Harnessing Public Pension Power

Greg A. KinczewskiVice President/General Counsel Marco Consulting Group

Using Corporate Governance to Protect Fund Assets During a Time of Economic Crisis

NCPERS2009 Public Safety Conference

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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

How Has Wall Street Reacted?

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How Has Wall Street Reacted?

$18.4 Billion in 2008 Bonuses

Sixth-Highest in History

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How Has Wall Street Reacted? Goldman Sachs 2008:

− Earnings: $2.3 billion− TARP Funds: $10 Billion− Bonuses: $4.8 billion

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How Has Wall Street Reacted? Morgan Stanley 2008:

− Earnings: $1.7 billion− TARP Funds: $10 billion− Bonuses: $4.475 billion

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How Has Wall Street Reacted? J.P. Morgan Chase 2008:

− Earnings: $5.6 billion− TARP Funds: $25 billion− Bonuses: $8.6 billion

...They At Least Had Earnings

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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

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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

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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 DoEligibility: Own $2,000 of Stock Continuously for Two Years− Cost: Minimal− Key: Support From Other Institutional Investors

And Effective

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2009 Shareholder Proposals On Independent Compensation Consultants

Shareholder Approval of Golden Coffins

Say on Pay

Disclosure and Board Oversight of Political Contributions

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Independent Compensation Consultant

Independent Compensation Consultant Policies Adopted By:− Johnson & Johnson− Metlife

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Approval of Golden Coffins

Shareholder Approval of Golden Coffins Adopted By:− Occidental Petroleum

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Pay Proposal

Shareholder Say on Pay Proposal− Receives 53% at Pulte

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Disclosure and Board Oversight of Political Contributions

Disclosure and Board Oversight of Political Contributions− Receives 41% at Citigroup

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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

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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

Make Sure Your Own House in Order

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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

Questions