RALEIGH — If you’re a North Carolina taxpayer, public school teacher, government employee, or anyone with a vested interest in the state’s pension system, beware: State Treasurer Janet Cowell could be gambling with your money (and, potentially, your retirement) to satisfy a political agenda.
The Portland Business Journal reported recently that Cowell’s office had made a proxy request to the board of Nike Inc., asking the company to “post a semiannual report on its website that gives details about the company's political contributions.” Shareholders will consider the request at a meeting in September. The company’s board has urged shareholders to reject the request.
What is Cowell’s interest in Nike’s political activity? In an email, her spokeswoman Julia Vail told me that the treasurer has sent letters to the boards of several companies that hold investments from the state’s pension funds — Nike, Devon Energy, and Halliburton — requesting that they “provide full disclosure of political spending, including contributions made to 527s [political committees] and trade associations, as well as develop a board oversight policy” regarding disclosure of political spending.
“In light of the Supreme Court’s Citizens United decision,” Vail wrote, “the treasurer believes that companies involved in political activities should disclose their political spending and board oversight policies to make sure that these expenses are in the best interests of shareholders.”
As a shareholder, Cowell has the right to ask whether the companies she has invested in are engaging in political activities that undermine the value of her portfolio. But what Cowell does with this information could compromise her fiduciary responsibility to the 800,000 members of the $60 billion state pension plans.
By state law, the treasurer is the sole fiduciary of pension investments. She decides where members’ contributions reside. The law also says the treasurer’s duty is to serve “solely in the interest of the participants and beneficiaries” of the pension plan, and “may consider benefits created by an investment in addition to investment return only if the treasurer determines that the investment providing these collateral benefits would be prudent even without collateral benefits” (emphasis added).
In other words, the law demands that the treasurer put the fiscal health of the pension funds first. She’s not supposed to be a political watchdog unless doing so boosts the bottom line of her investments.
Indeed, if a company’s political activity has no effect on its value in the marketplace — and the treasurer uses that information to decide where to put the retirement system money — then she’s traveling a dangerous path. She could choose to invest in businesses that endorse causes that are dear to her, even if those companies’ share prices lag others with differing political priorities, or none at all.
Moreover, not all political spending is equal. Some companies provide significant support to trade associations that fight regulations that can undermine corporate profits — and harm those investing in the businesses. Other companies fund overtly social or political causes, which may attract good will from their customers or may squander money that could have been spent on capital, personnel, or marketing.
Any decision Cowell makes on corporate political spending will be a subjective call.
Cowell cites an outfit called the Center for Political Accountability, which is prodding shareholder groups and large pension managers to demand more “transparency” from publicly held companies in their political spending.
As The Wall Street Journal’s Kim Strassel reported in June, the center is using shareholder proxy requests to force corporations to publicize their spending on political causes, letting liberal activists target boycotts against the ones that support conservative or free-market policies.
Cowell’s responsibilities are to maintain the financial health of state pensions, not serve as judge and jury of companies’ political activities.
The General Assembly could relegate the potential for such political investing to the history books. Most states have independent, appointed investment boards. These boards control where pension funds are invested. And while they aren’t immune from political influence, they represent more than a single person’s instincts and biases.
Next year’s legislature should consider forming such a board, for the betterment of the public employees who depend on a pension for their retirement, and of the taxpayers of North Carolina, who’ll have to bail out the pension fund if the next treasurer picks the wrong horse, for whatever reason.
Rick Henderson (@deregulator) is managing editor of Carolina Journal.