Last week, CalSTRS approved changes to its Corporate Governance Principles that guide its proxy voting decision-making. The changes encompass - among other things - board composition, director accountability and shareholder rights, most notably these:
- Director’s Attributes and Skills – Desirable director skills and experience were amended to specifically include expertise and experience in climate change risk management (new text underlined):
Director Qualifications: The board should be comprised of diverse individuals with the skills, education, experiences, expertise and personal qualities that are appropriate to the company’s current and long-term business needs.
The attributes and qualifications of the Board need to provide a diversity of skill sets and experience to properly oversee management, business strategy and risk mitigation. The Board should have a diverse mix of skills and attributes of its members and should establish a format to disclose the various skills, experience and backgrounds of the Board and how those attributes enhance the long term strategy of the Company. The skills/experience needed, include but are not limited to, financial and/or accounting, industry expertise, business management, governance, customer service, leadership, risk management, including climate risk management and cyber risk management, and strategic planning.
Board members should stay current in their knowledge and expertise either through continuing education or some other mechanism, to ensure they are carrying out their fiduciary duty and properly overseeing management on shareholder’s behalf.
- Board Diversity – CalSTRS may hold directors accountable (e.g., vote against directors) if - after engagement on the absence of board diversity - the board hasn't acted to "remediate": "CalSTRS may hold members of the Nominating and Governance Committee accountable if, after engagement about the lack of board diversity, sufficient progress has not been made in this regard."
- Governance Structure – The Principles formerly provided that a shareholder vote should be held on any substantial bylaw or charter amendment that affects shareholder rights. New language states that CalSTRS can hold directors accountable for unilateral actions that disenfranchise shareholders if they don't submit such changes for a shareholder vote (new text underlined):
Bylaw Adoption or Amendment without Shareholder Approval: CalSTRS expects a shareholder vote on the adoption or amendment of substantive changes to the company’s bylaw or charter provisions, especially if it may materially affect or limit shareholder’s rights. CalSTRS may hold directors accountable for any unilateral actions that disenfranchise shareholders.
- Governance Structure – The Principles formerly provided for CalSTRS support for the one-share, one-vote principle. New language encourages companies who have unequal voting structures to disclose and implement a process to move to the one- share, one-vote structure (new text underlined):
Unequal Voting Rights: CalSTRS supports the one-share, one-vote principle. CalSTRS does not support voting structures in which voting rights are not aligned with economic interests. CalSTRS does not support time-phased voting, which provides unequal voting rights based on the length of ownership in the stock. Companies with existing unequal voting structures should disclose and implement processes to move to a one-share, one-vote structure.
See also CalSTRS release.