Abstract
In the wake of recent corporate scandals, this paper traces the growing power of pension funds to provide managerial oversight of the firms they hold in their investment portfolios. Increasingly pension funds are exercising their legitimate rights as owners to raise the corporate governance standards of the firms they invest in. Within corporate governance generally, pension funds are shifting their attention away from managerial accountability and toward measures that increase transparency in firm-level decision-making. Pension funds use transparency to ensure that shareholders are the primary interest being served by the firm. Transparency not only aligns managers and owners, it also raises issues of firm behaviour that allow other stakeholders to engage the corporation more broadly. I contend that secrecy is economically inefficient. When organizations are opaque and interests are secret, decision-making can and does distort efficiency. I examine recent pension fund corporate governance campaigns with particular reference to the California Public Employees Retirement System.
Similar content being viewed by others
References
M. Anson T. White H. Ho (2003) ArticleTitle‘The Shareholder Wealth Effects of CalPERS Focus List’ Journal of Applied Corporate Finance 15 102–112 Occurrence Handle10.1111/j.1745-6622.2003.tb00464.x
Associated Press: 2002, January 29th. web site: htpp://www.recordsearchlight.com/newsarchive/20020129topstate024.shtml"
A. A. Berle G. C. Means (1933) The Modern Corporation and Private Property Harcourt, Brace and World, Inc. New York
Black, B.: 2001,‘The Core Fiduciary Duties of Outside Directors’, Asia Business Law Review 3, July 16.
L. D. Brandeis (1914) Reprint 1971. Other Peoples’ Money – and How Bankers Use It A.M. Kelley New York
CalPERS: 2000, Speech of Charles P. Valdes on Principles of Corporate Governance
G. L. Clark (1998) ArticleTitle‘Stylized Facts and Close Dialogue: Methodology in Economic Geography’ Annals of Association of American Geographers 88 73–87
G. L. Clark (2000) Pension Fund Capitalism Oxford University Press Oxford
G. L. Clark T. Hebb (2004) ArticleTitle‘Pension Fund Corporate Engagement: The Fifth Stage of Capitalism’ Relations Industrrielles/Industrial Relations 59 IssueID1 171
G. L. Clark D. Wójcik (2003) ArticleTitle‘An Economic Geography of Global Finance: Ownership Concentration and Stock Price Volatility in German Firms and Regions’ Annals of the Association of American Geographers 93 909–924 Occurrence Handle10.1111/j.1467-8306.2003.09304012.x
Clark, G. L. and D. Wójcik: 2004 forthcoming, ‘Financial Valuation of the German (Regional) Model: the Negative Relationship between Ownership Concentration and Stock Market Returns’, Economic Geography, forthcoming
R. Coase (1960) ArticleTitle‘The Problem of Social Cost’ Journal of Law and Economics 3 1–44 Occurrence Handle10.1086/466560
J. Coffee (1997) ArticleTitle‘The Folklore of Investor Capitalism’ Michigan Law Review 95 1970
E. F. Fama (1965) ArticleTitle‘The Behaviour of Stock Market Prices’ Journal of Business 38 34–105
FT Financial Times: 2003, May 15th 1
M. Friedman (1962) Capitalism and Freedom University of Chicago Press Chicago
Friedman, M.: 1970, ‘The Social Responsibility of Business is to Increase Its Profits’, New York Times Magazine, September 13
J. K. Galbraith (1967) The New Industrial State EditionNumberSecond, Revised ed Andre Deutsch Ltd. London
Gompers, P., J. L. Ishii, et al.: 2003, ‘Corporate Governance and Equity Prices’, Quarterly Journal of Economics, February
Guardian: 2003, May 20th 1
J. P. Hawley A. T. Williams (2000) The Rise of Fiduciary Capitalism University of Pennsylvania Press Philadelphia
M. Jensen W. Meckling (1976) ArticleTitle‘Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure’ Journal of Financial Economics 3 IssueID4 305–360
M. Jensen (1986) ArticleTitle‘Agency Costs of Free Cash Flow, Corporate Finance and Takeovers’ American Economic Review 76 323–329
R. LaPorta F. Lopez-De-Silanes A. Schleifer R. W. Vishny (1998) ArticleTitle‘Law and Finance’ Journal of Political Economy 106 1113–1155
R. LaPorta F. Lopez-Silanes A. Schleifer (1999) ArticleTitle‘Corporate Ownership Around the World’ Journal of Finance 54 471–517
Memphis Business Journal (2000) Jan. 14th
R. A. G. Monks N. Minow (1995) Corporate Governance Blackwell Oxford
Monks, R.: 1994, Sears Case Study. http://www.1ens-library.com/info/sstan.html
Nesbitt, S. L.: 1994, ‘Long-Term Rewards From Shareholder Activism: A Study of the “CalPERS Effect”,’ Journal of Applied Corporate Finance, Winter
Nesbitt, S. L.: 1995, The “CalPERS Effect”: A Corporate Governance Update, July 19
W. M. O’Barr J. M. Conley (1992) Fortune and Folly, the Wealth and Power of Institutional Investing Business One Irwin
Pensions and Investments: 2002, Annual Yearbook December 31st
M. Roe (1994) Strong Managers, Weak Owners: The Political Roots of American Corporate Finance Princeton University Press Princeton
M. Roe (2000) ArticleTitle‘Political Preconditions to Separating Ownership for Corporate Control’ Stanford Law Review 53 IssueID3 539–606
A. Shleifer R. W. Vishny (1997) ArticleTitle‘A Survey of Corporate Governance’ Journal of Finance 52 737–783
M. P. Smith (1996) ArticleTitle‘Shareholder Activism By Institutional Investors: Evidence from CALPERS’ Journal of Finance 51 227–252c
A. Strauss J. Corbin (1998) Basic Qualitative Research: Techniques for Developing Grounded Theory EditionNumber2 Sage Thousand Oaks
Tagliabue, J.: 2000, ‘The French are Resisting American Funds and Investors’, The New York Times, January 9th
O. E. Williamson (1985) The Economic Institutions of Capitalism Free Press New York
Author information
Authors and Affiliations
Corresponding author
Additional information
Dr. Hebb is a senior research associate at the Labor and Worklife Program, Harvard University and the Oxford University Centre for the Environment. She is researching the role of US public sector pension funds and urban revitalization as lead investigator on a two-year Rockefeller and Ford Foundation grant. Her doctoral work at Oxford University examined the impact of pension fund corporate engagement on the corporate governance, social and environmental standards of firm behaviour. She was a Clarendon Scholar at Oxford University and was awarded the prestigious William E. Taylor Fellowship (2003) from the Social Sciences and Humanities Research Council, Government of Canada. Dr. Hebb is also a recipient of the York University Schulich School of Business National Research in Financial Services and Public Policy Scholarship (Canada). Dr. Hebb is also the Director of the Capital Strategies Program at the Carleton Centre for Community Innovation (3ci), Carleton University, Canada. Here her work focuses on the financial and non-financial impact of pension fund economically targeted investment in Canada as part of a three-year SSHRC Initiatives in the New Economy grant.
Rights and permissions
About this article
Cite this article
Hebb, T. The Economic Inefficiency of Secrecy: Pension Fund Investors’ Corporate Transparency Concerns. J Bus Ethics 63, 385–405 (2006). https://doi.org/10.1007/s10551-005-3968-9
Issue Date:
DOI: https://doi.org/10.1007/s10551-005-3968-9