(October 18, 2011) A proposed new corporate governance policy for the California Public Employees Retirement System (CalPERS) has the potential to harm the system’s investments, the California Chamber of Commerce warned yesterday.
CalChamber Policy Advocate Jennifer Barrera told the CalPERS Investment Policy Subcommittee that the proposed change “will create an unfair playing field for publicly held corporations in the political arena and place them at a competitive disadvantage, which could ultimately harm CalPERS investments in those companies.”
The new corporate governance policy was proposed by California Treasurer Bill Lockyer to “create the framework by which CalPERS executes its proxy voting responsibilities.”
The new proposed policy amounts to “forcing publicly held corporations to show their competitors and political adversaries their political investment strategy, without receiving the same information in return,” Barrera said.
The CalChamber is leading a coalition to oppose the change to the corporate governance principles, specifically the section dealing with charitable and political contributions. In a letter to CalPERS, the coalition noted that the new section “is an unfair and discriminatory mandate on corporate boards of directors, designed to chill the ability of businesses to defend themselves from political attacks by competitors, overzealous regulators, labor unions or no-growth advocates.”
If the publicly traded companies are unable to defend themselves against the political attacks of their adversaries, the proposal will have massive unintended consequences for the very people CalPERS is obligated to protect and support.
A similar proposal is being considered by the California Teachers Retirement System.
Proposed Requirements
The proposed new CalPERS policy would require corporate boards to, among other things:
- Monitor and assess significant charitable and political contributions (including trade association contributions) made by the company.
- Annually publicly disclose the board’s guidelines for contribution approval as a corporate contributions policy. The board should annually disclose the amounts and recipients of significant monetary and non-monetary contributions made by the company during the prior year, including spending “for political or charitable activities provided to or through a third party to influence elections of candidates or ballot measures or governmental action.”
CalPERS is the nation’s largest public retirement system, with an investment portfolio topping $230 billion.
The system is overseen by a board comprised mostly of elected employee representatives and statewide elected officials or their designees.
Invalid Premise
The CalChamber has pointed out that the premise of Lockyer’s proposal—that corporate value is negatively correlated with corporate political transparency—is not true.
Professor Lawrence Ribstein of the University of Illinois notes that the negative correlation “may be because firms hurt most by government regulation must engage in more political activity.”
Professor Roger Coffin of the University of Delaware has found that companies “that signed the ‘anti-Citizens United pledge’ in the aftermath of the decision did not see a material increase in firm value. Nor did the value of several industry-specific indexes go down. This represents good news for shareholders and the companies themselves.”
Staff Contact: Jennifer Barrera