March 27, 2003
CalPERS Says Xerox's Corporate Governance Not Worthy of Copying
by Mark Thomsen
Pension fund giant names six companies that need to improve their corporate governance.
Copier and printer-maker Xerox, (ticker: XRX) topped the
California Public Employees' Retirement System's annual list of worst corporate governance
performers. CalPERS, the largest pension
fund in the U.S., today named five other companies that are in dire need of better corporate
governance practices. The six companies named in the list will be the primary focus of CalPERS'
shareowner action efforts in this year's proxy season.
The $131 billion pension
fund sent a letter to Xerox chairman and CEO Anne Mulcahy that asks the company to expand its board
by three independent directors and split the position of chairman and chief executive officer.
"It is time for Xerox to bring in new blood," said Sean Harrigan, president of the CalPERS
board. "It's disconcerting that the same members that oversaw Xerox during its worst period are
Other companies named in the list include Gemstar-TV Guide International
Inc. (GMSTE), a global media company, JDS Uniphase Corp. (JDSU), a
manufacturer of fiber optics communications products, and Manugistics Group Inc. (MANU), Midway
Games Inc. (MWY), and Parametric Technology Corp. (PMTC),
all software makers.
CalPERS cited excessive executive pay as one of the indicators of
Gemstar's dismal corporate governance performance. Gemstar's outgoing CEO and CFO were granted
severance packages of $22 million and $7 million, respectively, after their resignations in October
2002. These severance packages do not appear to be linked to Gemstar's financial performance. For
the one-year period ending December 21, 2002, the company's stock fell 88.2 percent while its peer
group in the Russell 1000 Consumer Index fell 24.2 percent.
CalPERS said it wants Gemstar
to commit to a majority of independent directors on its board, audit, compensation, and nominating
The stock performance of the other companies has been poor as well. JDS
Uniphase and Manugistics share prices each have declined at least 70 percent for the one-year
period ending December 31, 2002. Parametric's stock lost about half its value over the same
period. Midway's stock has fallen 77 percent for the five year period ending December 31, 2002.
CalPERS Focus List of companies was selected from the pension fund's investments in more
than 1,800 U.S. corporations. The criteria for determining the list is based on the companies'
long-term stock performance, corporate governance practices, and an assessment of how much economic
value the company is generating. By analyzing a company's stock performance and economic value it
generates, CalPERS says it can identify companies whose poor market performance is due to
underlying financial performance problems rather than industry or other factors.
said that it has put seven other companies on its monitoring list for poor corporate governance.
The pension fund will consider on an ongoing basis whether to take action on those companies.