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August 29, 2012
CalSTRS Engages with Russell 2000 Companies on Majority Voting Standard
    by Robert Kropp

The pension fund's engagement with 95 companies during 2012 proxy season results in 86% of them either adopting the standard or making significant progress toward doing so.

The years-long campaign by sustainable investors to have companies in their portfolios adopt a majority voting standard has certainly met with success in the case of the largest corporations, as more than 90% of those in the S&P 500 have done so.

On the other hand, more than two-thirds of the smaller companies in the Russell 2000 maintain a plurality standard, by which an uncontested candidate can win election with one vote.

During the 2012 proxy season, the California State Teachers' Retirement System (CalSTRS) engaged with 95 Russell 2000 companies on the issue of adopting a majority voting standard, and the pension fund's overwhelming success clearly indicates just how mainstream the issue has become.

Thirty-four of the companies with which CalSTRS engaged agreed to adopt the standard without a shareowner resolution being filed, and 48 of the 61 resolutions submitted were withdrawn after the pension fund determined that the companies had made significant progress toward adopting the standard.

Of the 13 resolutions that did go to a vote, nine of them passed with more than 75% average support from shareowners. CalSTRS states that it is continuing its engagement with the other four companies, where the resolution gained significant support as well.

CalSTRS' Corporate Governance Principles states, "Charters and by-laws should provide that directors in uncontested elections are to be elected by a majority of the votes cast."

"Today's economic challenges underscore the importance of board accountability." Anne Sheehan, CalSTRS' Director of Corporate Governance, said. "Holding directors to a reasonable election standard is a fundamental step in maintaining the integrity of a company's leadership and the trust of its shareholders."

The version of the Dodd-Frank financial reform bill passed by the Senate in 2010 contained a provision for a majority voting standard, but the version passed by the House of Representatives did not and the provision was left out of the final bill. Peter DeSimone, the Director of Programs at the US SIF: The Forum for Sustainable and Responsible Investment, described the majority vote standard to last year as "a basic democratic principle, and one that would restore accountability in the market without costing the US taxpayer anything. It's a market-based reform, which means that shareholders hold directors accountable without the necessity for regulatory oversight."


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