New White Paper from Pacific Research Institute Takes California’s State Treasurer to Task on Pension-Fund Activism

SAN FRANCISCO – On February 15 and 16, California’s state legislature will hold committee hearings to discuss the future of the state’s public-pension system. On the chopping block is Governor Schwarzenegger’s proposal to modernize and privatize the current system. With much at stake, proponents from both sides are gearing up for a battle.

California State Treasurer Phil Angelides, with the support of democratic officials from New York, Illinois, Oregon, and North Carolina, has launched a nationwide campaign to fight Schwarzenegger’s proposal. Angelides has called the governor’s plan a major assault on the corporate-reform movement and argues that pension funds are leading the fight on behalf of ordinary shareholders to put transparency and accountability back into American capitalism.

“There are essentially no beneficial effects of pension-fund activism on targeted firms’ operating performance and stock returns,” says Dr. Lawrence J. McQuillan, director of Business and Economic Studies at PRI and author of the new white paper CalPERS’s Corporate Activism Does Not Help Shareholders Or Pensioners. “Instead, activist pension funds have burned through the hard-earned money of pensioners in the name of corporate accountability, producing no additional net social value in the process.”

McQuillan examined the studies on pension-fund activism published in the nation’s top peer-reviewed economics and corporate-finance journals. The consensus among scholars is pension-fund activism produces no improvement in targeted firms’ operating performance or shareholder value.

“Politicians such as Mr. Angelides who defend CalPERS’s continued existence by arguing that its activism disciplines corporations and increases shareholder wealth are misleading the public, most likely for their own self-interest,” says McQuillan.

“Pension-fund activism is best viewed as politically correct grandstanding, not effective corporate oversight that benefits shareholders and pensioners. Phasing out CalPERS through passage of constitutional amendment ACAX1, which is supported by Governor Schwarzenegger, would not hurt shareholders or harm corporate operations.”

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