Monitoring the Monitor: Evaluating CalPERS’ Shareholder Activism
The Journal of Investing, 2007

For almost two decades, the California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund with more than $207 billion in assets, has been active in pursuing corporate reforms. CalPERS is generally credited as a founder of shareholder activism stemming from its heightened proxy voting activity at companies in the mid-1980s.

In 1992, CalPERS began publicly announcing annual Focus List of poor financial and corporate governance performers in an effort to apply public pressure to the targeted companies.

Finance Professor Brad Barber analyzed the gains from CalPERS’ high-profile activism linked to these Focus List firms from 1992 to 2005. In his study, “Monitoring the Monitor: Evaluating CalPERS’ Shareholder Activism,” Barber documents that CalPERS has generally pursued reforms at Focus List firms that would increase shareholder rights and create billions in shareholder value.

Based on conservative short-term stock market reactions to the date the Focus Lists were publicly announced, Barber estimates that CalPERS’ activism has resulted in:

  •     Total short-term wealth creation of $3.1 billion between 1992 and 2005
  •     Long-run benefits, though difficult to estimate, could be as high as $89.5 billion.

Barber also examines the nature of CalPERS’ activism and contends that institutional activism should be limited to situations where there is strong theoretical and empirical evidence indicating the proposed reforms will increase shareholder value.

Resources and Related Links

CalPERS Focus List Companies – One of the most watched lists by the institutional investor community. Companies are identified as among the relative poorest long-term performers in CalPERS domestic stock portfolio and serve as the focus of the System’s corporate governance activism. Find profiles on CalPERS Annual Focus List of companies and read about the System’s concerns with each company’s board and investment performance. Click on the link below to view the Focus List Companies.

About the Author

Professor Brad Barber is an authority on behavioral finance, valuation, market efficiency and analyst recommendations. He has done extensive research on the effect of expenses on money flowing into mutual funds, gender-related overconfidence in stock trading, the impact of coordinated trading by individual investors, and how active trading of equities is hazardous to the wealth of individual investors.

Barber’s research has been covered extensively in the media, including BusinessWeek, Time, The Wall Street Journal,The New York Times, and he has appeared on ABC News, NBC Nightly News, CNN, MSNBC and CNBC. Barber has published frequently in leading academic journals, including the Journal of Finance, the Journal of Financial Economics, Review of Financial Studies, the Journal of Political Economy, Quarterly Journal of Economics, American Sociological Review, the Journal of Financial and Quantitative Analysis, and the Financial Analyst Journal.

Barber teaches courses in investment analysis and corporate financial policy, and he is a regular speaker at academic and industry conferences. He currently serves on the Investment Advisory Committee for Mercer Global Advisors and the Market Surveillance Committee of the California Independent System Operator.


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