CalPERS’ Anne Simpson Stresses Management Responsibility
Corporations Require Accountability for the Exercise of Power
By most measurable accounts, the modern corporation is a wild success, with products and services that touch every moment of our lives and companies with so much wealth that some are valued at more than the GDP of industrialized nations.
WalMart, for example, posted $444 billion in net sales last year, slightly more than the GDP of Norway. Apple has a value greater than the GDP of Poland, and selling the company at its market value of about $490 billion would more than pay off Greece’s crisis-causing debt.
But while recent decades have seen corporations accumulate exponential amounts of power, wealth and resources, many of the world’s seven billion people are still suffering. Close to 780 million don’t have safe drinking water, 20 percent live without electricity and almost 40 per- cent don’t have access to basic sanitation.
Meanwhile, issues surrounding corporate governance are as important and controversial now as they were in the 18th century, when the modern idea of corporations first took root, and accountability, transparency and fairness will be a priority for the next generation of CEOs. That’s the message that Anne Simpson, senior portfolio manager of investments and director of corporate governance at CalPERS, shared with MBA students in September as a Dean’s Distinguished Speaker.
With $250 billion under management, California Public Employees’ Retirement System is the largest public pension system in the U.S, providing retirement and health benefits to more than 1.6 million public employees, retirees and their families.
Simpson oversees CalPERS’ Focus List of shareholder engagement with underperforming public companies, global proxy voting, legal and regulatory reform and its actively managed corporate governance investment strategy. She is also a senior faculty fellow at the Yale School of Management and a member of the Investor Advisory Group of the Public Company Accounting Oversight Board.
Scandals, malfeasance, greed and corporate manipulation—Simpson highlighted many instances throughout history. These examples, she said, remind us that despite legal constructs and Supreme Court decisions, a corporation is not a person.
“It’s not a person in the sense that you and I are people. It’s not a person in the sense of having volition, or responsibility, moral agency, the ability to make decisions,” Simpson said. It’s more like a robot.
“It’s something that we have invented and we are responsible for,” she said.
Corporations require accountability for the exercise of power. MBA students, as future corporate leaders, will need to ask, if not the shareholders, then who will be responsible and accountable for the corporation. The government? Workers? The media?
“It seems absolutely right to me, this alignment of interests between the providers of capital and the company,” Simpson said.
CalPERS is defining its responsibilities as an influential institutional investor, Simpson said. The pension fund has developed a new framework for its investment strategy focusing on the creation of value, rather than individual strategies and decisions.
The idea, which Simpson described as “old-fashioned basics,” is that value comes from financial, human and physical capital. The Graduate School of Management will play a key role in CalPERS’ new focus by researching and providing analysis on incorporating environmental, social and corporate governance issues into CalPERS’ investment strategies (see page 20).
Simpson’s inspirational final message for the students: “Have imagination. That is probably one of the most undervalued things in a business leader.”
[A corporation] is not a person in the sense that you and I are people. It’s not a person in the sense of having volition, or responsibility, moral agency, the ability to make decisions. The best we can think of is that it is a robot. It’s something that we have invented and we are responsible for.
— Anne Simpson, senior portfolio manager of investments and director of corporate governance, CalPERS
View the video of Anne Simpson’s talk: www.gsm.ucdavis.edu/simpson