Following through on plans disclosed in December, Calpers has added First Union Corp. to its watch list of underperforming companies as it seeks to push reforms at the $253 billion-asset banking company.

Calpers - short for the California Public Employees' Retirement System - formally released its list after the markets closed Tuesday. In addition to Charlotte, N.C.-based First Union, Calpers listed the brokerage A.G. Edwards Inc. among the 10 companies it targeted for attention. The fund said it owns about 5.1 million shares of First Union, or 0.52% of the total outstanding.

Officials of the fund said they intend to work with the companies on the list.

"Corporate governance reforms are needed for these companies to restore long-term profitability and confidence," said William Crist, president of Calpers' administration board.

With often sizable stakes in more than 1,600 U.S. companies, Calpers is a formidable player in the equity markets. The $171 billion-asset fund is a leader among institutional investors in demanding high levels of corporate governance, and other institutional investors often follow its lead.

Calpers' track record of pressuring companies on its target list may give shareholders' spirits a lift. Companies listed in the past have beaten the Standard & Poor's 500 index by 34 percentage points in the five years after Calpers' initial involvement, according to a recent study by Wilshire Associates Inc. of Santa Monica, Calif. The study, which tracked 62 companies targeted by Calpers, said these companies had lagged the S&P 500 by 85% in the five years preceding the first effort by the fund.

A spokesman for Calpers said that it is considering presenting First Union a shareholder proposal asking that the company amend its bylaws and make sure the chairman of the board is an independent director.

The proposal could be withdrawn if First Union agrees to certain concessions, the spokesman said. The banking company has already agreed to designate a lead independent director and has pledged that in the future the board's nominating committee will not include the chief executive.

Calpers said the target companies were selected based on stock performance, corporate governance practices, and the amount of the company's after-tax net operating profit minus its cost of capital for one year.

Three times last year First Union advised analysts that its earnings would be lower than expected. The company met reduced expectations for the year and has since said it believes the worst is over.

A spokeswoman for First Union said the company is working with Calpers and that she believes a proxy proposal is unnecessary.

"As part of our corporate governance programs, we are always reviewing and revising our policies," she said. "Calpers has made some suggestions, and we have refined some of our programs based on their input."

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