TIAA-CREF calls for proactive institutional investors to prevent market crises

Policy paper looks at lessons learned from financial crises.

Pension funds and mutual funds, among other large long-term investors, should actively encourage companies to adopt corporate governance reforms that promote sustainable value and protect against market meltdowns, according to a policy paper issued by TIAACREF, the giant $402bn (€315bn) US pension plan and investment fund group for US teachers and researchers. The paper, titled: “Responsible Investing and corporate governance: lessons learned for shareholders from the crises of the last decade,” states: “Simply selling stock in the face of inadequate performance is not the most attractive option. In active as well as passive segments of portfolios, investors should be vigilant in trying to prevent problems before value is lost and it is too late to sell, or increasingly difficult or expensive to address.” TIAACREF’s proposed reforms include allowing shareholders access to corporate proxy material to nominate directors, requiring a majority shareholder vote to elect directors, and an annual shareholder vote on executive compensation.
However, the fund warned against investors outsourcingtheir corporate monitoring and engagement to third parties who may not have their same investment time frames or agendas: “Shareholders must be more watchful and they must be empowered to act on behalf of their beneficiaries,” the paper says.
Roger W. Ferguson Jr., president and CEO of TIAACREF, said: “It is imperative that large long-term investors such as retirement systems and mutual funds — to which millions of investors entrust their savings — encourage portfolio companies to adopt governing practices that promote sustainable growth and lead to long-term value creation.” Hye-Won Choi, senior vice president and head of corporate governance, said in the statement: “Potential steps that are being discussed in Congress and by the (Obama) administration that afford shareholders added rights are necessary, but just the first step. These new rules will bring about meaningful reforms only if shareholders use them responsibly to hold companies accountable for increasing long-term value.”
Link to TIAACREF policy paper
Barry B. Burr is the editorial page editor at Pensions & Investments