Calstrs to hold back votes from John Mack

by Dave Nixon

Story link: Calstrs to hold back votes from John Mack

The second major public pension fund in the US said it would withhold votes from John Mack and seven other members of Morgan Stanley‘s board, accumulating to pressure on the investment bank’s chief.

The California State Teachers’ Retirement System, which manages $165bn, said it would not sanction Mr Mack or the seven other directors since Morgan Stanley’s shares had fallen behind rivals over one, three and five years.

Calstrs also said Mr Mack was rewarded too much given the company’s performance.

“We are concerned about the company’s compensation practices and the lack of a link for pay to performance,” Calstrs said in a statement. “We have concerns about the strategic direction the company took leading into the subprime situation.”

The shift comes after CtW, a group of union-backed pension funds, last month called on investors to vote in opposition to Mr Mack as a method of persuading the board to opt for an independent chairman.

The opponent campaigns are principally figurative and not likely to radically reduce votes for Mr Mack or other directors at Morgan Stanley’s forthcoming annual meeting.

However, Calstrs, despite holding a small stake in the bank, is an influential investor and its disparagement of Mr Mack is likely to be closely scrutinized.

Morgan Stanley said the move by Calstrs was “not in the best interests of shareholders”.

Morgan Stanley recorded its first quarterly loss in December, the consequence of a catastrophic subprime mortgage trading position that led to a $9.4bn writedown. However, the bank rebounded strongly in the first quarter this year, with a profit drop that was smaller than anticipated.

Last month, ISS Governance Services, a large shareholder advisory group, backed Mr Mack’s re-election, although it recommended that he give the role of chairman to an outside director. ISS noted that, outside of the discomforting trading loss, many of Morgan Stanley’s business were performing fairly well.

Two other shareholder advisory firms, Glass Lewis and Proxy Governance, have backed Mr Mack.

Morgan Stanley shares are down about 9 per cent this year and 45 per cent since last summer, when the credit squeeze began. The shares were mostly unchanged at $48.56.

In addition to Mr Mack, Calstrs is withholding votes from Roy Bostock, Erskine Bowles, Howard Davies, C. Robert Kidder, Donald Nicolaisen, Charles Noski and Charles Phillips.

CtW also opposes Mr Kidder and Mr Davies – accusing them of “risk management failures” that led to the writedown.