One group making strides to offer greater oversight is the Council of Institutional Investors (CII). The CII was formed in 1985 after the nation’s largest state pension funds observed the executives at Texaco pay a $137-million premium to avoid a management takeover by the Bass brothers without seeking shareholder approval. The so called “green mailing” action saved the executives jobs but cost the shareholders dearly.
The founders of the CII believed that the companies in which they were investing their members’ retirement assets needed more oversight by shareholders. They also felt that by pooling their resources, institutional investors— primarily public pension funds—could use their burgeoning proxy power to hold companies accountable.
A founding member of the CII, the California Public Employees Pension System (CalPERS) is the largest state pension fund in the country and has received extensive attention for its corporate governance efforts. Several studies have highlighted the excess gains to stocks placed on this list. The most recent study done by Wilshire Associates in 2013 produced excess returns of 13.72 percent over the Russell 1000 Index over a five-year period. This study by Bill Baue from 2006 shows smaller gains mostly focused in short- term.
The improvement is now dubbed the “CalPERS Effect.” CalPERS has since updated its advocacy efforts to focus more on dialogue and less on shaming, but it has not changed its desire to see corporate governance improvements lead to better outcomes for investors.