State Treasurer Phil Angelides called on California's two largest pension funds Thursday to stop investing in companies that move their headquarters offshore to avoid paying taxes, and said the state would blacklist those firms.
In recent years, a growing number of U.S. companies, such as conglomerate Tyco International Ltd., manufacturer Ingersoll-Rand Co. and Xoma Corp., a biotech firm, have reincorporated in Bermuda or the Cayman Islands. Congress is considering legislation to curb corporate expatriation, which costs the government millions in tax dollars each year and can weaken shareholder rights.
"Corporations hiding behind a mailbox in Bermuda are shirking their duty as Americans," said Angelides, who released a list of 23 blacklisted firms, which includes Tyco, Ingersoll and Xoma, as well as consulting firm Accenture Ltd., toolmaker Stanley Works and energy company McDermott International Inc.
Angelides proposed that the California Public Employees' Retirement System, known as CalPERS, and the California State Teachers' Retirement System eliminate their holdings in expatriate companies. Angelides is a board member of both funds, which have a combined $250 billion in assets. The treasurer's office estimated that the two pension funds have a combined $752 million invested in the blacklisted companies.
A spokesman for CalPERS said they learned of Angelides' proposal Wednesday night and did not have enough information to comment on it. The earliest such a policy could be considered and adopted is Aug. 19, when the investment board meets, said Brad Pachecho, a CalPERS spokesman.
Angelides controls a $45-billion investment fund of state and local taxpayer funds, of which $10 billion is invested in the bonds and commercial paper of companies on a state-approved list. Of the 23 targeted companies, only one--Ingersoll--was on the state list, and Angelides ordered it removed.
Although some observers speculated that other pension funds might consider similar policies as Angelides', it's often difficult to put such social policies into practice.
"Whenever someone does this, it sometimes sparks a wave," said Pat O'Hara, a managing director at the Council for Institutional Investors. "But just because it's politically appealing right now doesn't mean it is smart financially."
O'Hara said a pension fund would have to look carefully at the ramifications of selling shares in a bear market.
At Xoma, spokeswoman Ellen M. Martin said the company has been an excellent corporate citizen in California and that its 175 employees, most of whom are in the Bay Area, pay state and local taxes.
The company moved its headquarters to Bermuda in the late 1990s.
"The policy will have no material impact on us," Martin said.