Friday, March 2, 2012

CalPERS Chooses Not to Follow the Chamber's Advice on Transparency


Last year (coincidentally, almost to the day), this blog was all atwitter (you’re following us, right?) about CalPERS’ announcement that it would now require contractors to reveal whether they are using placement agents to seek business with the pension fund. Now, one year later, CalPERS has announced that its governing board approved new corporate governance principles calling upon corporations to detail all yearly political and charitable donations -- including those made through trade associat ions and tax-exempt groups.

As we have noted here, the pressures faced by CalPERS to respond to recent Supreme Court authority allowing unfettered corporate independent expenditures, are not at all unique. Transparency advocates are rightfully concerned about an environment in which secret corporate and union political advocacy can possibly run amok. Here, the revisions to the CalPERS guidelines were sought by California State Treasurer Bill Lockyer, a Democrat and member of the CalPERS governing board. In his letter calling for action, Treasurer Lockyer noted (without apparent empirical or anecdotal support) that a lack of transparency harms “corporate value” and that:

Increasingly, corporations are using [trade associations and tax exempt 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.

The California Chamber of Commerce was not amused:

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.

In addition, the CalChamber noted the general invalidity of the premise behind the CalPERS proposal:

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.”

Notwithstanding this opposition, on November 14, the proposed revision to CalPERS’ Global Principles of Accountable Corporate Governance passed as follows:

6.5 Charitable and Political Contributions: Robust board oversight and disclosure of corporate charitable and political activity is needed to ensure alignment with business strategy and to protect assets on behalf of shareowners. We recommend the following:

a. Policy: The board should develop and disclose a policy for approving that outlines the board‘s role in overseeing corporate charitable and political contributions, the terms and conditions under which charitable and political contributions are permissible, and the process for disclosing charitable and political contributions annually.

b. Board Monitoring, Assessment and Approval: The board of directors should monitor significant charitable and political contributions (including trade association contributions

directed for lobbying purposes) made by the company. The board should ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved. The terms and conditions of such contributions should be clearly defined and approved by the board.

c. Disclosure: The board should disclose on an annual basis the amounts and recipients of significant monetary and non-monetary contributions made by the company during the prior fiscal year. If any expenditures earmarked or used for political or charitable activities were provided to or through a third-party to influence elections of candidates or ballot measures or governmental action, then those expenditures should be included in the report.

 As a final tease, blogger Keith Paul Bishop of Allen Matkins wrote of the change: “Interestingly, the Chamber has completely overlooked the most obvious legal infirmity of the guideline, but I’ll save that discussion for a future post.” Argghh! Don’t you hate it when that happens? I guess we’ll have to stay tuned. (For the record, my vote on the “obvious legal infirmity” is that this policy completely misses the fundamental Citizens United distinction between corporate independent expenditures and contributions).

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