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Harnessing Public Pension Power

Harnessing Public Pension Power . Using Corporate Governance to Protect Fund Assets During a Time of Economic Crisis. Greg A. Kinczewski Vice President/General Counsel Marco Consulting Group. NCPERS 2009 Public Safety Conference. Horrible Last Two Years. Worst Recession Since 1930s

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Harnessing Public Pension Power

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  1. Harnessing Public Pension Power Using Corporate Governance to Protect Fund Assets During a Time of Economic Crisis Greg A. Kinczewski Vice President/General Counsel Marco Consulting Group NCPERS 2009 Public Safety Conference

  2. Horrible Last Two Years • Worst Recession Since 1930s • $15 Trillion Lost From American Economy • $1 Trillion From State and Local Benefit Fund Equity • Unemployment At 26-Year High • S&P 500 Drops 55.3% • NY Financial Brokers Lose $35 Billion

  3. How Has Wall Street Reacted?

  4. How Has Wall Street Reacted? • $18.4 Billion in 2008 Bonuses • Sixth-Highest in History

  5. How Has Wall Street Reacted? • Goldman Sachs 2008: • Earnings: $2.3 billion • TARP Funds: $10 Billion • Bonuses: $4.8 billion

  6. How Has Wall Street Reacted? • Morgan Stanley 2008: • Earnings: $1.7 billion • TARP Funds: $10 billion • Bonuses: $4.475 billion

  7. How Has Wall Street Reacted? • J.P. Morgan Chase 2008: • Earnings: $5.6 billion • TARP Funds: $25 billion • Bonuses: $8.6 billion

  8. ...They At Least Had Earnings

  9. American International Group • $170 Billion Bailout by U.S. Prevents Bankruptcy • $1 Billion in Retention Bonuses 2008-2009 • $450 Million to Financial Derivatives Unit That Collapsed Economy • One-Third Returned After Public Furor • Dozen Employees Resign

  10. Merrill Lynch • Bank of America Buys at Bargain Price in December, 2008 • Merrill Lynch lost $25 Billion in 2008 • Fourth Quarter Loss of $5 billion Greater Than Anticipated • BofA Says No Bonuses to Merrill Lynch Without Its Approval in Acquisition Proxy • BofA Already Authorized Bonuses of $3.6 Billion to Merrill Lynch • SEC Sues BofA For Failure To Disclose Bonuses • $33 Million Settlement • Judge Rejects, Trial Set for February 1, 2010

  11. NCPERS Members File 2009 Proposals • The Kansas City Firefighters, Miami Firefighters, and Philadelphia Public Employees Filed Shareholder Proposals In 2009 To Curb Corporate Excesses • Easy To Do Eligibility: Own $2,000 of Stock Continuously for Two Years • Cost: Minimal • Key: Support From Other Institutional Investors • And Effective

  12. 2009 Shareholder Proposals On • Independent Compensation Consultants • Shareholder Approval of Golden Coffins • Say on Pay • Disclosure and Board Oversight of Political Contributions

  13. Independent Compensation Consultant • Independent Compensation Consultant Policies Adopted By: • Johnson & Johnson • Metlife

  14. Approval of Golden Coffins • Shareholder Approval of Golden Coffins Adopted By: • Occidental Petroleum

  15. Pay Proposal • Shareholder Say on Pay Proposal • Receives 53% at Pulte

  16. Disclosure and Board Oversight of Political Contributions • Disclosure and Board Oversight of Political Contributions • Receives 41% at Citigroup

  17. NCPERS Members Planning Proposals • NCPERS Members Planning Proposals in 2010 • Say on Pay ? • Bonus Banking • Asymmetrical Pay • No CEOs on Compensation Committees • Independent Chairman of Board

  18. Make Sure Your Votes Are Being Cast Right Way on Those Proposals • Have A Proxy Voting Policy • Direct Your Proxy Voting Agent • Consider Cosponsoring Proposals

  19. Make Sure Your Own House in Order

  20. Best Governance Practices • Governance Principles • Risk Management Approach • Investment Policy Statement • Forward Agenda • Annual Board Self-assessment • Key Performance Measures • Administrative Objectives • Investment Oversight • Member Services • Regulatory Compliance

  21. Questions

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