One of the world's largest pension funds believes that company directors who serve more than 12 years on the same board are at risk of compromising their independence.
The California Public Employees' Retirement System (CalPERS) has revised its global governance principles and requests that should a director reach 12 years of service, companies should carry out "rigorous evaluations to either classify the director as non-independent or provide a detailed explanation as to why the director continues to be independent."
This new principle will be closely watched by the Australian superannuation industry as it works through an industry wide governance debate and potential reform.
CalPERS investment committee chair Henry Jones said the principles are the underlying force behind all of the fund's governance work.
"Adding clear parameters regarding our position on director tenure makes the principles stronger, will help to ensure that independent directors remain truly independent, and will help ensure that corporate boards have a fresh perspective and are more diverse," Jones said.
The principles also serve as a framework by which CalPERS executes its shareowner proxy voting responsibilities; engages public companies to achieve long-term, sustainable risk-adjusted returns; and works with internal and external investment managers to ensure their practices align with the fund's investment beliefs.
The principles were reviewed over 12 months and reduced from more than 100 pages to 39.
CalPERS serves more than 1.8 million members and is the largest defined-benefit public pension in the US. Its total fund market value is about US$284 billion.