Print

Email story

Comment

Email editor

Pension's business mission

Florida will press for more open corporate governance practices to protect and enhance the value of its pension fund portfolio.

From the mismanagement, if not outright fraud, of company officials at Enron, Tyco and WorldCom to the epidemic of obscene executive compensation packages, it is clear not enough has been done to police the business of business. Now Gov. Jeb Bush and the other members of the State Board of Administration, which oversees investments made on behalf of the state's $116-billion pension fund, want to help fill that void. They have instructed Coleman Stipanovich, the pension fund's executive director, to pay closer attention to corporate governance practices and push for reforms that will add value and security to the fund's portfolio.

Promoting good corporate governance and securing shareholder rights are consistent with the duties of a fiduciary. As Stipanovich noted, when salaries for top executives reach 400 times those of the average employee and have little relationship to the long-term health of the company, something is out of whack. Poorly structured executive compensation can motivate corporate executives in ways that can damage the long-term interests of the company. Enron and WorldCom are just the more notorious examples.

According to Ann Yerger, executive director of the Council of Institutional Investors, Florida is joining a growing number of large public pension systems in the post-Enron world that are starting to use their financial muscle to demand change. She says Florida's interests are similar to many other institutional investors. Protecting the value of a portfolio in today's market requires corporate transparency, some connection between executive pay and company performance, and the adoption of majority-voting policies which give shareholders greater power to remove unresponsive board members. Yerger called Florida's actions "forward looking" and predicted they would "make a real difference" in the way corporations operate.

The staff of the Security and Exchange Commission's Division of Corporation Finance is looking to update executive compensation disclosure rules to stop boards from hiding the full value of upper management pay. This needs to be addressed through regulation. But, in the meantime, Florida will be helping to push for greater corporate accountability by using its own deep-pocket suasion. That is entirely appropriate, as long as the effort works in concert with the fund's primary goal of maximizing its return on investment.

[Last modified December 24, 2005, 01:09:13]