Philip Angelides, treasurer of California, would rather bash companies than help them. The pension executives of other states are considering joining him.
Mr. Angelides has proposed the California Public Employees' Retirement System and the California State Teachers' Retirement System divest themselves of the stocks of companies that move their corporate registration offshore to avoid U.S. corporate income tax.
Among the companies that have done so are Accenture Ltd., Cooper Industries Ltd., Foster Wheeler Ltd., Ingersoll-Rand Co. and Tyco International Ltd. The Stanley Works decided against moving after negative publicity.
Mr. Angelides hopes, if the pension funds' boards support him, that the clout of the combined shareholdings of the two huge pension funds would drive down the stocks of these companies, punishing them for their perceived lack of patriotism, and perhaps scare off other companies that might consider similar moves.
The pension executives of 12 states and three cities met last Monday in New York City to discuss using the clout of the funds under their control to influence corporate ethics, and offshore tax avoidance was one issue on the agenda.
Surely punishing companies as Mr. Angelides proposes is a wrongful use of public employees' pension assets. Mr. Angelides can hardly argue that continuing to hold these stocks is imprudent. The companies made the moves to enhance shareholders returns by improving worldwide competitiveness. The companies' move offshore also isn't unethical. This is tax avoidance - using a legal means to reduce taxes - not tax evasion, which is using illegal means.
At present, U.S. companies have to pay U.S. corporate income taxes on their worldwide earnings, even though a significant part of those earnings already might have been taxed in the countries in which they were earned. That is, the companies pay double taxes on foreign earnings. Their foreign-based competitors generally do not.
Most other countries adjust their taxes on foreign earnings for the taxes already paid on those earnings. By moving to Bermuda, the U.S. companies will pay U.S. taxes only on their U.S. earnings, putting them on an equal footing with foreign competitors and increasing their after-tax earnings, and hence shareholder values.
They are, at the same time, helping to ensure that they stay in business and continue employing thousands of U.S. workers.
Mr. Angelides either is too thick to understand this, too wrapped up in anti-business sentiment to care, or he has grabbed an opportunity for political grandstanding. Perhaps other officials will see the issue more clearly.
If Mr. Angelides and the other fund officials want to contribute constructively to the debate, they might use their clout to lobby for an obvious revision of the dysfunctional U.S. corporate income tax to eliminate the double taxation of foreign earnings.
That would help to make U.S. companies more competitive. To drive the point home to Congress, they might even encourage the pension funds to buy more of the stock of such companies because the move increased the companies' earnings.
But corporate governance shouldn't be defined by how much a company is taxed, which would mean the more in taxes a company pays, the higher investors should score its corporate governance.
Mr. Angelides at least preferred to make a political splash in the press by bashing the companies with two very large clubs.
The next time Mr. Angelides, and public fund officials who join him, try to raise money from corporate executives for a political campaign, the executives should tell them where to go, and it's not to Bermuda.
