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California presses for disclosure of political donations
By Dan McCrum and Nicole Bullock in New York
Published: June 2 2011 00:25 | Last updated: June 2 2011 00:25
Bill Lockyer, the state treasurer for California, has asked the
state’s leading public pension funds, the two largest such asset
managers in the US, to use their influence to press for full
disclosure of political donations by US companies.

In letters to the California Public Employees’ Retirement System and
the California State Teachers’ Retirement System on Wednesday, Mr
Lockyer, who as treasurer sits on the board of both funds, requested
that Calpers and Calstrs develop formal corporate governance policies
on political campaign spending.

The move is likely to add to pressure on boards to avoid overtly
political spending. “Political donations are a no-win for a company
because some of your employees, customers and shareholders are going
to be annoyed whatever happens,” says John Wilcox of Sodali, a
corporate governance consultancy.

“Studies have shown a negative link between a company’s political
spending and the resulting value of the firm. As fiduciaries it is our
responsibility to ensure that investors have the information they
need,” said Mr Lockyer.

Calpers and Calstrs, which together manage $389bn in pension assets,
have a long history of investor activism.

This year they have campaigned for direct election of board members,
winning a high-profile victory at Apple’s shareholder meeting in
February.

Last year’s Supreme Court ruling, known as Citizens United, and lower
court rulings influenced by the decision have given corporations and
other outside groups new power to sponsor advertisements that directly
support or attack political candidates. They have eliminated rules
that used to prohibit the groups from running direct ad campaigns in
the last 60 days before an election.

“Increasingly, corporations are using such groups in an attempt to
cloak massive spending in secrecy through “independent expenditure”
campaigns, many of which are notorious for making unfair and unfounded
personal attacks,” said Mr Lockyer in the letters.

“In principle and practice, Calstrs has long supported the disclosure
of political spending by corporations,” said a spokesman for the
pension fund, who also said that Calstrs supports shareholder
proposals calling for disclosure of company policy on campaign
contributions and board oversight on political spending. Calpers
declined to comment.

Mr Lockyer’s new campaign follows a proxy season in which investors
have embraced new powers granted by the Dodd-Frank financial reform
legislation. So-called “say-on-pay” rules granted shareholders an
advisory vote on executive compensation that has been used to voice
concern at unpopular pay practices.

Last year, as concerns about the financial health of California
mounted, Mr Lockyer demanded that banks earning fees for underwriting
its bond sales report their activity in credit default swaps, which
allow investors and banks both to hedge and speculate on the
likelihood of default.

California is the largest issuer of US state debt. His salvo came as
the derivatives industry came under scrutiny for fuelling early bouts
of distress in the Greek debt markets.

This year, Mr Lockyer moved to stop California’s bond underwriters
from passing on their lobbying costs to the state by way of their bond
sales and to recoup money used to make these payments from previous
sales.