Monitoring the monitor: evaluating CalPERS' activism

Abstract

monitoring the monitor: evaluating calpers’ shareholder activism brad m. barber* bmbarber@ucdavis.edu www.gsm.ucdavis.edu/~bmbarber march 2006 * barber is a professor of finance at the graduate school of management, uc davis, and the director of the center for investor welfare and corporate responsibility at uc davis. amanda kimball provided valuable research assistance. ho ho (calpers), craig rhines (calpers), ryoko kita (uc davis mba student), and paul tseng (wilshire associates) were very helpful gathering and understanding the data used in this study. bill gebhardt, michael maher, terrance odean, chris solich, dennis trujillo, robert yetman, and michelle yetman provided valuable comments. all errors are my own. monitoring the monitor: evaluating calpers shareholder activism many public pension funds engage in institutional activism. these funds use the power of their pooled ownership of publicly traded stocks to affect changes in the corporations they own. perhaps the most high profile activism has been pursued by calpers. in this paper, i review the theory and empirical evidence underlying the motivation for institutional activism. in theory, the merits of institutional activism hinge critically on two agency costs: (1) the conflicts of interest between corporate managers and shareholders, and (2) the conflicts of interest between portfolio managers and investors. while portfolio managers can use their position to monitor conflicts that might arise between managers and …

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