State Officials Urge Corporate Reform
Financial officials of more than a dozen states met in New York on Monday to reiterate their pledge to pressure Wall Street and corporate America to reform some of their most controversial business practices.
The officials, including the comptroller of New York and the treasurers of California and North Carolina, said they will try to force investment banks to reduce stock-analyst conflicts of interest and will pressure other types of companies to improve corporate-governance procedures.
The officials also pledged to turn up the heat on companies that set up offshore headquarters to dodge U.S. taxes.
The state treasurers and pension fund managers control more than $1 trillion in assets, thus giving them clout in their campaign, they said. “We’re going to use the power of the purse,” California Treasurer Phil Angelides said.
But some experts criticized the group’s plans as vague and said it’s doubtful that threats of stock sales from pension funds, or withheld contracts by states (such as for bond underwriting), could force meaningful reform among brokerages and companies.
For example, the primary focus of the states has been to ask investment banks to abide by stock-analyst conflict-of-interest rules that were part of brokerage giant Merrill Lynch & Co.’s settlement this year with New York Atty. Gen. Eliot Spitzer.
But it would be hard for the states to monitor compliance and would be a potentially cumbersome process to cease doing business with a firm that violated the guidelines, experts said.
“To say, ‘We’ll withhold money from people who do stuff we don’t like’ is fine, but how do you know when people are doing stuff you don’t like?” said Thomas Joo, a corporate-governance expert at UC Davis Law School.
Also, though states are sharing information with one another, the officials said they would not make decisions in tandem on selling certain stocks out of their pension funds, or ceasing business with certain investment banks. Thus, one state’s decision against using a certain Wall Street firm would not automatically apply to other states.
The states represented at Monday’s meeting were California, New York, North Carolina, Florida, Maryland, Pennsylvania, Ohio, Louisiana, New Jersey, Kentucky, Maine, Massachusetts and Oregon.
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Walter Hamilton
