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Jul 10, 2013

Would Comptroller Spitzer be good for governance?

The sheriff of Wall Street aspires to be the boss of boardrooms

Eliot Spitzer, if he wins election as New York City’s next comptroller, could be in an interesting position to shine a brighter spotlight on corporate governance, in a way reprising the role and burnishing the reputation he once built fighting corruption on Wall Street and exposing analysts’ conflicts of interests as the state Attorney General. 

Spitzer formally announced his bid earlier this week. It’s hard to ignore all the dirty water that has passed under his personal bridge since the mid-2000s, which forced him to resign as New York State Governor. But he seems intent on resurrecting his good name, not to mention his political career, as a champion of shareholder activism. 

To help seed that image in the minds of the corporate governance community, he even moderated a panel on shareholder activism at the International Corporate Governance Network’s annual conference in New York in late June. 

‘As an elected fiduciary overseeing the city’s pension funds [as comptroller], he would be in position to continue to be the Sheriff of Wall Street, with different duties, but with a bully pulpit,’ Hank Boerner, chairman of the Governance and Accountability Institute, wrote in an email to Corporate Secretary. That pulpit would likely be outsized in view of Spitzer’s big personality and media savvy, he added.

There’s at least one very practical thing that Spitzer could do as comptroller to advance shareholder value and prove his mettle as a fiduciary: consolidate the city’s five separate public employee pension plans and hire a crackerjack investment team to control the combined entity, whose assets would total $140 bn. That could eventually save the city as much as an estimated $2 bn a year. This was proposed by John Liu, the current comptroller, and Mayor Bloomberg two years ago, only to be scuttled by campaign finance scandal in Liu’s office.

Merging the five pension plans, which are currently overseen by a complex board structure, would likely further limit the comptroller’s oversight, as reported this week by New York Magazine and other media outlets. Should we believe that Spitzer would willingly give up some of his personal power in the role by doing what many people think is best for New York City employees’ retirement accounts from a fiduciary standpoint?

Hiring an outside investment manager to supervise the plans doesn’t have to restrict the impact the comptroller could have as a shareholder activist, experts say.  

‘The NYC funds’ management have long been activists as responsible investors and have a national reputation for some corporate campaigns,’ Boerner pointed out. Add in the clout of New York State Comptroller Tom DiNapoli (with $150 bn beyind him) and the combined force could have an impact greater than the sum of its parts on both Wall Street and corporations. 

Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware’s business school, agrees.‘You can always direct the investment manager how you wish your shares to be voted,’ he says.

Given the activism exhibited by the New York City pension plans in the past, there’s no reason to believe they would be any less engaged in corporate change if managed as a combined entity by an outside manager, he adds.

For all the promise of the comptroller’s office as a boon for shareholder activism, it’s fair to wonder whether Spitzer’s personality and political ego might upstage the governance and accountability issues that most experts believe should be front and center. 

That’s a probability, but it depends on how high-profile the issue, said Boerner. While some Wall Street critics cheered Spitzer’s anti-corruption crusade as attorney general, he didn’t get much open and direct support from other attorneys general, he added.

‘The SRI community is very collaborative,’ Boerner said. ‘For example, I will see an email inviting institutions to join the institutional sponsors of a corporate proxy resolution. Would Spitzer join in? Would he invite others in on this campaign? Can’t say, but we can guess what might happen.’

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary