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Expat Companies Face Pension Divestments

1Oct

Companies that recently reincorporated abroad to lower their annual U.S. taxes have faced ferocious criticism from Congress, unions, and corporate-governance activists. Caught in that maelstrom, The Stanley Works Inc. reversed its plans to incorporate in Bermuda in August. But companies already over the fence, such as Coopers Industries and Tyco International Ltd., can add to the list of critics some of their largest potential shareholders--public pension and investment funds.


At a summit of public pension managers in August, California state treasurer Phil Angelides led the call for public funds to divest themselves of firms that, in his view, are freeloading. Such expatriations will cost the U.S. Treasury an estimated $2.1 billion during the next 10 years, according to Congress's Joint Committee on Taxation. "Corporations hiding behind a mailbox in Bermuda are shirking their duty as Americans and undermining confidence in the financial markets," argues Angelides. "We need to use our clout as investors to let companies know we won't tolerate this type of conduct."


It's not just talk. In July, Angelides banned investments in such "expatriate" companies by California's $45 billion Pooled Money Investment Account, of which $10 billion is invested in corporate securities.


But now the California Public Employees' Retirement System and the California State Teachers' Retirement System--two of the largest U.S. pension funds, with more than $250 billion in combined assets--are considering pulling investments in these companies as well. The boards of the funds met in September, and they could begin divesting more than $750 million of equity and bonds held in expatriate companies.


Other state pension leaders, including New York comptroller (and gubernatorial candidate) H. Carl McCall and North Carolina treasurer Richard Moore, support the policy as well.


If a number of major public pension funds heed Angelides's call in the coming months, "there would undoubtedly be an impact on the stock prices of these companies," says Patrick McGurn, special counsel at Institutional Shareholder Services, a proxy-services and corporate-governance analysis firm.



Big Pull?


Pension plan expat holdings

Fixed
Income
Total
Calpers
$287,350
$63,920
$351,270
Calstrs
$94,660
$306,660
$401,320

Source: California State Treasurer's Office

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