Dutch Pension Giant Sues Bank of America

Harry Wilson of the Telegraph reports that Dutch pension fund sues Bank of America for $100m:

Dutch Pension fund ABP, which manages $285bn, has filed a lawsuit in New York against Bank of America, accusing the financial group of hiding billions of dollars of Merrill Lynch losses, which if disclosed might have led investors to vote against the merger with Merrill Lynch.

The suit goes on to claim that Bank of America withheld details of a secret document it signed with Merrill Lynch guaranteeing the payment of up to $5.8bn of bonuses to the bank's staff.

ABP's lawyer Jay Eisenhofer, managing partner at law firm Grant & Eisnhofer, said: "Had the shareholders known all the facts, they would have been able to make a more informed judgment and possibly prevented a disastrous acquisition."

APG, ABP's in-house investment operation filed the lawsuit, and is seeking as much as $91m in damages from Bank of America. Bank of America declined to comment.

"Prior to the merger date, BofA appear to have had knowledge of record quarterly losses Merrill was facing," AGP said in a statement. "The losses were expected to exceed $15 billion."

Bank of America has also faced legal action from the US authorities.

The Securities and Exchange Commission has sued the bank twice for "misleading" investors over the bonus payments, fining it $33m in August, before announcing a second $150m settlement last month.

Andrew Cuomo, New York attorney general, has been Bank of America's most vociferous critic and has filed a civil fraud charge against the bank's former chief executive Kenneth Lewis, who oversaw the deal.

Mr Cuomo has been instrumental in bringing to light many of details surrounding the merger, including the multi-million dollar bonuses paid to some staff.

It's not just the Dutch pensions who are getting tough. On Monday, the board of California's giant public pension fund, CalPERS, voted to remove the limit on the number of shareholder proposals it can issue to companies in its portfolio:

Lifting the number of proposals its board can file each year means the fund's influence is likely to grow among publicly traded companies.

The California Public Employees Retirement System, which holds about $200 billion in investments, is the nation's largest public pension fund.

In the past, its board has pressured companies to make changes to executive compensation and to increase what it considers to be socially responsible investing.

Those challenges have resulted in corporate governance changes at companies such as The Walt Disney Co., where pressure from CalPERS helped lead to the ouster of former chief executive Michael Eisner.

Shareholder proposals usually specify a policy change that CalPERS would like a company to make. For example, CalPERS intervened last year when Eli Lilly & Co. would not allow its shareholders to call a meeting of its board of directors. The company later agreed to seek approval to eliminate its classified board structure.

Until Monday's vote, the CalPERS board was limited each year to 20 proposals related to executive compensation and 10 related to corporate governance.

The change, which takes effect immediately, allows CalPERS to submit "as many proposals as necessary to carry out CalPERS shareowner activities consistent with its fiduciary duty," Ann Simpson, senior portfolio manager, said in a statement.

The previous policy was put in place when CalPERS was criticized for taking a shotgun approach in trying to influence change on corporate boards, said Brad Pacheco, a spokesman for the pension fund.

The 13-member CalPERS board includes four state office holders, including Treasurer Bill Lockyer and Controller John Chiang.

In a related move, the board voted to ask 58 of the largest companies in its portfolio to adopt what is referred to as majority voting when selecting directors. Under current rules, a director can be elected by a single shareholder's vote if he or she is running uncontested for the post.

Moving to majority voting would enable shareholders to exert more influence on a company's leadership because more votes would be needed to win a seat.

"Majority voting is really about accountability," Pacheco said. "It gives the ability to shareholders to voice their opinion if they don't feel a director is performing."

Apple Inc., Comcast Corp. and Google Inc. are among the companies targeted by the move.

"This is not a shotgun approach," said Simpson, who leads the CalPERS Corporate Governance Program. "We expect a positive response from companies."

After watching Charlie Rose's excellent interview with Michael Lewis (click on his screen image to start video), I welcome anything positive that can come out of the corporate governance programs at large, influential pension funds.

But I'm not holding my breath, knowing full well that short-termism is alive and thriving on Wall Street, and many pension fund managers have their own set of governance issues to deal with, including a bonus culture that is out of whack for the results they're delivering. So while pension giants flex their muscle, making some headlines in the news, the truth is they have for the longest time totally abdicated their fiduciary responsibilities as shareholders. Once again, it's too little, too late.