The nation’s two largest public pension funds will urge corporate boards to disclose political campaign contributions, a response to a court decision lifting the lid on some donations that do not have to be reported.
The California Public Employees Retirement System adopted the policy last week on a split vote. An opponent, board member Dan Dunmoyer, said “this has more political overtones than policy benefit.”
The California State Teachers Retirement System adopted the policy early this month. The California Chamber of Commerce warned that public companies who report contributions might be at a competitive disadvantage to private firms who do not report.
The pension boards acted at the request of state Treasurer Bill Lockyer. He cited a U.S. Supreme Court decision last year that allows unlimited corporate and labor union political contributions to independent campaigns, but not directly to candidates.
The ruling in the Citizens United suit also upholds federal rules requiring the reporting of political contributions. But the disclosure requirements do not apply to trade associations and nonprofit groups.
“Increasingly, corporations are using such groups in an attempt to cloak massive political spending in secrecy through ‘independent expenditure’ campaigns, many of which are notorious for making unfair and unfounded personal attacks with which no company or its investors would want to be publicly associated,” Lockyer said in a letter to the pension boards last June.
“When such contributions are uncovered, public backlash often follows, and the economic and reputation risks to such companies are significant,” he said.
The pension funds added the reporting of political campaign contributions to their wide-ranging corporate governance policy, which began in the 1980s as a response to “greenmail” payments to prevent hostile takeovers and other problems.
Pension fund corporate governance expanded to pushing reforms aimed at correcting poor performance. With their large stock holdings, institutional investors have the means to represent shareholder interests and some say the responsibility.
Academic studies have suggested that investment returns may be improved and risk reduced by pushing corporations on environmental, social and governance issues, often referred to as ESG.
Pension funds and other big investors pursue these goals through a number of organizations. Among them: Council of Institutional Investors, International Corporate Governance Network and United Nations’ Principles for Responsible Investing.
Both of the big California pension funds have corporate governance units that engage corporations, pushing for reform. CalPERS decided last fall to stop publicizing an annual “Focus List” of poorly performing corporations.
Some said it was a needlessly heavy-handed “name and shame” tactic. A Wilshire consultant analysis given to the CalPERS board this month said that “privately engaged companies outperformed the publicly engaged companies.”
A big governance issue is the selection and composition of corporate boards. A pension fund-backed provision in federal legislation last year allowed shareowners holding 3 percent of company stock for three years to put board candidates on corporate ballots.
But in a business-backed lawsuit, a Securities and Exchange Commission rule allowing “proxy access” was overturned by an appeals court. The two California pension funds and others urged the SEC to issue new proxy access rules.
Some studies suggest that diversity can improve corporate board performance, particularly by adding women. CalPERS and CalSTRS created a listing of potential board candidates this year, the Diverse Director DataSource.
The shareholder clout of pension funds has been openly used for political ends. Legislation directed CalPERS and CalSTRS to divest South African-related stock during apartheid, and the pension funds voluntarily divested tobacco stock.
Consultants estimated that the boycotts cost the two pension funds billions of dollars, with no hard evidence of any results. Last month Gov. Brown signed legislation, AB 1151, to reinforce previous legislation on Iran divestments.
The view that the vast stock holdings of labor-friendly pension funds are potentially political is not new. A book in 1976 by the late Peter Drucker is still cited today: “The Unseen Revolution: How Pension Fund Socialism came to America.”
The president of the U.S. Chamber of Commerce competitiveness center, David Hirschmann, said in a news release last year “the proxy access rule empowers unions and other special interests at the expense of the vast majority of retail shareholders.”
In the CalPERS board discussion of corporate campaign contribution reporting, Dunmoyer said he thought the policy had “more political overtones than policy benefit” because there is no clear evidence that reporting benefits the pension fund.
The letter from Treasurer Lockyer last June cited two studies showing “the negative impact of corporate political spending” on shareholder value. Last week Lockyer said there also are academic arguments on the other side.
“So I think the point is mixed but probably subject to additional and future research,” he said.
Dunmoyer said he strongly supports campaign contribution reporting. But he argued that the new policy would give private firms that do not report contributions an advantage over publicly traded firms that do report them.
He mentioned competition for government contracts and defending against a monopoly or other actions that could harm a publicly traded company and “impact” its bottom line.
At the CalSTRS board, Jennifer Berrera of the California Chamber of Commerce gave the example of a publicly traded company reporting a campaign contribution that drew criticism from members of the “political arena” or the public.
“That private corporation may be doing the very same thing,” she said, “but because they won’t be required to disclose they would not be subject to that same criticism.”
In a presentation to the CalSTRS board last June on the reporting issue, Valentina Judge of the Center for Political Accountability said Target gave a $150,000 contribution to a group that supported a Republican candidate opposed to same-sex marriage.
Gay rights groups organized a boycott of Target stores, Judge said, resulting in media attention, a shareholder resolution and a “huge controversy” for the corporation that still lingers.
“We bring up the Target example because it really is sort of a perfect case of all the things that we are talking about,” Judge told the board.
Brad Smith, chairman of the Center for Competitive Politics, said in an opinion article in the Wall Street Journal on Nov. 10 that the boycott fizzled and had no effect on Target’s stock price.
He said Judge’s Center for Political Accountability is leading an effort by the political left to “convince American businesses to voluntarily disarm and leave the playing fields to unions and foundation-funded lobbying groups.”
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 21 Nov 11