Friday, June 18, 2010

Dear CALPERS...and a Lesson on Recursion

State pension plans have an endless list of problems.  Start with those I discuss here: Politics allows those responsible to monkey with the numbers, meaning most of them are broke.

Today the Wall Street Journal reports about CALPERS new governance program.  The pension plan intends to develop a bench of potential directors to improve governance at the companies in which they hold significant positions.  this is not a terrible idea.  It's a complicated idea.

For years I've been a fan of CALPERS activist investing.  In a nutshell, they took the view that they own all the companies in the United States, so the only way to "outperform" was to make those companies perform better, via better governance.  There's good evidence that well-governed companies perform better.  This led them to invest with many activist equity managers.  These managers earned their living enhancing shareholder value, acting as a proxy for CALPERS.

CALPERS taking on direct governance responsibility has serious risks.  How will this program be governed?  My suggestion to CALPERS: Establish and independent board with the charge of ensuring that CALPERS governance program selects directors to enhance shareholder value. Neither the pension plan nor the taxpayers of California can risk political shenanigans corrupting the process of creating value for the plan.

Of course, I would gladly serve on this board.  I may even be qualified.  Or, should I choose to serve on the independent board that governs the independent board overseeing the governance program?  You see where I'm going with this? maybe CALPERS should stick with the old plan of outsourcing governance to individuals who govern for shareholder value.

No comments:

Post a Comment