Shareholders should be petrified by the suggestion that the trustees of superannuation funds appoint themselves as corporate-governance regulators (AFR, Opinion, July 22). Shareholders should be petrified by the suggestion that the trustees of superannuation funds appoint themselves as corporate-governance regulators (AFR, Opinion, July 22).
They have neither the mandate nor the skills to do so. More importantly this would inevitably allow them to pursue other agendas under the guise of corporate governance and to squander the hard-earned savings of workers.
Of course, superannuation funds should be concerned about the governance standards of the firms in which they invest. It is a completely different matter however for funds to invest in companies so as to affect a change in corporate governance.
Under the Superannuation Act, trustees have a clear and straightforward mandate, which is to maximise returns to unit holders. Under the "prudential investor rule" that underlies the act, trustees are not allowed to act on behalf of anyone but the unit holders and they are not allowed to pursue objectives that compromise this maximisation of returns. They are not allowed, for good reason, to save the world.
The nebulous meaning of "corporate governance" provides huge scope for pursing non-commercial objectives. Specifically, it gives the ACTU the excuse for which it has been looking to use its influence over industry super funds for industrial action.
The Californian Public Employees' Retirement System (CalPERS) has been cited as an example of an investor taking an interest in corporate governance. But it is the perfect illustration of the dangers of mixing activism with investment.
CalPERS is a huge union-dominated public-sector super fund. It has a long history of working in tandem with unions and pursuing an activist agenda. It also follows a policy of being the champion of good corporate governance. It has also had a very poor investment track record, in recent time losing around $US20 billion ($37.2 billion) or 12 per cent of its asset base in the first two years of this decade.
Its self-appointed role as corporate-governance watchdog has not advanced the interest of its unit holders or the cause of corporate governance. It was one of the largest investors in, and losers from, both Enron and WorldCom. Indeed it was a major investor in Enron's most egregious and illegal off-balance sheet transaction.
CalPERS also has a reputation for using corporate-governance activism as a front to help its union mates. As the scholar Jarol Manheim states in The Death of a Thousand Cuts, "each year the fund [CalPERS] lists approximately 10 companies that it regards as underperforming in their respective industries because of poor management, and it targets these companies with corporate-governance resolutions". Manheim observes that usually, the companies selected were "also the target of union corporate campaigns".
Earlier this year, CalPERS, again at the instigation of its union trustees, pulled all its investment from Malaysia, Thailand, and Indonesia in preference for Argentina among other countries. Since this decision was made, Asian share markets have done well -- Thailand has increased by around 40 per cent -- while the Argentinian market has collapsed.
CalPERS shows the dual dangers of allowing activists to hijack super funds and the mantel of corporate governance.
Trustees have a vital and difficult job. They do not need the additional task of a corporate watchdog.
They have neither the mandate nor the skills to do so. More importantly this would inevitably allow them to pursue other agendas under the guise of corporate governance and to squander the hard-earned savings of workers.
Of course, superannuation funds should be concerned about the governance standards of the firms in which they invest. It is a completely different matter however for funds to invest in companies so as to affect a change in corporate governance.
Under the Superannuation Act, trustees have a clear and straightforward mandate, which is to maximise returns to unit holders. Under the "prudential investor rule" that underlies the act, trustees are not allowed to act on behalf of anyone but the unit holders and they are not allowed to pursue objectives that compromise this maximisation of returns. They are not allowed, for good reason, to save the world.
The nebulous meaning of "corporate governance" provides huge scope for pursing non-commercial objectives. Specifically, it gives the ACTU the excuse for which it has been looking to use its influence over industry super funds for industrial action.
The Californian Public Employees' Retirement System (CalPERS) has been cited as an example of an investor taking an interest in corporate governance. But it is the perfect illustration of the dangers of mixing activism with investment.
CalPERS is a huge union-dominated public-sector super fund. It has a long history of working in tandem with unions and pursuing an activist agenda. It also follows a policy of being the champion of good corporate governance. It has also had a very poor investment track record, in recent time losing around $US20 billion ($37.2 billion) or 12 per cent of its asset base in the first two years of this decade.
Its self-appointed role as corporate-governance watchdog has not advanced the interest of its unit holders or the cause of corporate governance. It was one of the largest investors in, and losers from, both Enron and WorldCom. Indeed it was a major investor in Enron's most egregious and illegal off-balance sheet transaction.
CalPERS also has a reputation for using corporate-governance activism as a front to help its union mates. As the scholar Jarol Manheim states in The Death of a Thousand Cuts, "each year the fund [CalPERS] lists approximately 10 companies that it regards as underperforming in their respective industries because of poor management, and it targets these companies with corporate-governance resolutions". Manheim observes that usually, the companies selected were "also the target of union corporate campaigns".
Earlier this year, CalPERS, again at the instigation of its union trustees, pulled all its investment from Malaysia, Thailand, and Indonesia in preference for Argentina among other countries. Since this decision was made, Asian share markets have done well -- Thailand has increased by around 40 per cent -- while the Argentinian market has collapsed.
CalPERS shows the dual dangers of allowing activists to hijack super funds and the mantel of corporate governance.
Trustees have a vital and difficult job. They do not need the additional task of a corporate watchdog.
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