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State demands corporate reform

Wielding Florida's huge pension fund, leaders intend to push for solutions to corporate governance misfeasance.

By JONI JAMES
Published December 14, 2005


TALLAHASSEE - Fed up with "outrageous" executive compensation and "undemocratic" proxy voting at public companies, Gov. Jeb Bush and two other state leaders ordered Florida's public pension fund Tuesday to take a leading role nationally in pushing for corporate governance reform.

Catching up to a corporate corruption issue that has dogged big business for several years, the Florida leaders want companies to adhere to higher standards to win the state's investment dollars. One of the keys is linking a chief executive's salary and benefits to the company's bottom line. They also want companies to adopt majority-voting policies that make it easier for stockholders to block a director's appointment to a corporate board.

"The one that angers me the most is the lack of tying of executive compensation to results," Bush complained during a trustees meeting. He later noted a Morgan Stanley executive who won a buyout contract for $37-million for five months' work. "It's just outrageous some of the salaries they get for poor results," the governor said.

As early as next year, Florida's pension fund could adopt a "focus list" of companies deemed to pay their executives too much or give shareholders too little say on who serves on the board of directors. Coleman Stipanovich, the pension fund's executive director, said companies on the focus list will have to prove they're strong investments.

"For some of these salaries, there seems no rhyme or reason; they're self-perpetuating," Stipanovich said. "When you see an executive making 400 times what their average employee makes there is something wrong with that."

The potential companies on Florida's focus list include the universe of Wall Street. As the nation's fourth largest public pension plan with $116-billion in assets, the Florida fund owns multiple shares in nearly every major stock traded - directly or through index funds. In sharp contrast to many struggling pension plans, Florida's fund is sitting on a $9-billion surplus.

State leaders say they don't envision a quid-pro-quo situation, where the pension fund threatens removing its investment without changes. Rather, they hope Florida's sheer investment might and leadership among institutional investors will be enough to encourage change in an environment ripe for reform.

Indeed, Florida's effort is far from the only one. In the wake of scandals at Enron, WorldCom and Tyco, among others, leaders from Washington, D.C., to Wall Street have been pushing more accountability from corporate board of directors for several years.

Congress passed the Sarbanes-Oxley Act in 2002. The Securities Exchange Commission has passed numerous other reforms, and is considering new rules to force boards of public corporations to disclose more information about how executives are compensated.

Even in Tallahassee, Stipanovich has increasingly ordered his staff and money managers to consider a company's governance policies as they weigh investment options. He said research shows that the more transparent a company's policies are to shareholders, the more likely those companies will remain good investment gambles in rough economic or industry times.

"Looking back, nearly every problem, scandal we've seen companies get into was because of problems with corporate governance," Stipanovich said.

Tuesday, Bush, Chief Financial Officer Tom Gallagher and Attorney General Charlie Crist, the pension fund's three trustees, said they wanted Stipanovich to become more visible - a striking contrast for a pension fund that usually shuns the spotlight. Gallagher and Crist are running for the Republican nomination for governor, positioning to succeed Bush when his term expires in 2007.

Though led by three statewide elected officials, Florida's investment strategies have never been nearly as controversial or politically charged as some other large public funds. The most obvious example is the nation's largest public pension fund, California's CALPERS, where state employee unions and other constituencies serve as trustees.

But Bush said Tuesday it was time to act.

"I think the shareholders and the retirees that rely on the pension are equally outraged as I am and it's appropriate for us to vote our shares and for us to say we want pay be tied to results," Bush said. "It's just that simple."

Florida's public pension plan serves employees of more than 845 state and local government agencies, including school districts. Its membership includes 225,000 retirees and 650,000 active employees.

Joni James can be reached at 850 224-7263 or jjames@sptimes.com

[Last modified December 14, 2005, 00:13:09]


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