PGGM, Railpen Lead U.S. Governance Push by European Pensions

Oracle Corp. chairman Larry Ellison is the target of a governance campaign by PGGM and Railpen.


Few things rankle American conservatives like the concept of international law. The idea that foreigners — a Belgian, say, or heaven forbid an Iranian or a Russian — might have something to say about the legality of actions taken by a U.S. citizen is regarded as anathema. Hence Washington’s refusal to ratify the International Criminal Court.

U.S. companies may have similarly low interest in international standards for corporate behavior, but the keepers of those standards are interested in corporate America.

In January two major European pension funds — PGGM of the Netherlands and the U.K.’s Railways Pension Trustee Co., known as Railpen — wrote to the board of software giant Oracle Corp., demanding proxy access for outside shareholders and an overhaul of the company’s lucrative executive compensation plan, particularly its big pay awards for company founder and chairman Larry Ellison. The two funds have voted against Oracle’s compensation policies for the past four years and sought a meeting with board members at the annual shareholder meeting in November, only to be rebuffed.

“They don’t have concerns for minority shareholders,” says Catherine Jackson, PGGM’s senior adviser on corporate governance. “It really calls into question how well they represent your interest when a material issue comes up. They’re not acting in our interests here.” Oracle did not respond to requests for comment.

Oracle is no stranger to activists. Investors voted against its compensation policies by wide margins in 2012 and 2013, but those votes were purely advisory and easily dismissed by Ellison, who owns 26 percent of the company. Last year PGGM and Railpen joined with the California State Teachers’ Retirement System and two other U.S. institutional investors in campaigning for proxy access, which would allow shareholders holding 3 percent or more of a company’s stock for at least three years to nominate independent board candidates. That measure was supported by 45 percent of shareholders at Oracle’s November meeting.

The traditional U.S. response to shareholder activists has been blunt: If you don’t like the management or its policies, dump the stock. But in the U.K. and some Continental countries, shareholders get more than a “say on pay.” They can reject compensation plans and even vote out company directors. The idea that American-style shareholder democracy consists merely of the freedom to sell doesn’t cut it for funds like PGGM, which manages €189 billion ($215 billion) in assets, mostly for health care workers, and invests 40 percent of its equities in the U.S. “Why don’t we hear that in the other markets we invest in?” Jackson asks.

The Europeans counter with the idea of stewardship. “We think it takes two parties to steward a company: engaged shareholders like ourselves and an active and engaged board,” says Deborah Gilshan, head of corporate governance at Railpen, which manages £20 billion ($30.8 billion) in assets. That message increasingly resonates with big U.S. pension plans like CalSTRS, which by virtue of its size ($185 billion) and long-term investing horizon sees itself as more of a partner of the companies it invests in than a flipper of their stocks.

Between 2009 and 2014, European funds sponsored 34 proxy proposals at U.S. companies, mostly over the issues of independent chairmen and proxy access, according to Institutional Shareholder Services. “The recent importation of rights such as say-on-pay, majority voting and universal proxy ballots are signs that U.S. capital markets can learn from their European counterparts,” Martha Carter, global head of research at ISS, tells Institutional Investor in an e-mail.

Indeed they are. New York City Comptroller Scott Stringer, who oversees $164 billion in assets for the city’s five pension funds, has filed proxy access resolutions at 75 companies for their 2015 annual meetings, as part of New York’s Boardroom Accountability Project. The companies were chosen because of the funds’ concerns about their carbon footprints (including Exxon Mobil Corp. and Chevron Corp.), executive compensation (Electronic Arts and Staples) and workplace diversity (eBay and Urban Outfitters).

“There’s a certain convergence of shareholder expectations,” says Dieter Waizenegger, executive director at CtW Investment Group, a federation of U.S. labor pension plans with $200 billion in assets. •