The Ohio Public Employees Retirement System’s Corporate Governance Department is participating with the Harvard Law School Shareholder Rights Project to file proposals to declassify boards of directors at some of the companies in which we invest. We believe that a declassified board is an important performance review tool that can assure that directors are looking out for the best interests of shareholders.
A proposal to declassify a board of directors is filed to require that all of the directors be nominated for election each year, rather than serving longer, staggered terms within a specified “class.” Companies often cite the practice of declassified boards with longer terms as a defense against takeovers. However, studies have shown that it can lead to less accountability and management oversight.
OPERS reviewed long-term performance and the classified board structure with five companies this year. After a series of discussions with company representatives, four of the five companies agreed to submit proposals at this year or at future shareholder meetings to declassify their boards.
The fifth company decided that it preferred to have the proposal voted on by its shareholders at the annual meeting. While the board recommended voting against it, the company’s shareholders supported the measure by a wide margin. OPERS is working constructively with the company board to implement an annual election of directors in the near future.
The OPERS Board of Trustees adopted a corporate governance policy and proxy voting guidelines in 2003, which are updated annually. Corporate governance encompasses the rights and responsibilities of a company’s board of directors, managers and shareowners. The Board has a quiet diplomacy standard in order to build relationships with directors and company representatives to provide shareholder value for investments held over the long term.
The OPERS corporate governance policy includes proactive initiatives to increase company disclosure and minimize conflicts of interest that can occur with companies, their boards of directors, executive staff and shareholders. The recently-released 2011 Corporate Governance Annual Report highlights our engagement with public companies.