CalPERS Aims at Coca-Cola

The last thing Coca-Cola (NYSE: KO  ) needs right now as it tries to recover from the Dasani water disaster in Europe is a challenge to its board of directors, but that's exactly what's happening. Its leadership ranks are already in disarray as the company seeks a replacement for Chairman and CEO Douglas Daft. Now it will have to add a board fight to its packed agenda, thanks to the California Public Employees Retirement System (CalPERS), which announced yesterday it would challenge more than half of the existing board.

The campaign against Coca-Cola's board is part of CalPERS' ongoing battle to improve corporate governance, which is not targeted solely at Coca-Cola. Also put on the target list yesterday were members of Citigroup's (NYSE: C  ) and Sprint's (NYSE: FON  ) boards. Safeway's (NYSE: SWY  ) board members were put on the target list last week. You may remember that CalPERS was one of the leaders in the fight to change Disney's (NYSE: DIS  ) board.

Three board members facing CalPERS' wrath because their objectivity is questioned are Herbert Allen, an investment banker; Donald Keough, retired company president; and former U.S. Sen. Sam Nunn. Both Allen and Keough are officers in Allen & Co., which is an investment banking firm that advises Coca-Cola and its bottlers. Nunn until the end of last year was a member of the company's law firm, King & Spalding LLP, which earned $13.8 million for legal services to the company.

In addition to these members being challenged for objectivity, CalPERS is also challenging Coca-Cola's entire audit committee, including member Warren Buffett, because the committee allowed the company's auditor, Ernst & Young, to do "nonaudit services." These services include tax advice and tax planning, plus general consulting on acquisitions or internal-control matters.

CalPERS is not the only one that believes a company's non-audit business should be done by an unrelated consulting group. Given that many of the recent scandals -- including the mother of them all, Enron -- were tied to too much crossover between audit and non-audit work, individual investors are also becoming increasingly aware of the potential dangers in allowing auditors to perform non-audit work.

What do you think? Is CalPERS going too far by withholding its support for certain board members? Talk about it with other Fools on the Coca-Cola discussion board.

Fool contributor Lita Epstein ponders money and politics under the palm trees in Florida; view her Fool profile here. She owns shares in none of the companies mentioned here.