict as not necessarily a wasteful outbreak of incompatibilities but a normal process by which socially valuable differences register themselves for the enrichment of all concerned.... Conflict at the moment of the appearing and focusing of difference may be a sign of health, a prophecy of progress."

The Price Waterhouse Change Integration Team, The Paradox Principles 275 (quoting Mary Parker Follett) (1996).

⁶ In accordance with the Global Reporting Initiative: Stakeholders are defined broadly as those groups or individuals: (a) that can reasonably be expected to be significantly affected by the organization’s activities, products, and/or services; or (b) whose actions can reasonably be expected to affect the ability of the organization to successfully implement its strategies and achieve its objectives.

⁷ Adoption of the Guidelines will provide companies with a reporting mechanism through which to disclose economic, environmental, social, and governance practices. The Guidelines along with additional information on GRI can be found at www.globalreporting.org.