The California Public Employees' Retirement System, long a corporate governance leader, now might be extending its activism in a new geopolitical, historical and inappropriate direction, imposing a new litmus test for its consultants.
State Treasurer Philip Angelides proposed "that, consistent with our fiduciary duty, we have an obligation to ensure that all consultants we retain for historical and political risk analysis be capable of accurately depicting history and current political circumstances in the countries they evaluate. . . . Further, I believe that we have an obligation to stop historical revisionism wherever it occurs -- particularly when it involves the murder of over 2 million human beings."
He referred in particular to what he called "the Armenian genocide and the expulsion and massacre of Greeks undertaken by Turkey earlier this century." But he wants assurances of historical awareness of consultants evaluating countries in general.
Why is it incumbent on CalPERS, an institution established to oversee the efficient investment of pension assets for the benefit of public employees, to "stop historical revisionism wherever it occurs"? How does this improve investment performance of the fund?
Mr. Angelides has picked on Marvin Zonis, a professor at the University of Chicago with his own political risk consulting firm. Mr. Zonis wrote an unfortunate description of the Armenian genocide that read, "the Armenian minority was dealt with in a different way." His statement does trivialize the event, but doesn't deny or condone it.
Mr. Angelides is too quick to impugn Mr. Zonis' work. The board should examine all of his scholarship, and base any decision on his retention on that. Mr. Zonis has condemned the Turks' actions elsewhere.
However, Mr. Angelides has raised a significant issue: How should funds evaluate emerging markets investments? Fund directors must take into account current social conditions because they might have the potential to destabilize governments and devalue investments. A more thorough evaluation might have led CalPERS and others to re-examine investments in Indonesia, whose investment valuation collapsed over human rights and political issues, as Mr. Angelides suggested.
CalPERS' investment committee will examine the entire issue of evaluating countries on Dec. 13.
The trustees must keep in mind that the issue is the investment of CalPERS' assets in ways that maximize the long-term return. The issue is not addressing old wrongs, unless it can be clearly shown that the shadow of those wrongs may still affect the long-term investment returns.