CalPERS Focus List Targets Six Underperforming Companies.

SACRAMENTO, Calif. -- The California Public Employees' Retirement System (CalPERS) today released its annual Focus List, which singles out six U.S. companies for poor financial and corporate governance performance.

This year's Focus List includes Brocade Communications of San Jose, California; Cardinal Health of Dublin, Ohio; Clear Channel Communications of San Antonio, Texas; Mellon Financial of Pittsburgh, Pennsylvania; OfficeMax of Itasca, Illinois; and Sovereign Bancorp of Philadelphia, Pennsylvania.

"The stock performance and governance of these companies is unacceptable to us and other shareowners," said Rob Feckner, CalPERS Board President. "We are urging them to make such improvements as requiring majority voting for directors, removing excessive takeover defenses that prevent shareowners from amending company bylaws, and accounting for their performance."

To select Focus List companies, CalPERS begins by screening more than 1,800 U.S. corporations from its internal equity portfolio. The pension fund narrows the list of candidates to 15 to 20 companies based on their long-term stock performance, corporate governance practices, and an economic value-added (EVA (R)) evaluation. CalPERS uses EVA (R) and stock performance to identify companies where poor market performance is due to underlying company specific operating performance problems as opposed to industry or extraneous factors alone. EVA (R) measures a company's net operating profit after tax, minus its cost of capital.

"In the coming months, we will continue to work with these companies to find ways to turn them around," said Charles P. Valdes, Chair of the CalPERS Investment Committee. "We know that this kind of engagement leads to higher returns, positive leadership changes, more transparency, and much better accountability to shareowners and regulators."

Brocade Communications has a 67 percent supermajority requirement for amending key portions of the company's charter and bylaws that is the target of a CalPERS shareowner proposal. Brocade lost 68 percent of its stock value in the past five years.

Cardinal Health, which provides products and services to health care providers and manufacturers, has excessive severance benefits and a 75 percent supermajority requirement to change bylaws. It has significantly underperformed its peers over the past five years, gaining only 17 percent in value compared with 109 percent for the industry.

Clear Channel Communications, a diversified media company that owns hundreds of radio stations, has excessive executive compensation and severance agreements, and lost 42 percent in stock value over the past five years compared with a 26 percent decline for industry peers.

Mellon Financial, which operates as the holding company primarily for the Mellon Bank, is the target of a CalPERS shareowner proposal to remove the company's requirement of a 75 percent majority vote to amend company bylaws. It was placed on the Focus List after its stock fell by 2 percent compared with a 58 percent gain for industry peers over the five-year period that ended on March 31, 2006.

OfficeMax, a U.S. provider of office supplies, technology products and solutions, and furniture, has takeover defenses that are excessive -- including an 80 percent supermajority requirement to amend bylaws. It performed well below its peer group for the past five years.

Sovereign Bancorp, a holding company for Sovereign Bank serving commercial clients, has excessive takeover defenses, including 80 percent supermajority requirements to amend specific charter and bylaw provisions, limited shareowner rights, and the rare provision of severance agreements for directors. Sovereign underperformed industry peers in the past year.

Research shows that improved corporate governance leads to performance gains, over time. A Wilshire Associates study of the "CalPERS Effect" of corporate governance found that the stock values of companies on the Focus List companies subsequently outperformed the Standard & Poor's 500 Index by 8.1 percentage points over five years.

For Focus List Fact Sheets about the companies, visit the CalPERS press room at www.calpers.ca.gov.

CalPERS is the nation's largest pension fund with assets totaling more than $208 billion. The System provides retirement and health benefits to 1.4 million State and local public employees and their families.