By James McNair
The Cincinnati Enquirer

California's state employee pension fund plans to withhold votes for three Cincinnati Financial directors up for re-election Saturday, including Cincinnati Bengals owner Mike Brown.

Living up to its reputation as an activist shareholder, the California Public Employees Retirement System said it would refrain from voting its 751,374 shares for Brown, Cincinnati Financial co-founder Robert Schiff and John M. Shepherd, an outside director who sits on the company's audit committee.

The pension fund said it put Brown on its target list because of interlocking business dealings between the Bengals and Cincinnati Financial's insurance subsidiaries. Basing its actions on information taken from the company's proxy statement, the pension fund noted that Cincinnati Financial paid the Bengals $148,367 for football tickets and a luxury box in 2003, while the Bengals bought $600,478 worth of insurance from the company.

Ken Stecher, the company's chief financial officer, said Monday that Cincinnati Financial has bought tickets and a luxury box for Bengals games before and after the construction of Paul Brown Stadium. He said tickets are given to non-executive employees as incentives.

The amount of business between the company and the Bengals is not enough to be called a conflict, Stecher said.

The pension fund said it would withhold its votes for Schiff because he failed to attend 75 percent of the meetings held by the board of directors and the committees on which he serves. Stecher said Schiff, 80, has always scored high on attendance.

"I have not gone back and looked, but I think that's the first time - ever - that he did not" attend 75 percent of the meetings, he said. "He's one of the founding directors and provides valuable insight into the marketplace. I don't think he would continue on the board if he couldn't fulfill his duties."

Schiff is the uncle of CEO John Schiff Jr.

The withholding of votes for Shepherd stems from his service on the company committee that approved more than $2 million in consulting fees to Cincinnati Financial's auditing firm, Deloitte & Touche. Shepherd is the only audit committee member up for re-election in 2004.

Stecher said Deloitte was hired by a German vendor that began installing a new claims management system for Cincinnati Financial in 2002. Stecher said the company has adopted a rule requiring pre-approval for the employment of its auditors for consulting jobs.

Two years ago, the pension fund introduced a shareholder resolution calling for a majority of Cincinnati Financial's 15 board seats to be occupied by independents other than agents who sell policies for the company. The measure was defeated, but Cincinnati Financial took steps in February that achieved what the fund had sought to accomplish.

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E-mail jmcnair@enquirer.com