The California State Teachers’ Retirement System (“CalSTRS”), America’s second largest pension fund, announced that it would vote its nearly six million shares against the retention of Wal-Mart’s board of directors. This decision comes in the wake of Wal-Mart’s ongoing Mexican bribery scandal.
This is an important story for pension governance and fiduciary responsibility. Entirely too often, the discussion about pension investment is focused on inaction.
CalSTRS has not fallen into this trap. It has pursued legal action over alleged failures in corporate governance and now it will vote its against the board. These are proactive steps made to protect the fund’s investment and its investors, the teachers of the State of California.
This is a small story in pure voting numbers. CalSTRS has six million shares of more than three billion outstanding shares. Wal-Mart is still, effectively, a family company with nealry half of the total shares owned by the heirs of Sam Walton.
However, in symbolic impact, this is a major development. CalSTRS is an extremely influential investor and it is pursuing ongoing litigation.
The Wal-Mart board will not be voted out, but in an environment when corporate elections are often rubber stamps, this vote could cause major changes.
These actions should be considered an example for the fiduciaries of qualified plans. Aggressively protecting your investment is an action that should, at least, be considered. ERISA does not require this sort of aggressive action and it is not necessarily the prudent decision to file a lawsuit or try to vote out a board. However, the issue should be studied and the decision should be made with the best interest of the pension fund in mind.