Corporate governance and entrepreneurial development: the case of CalPERS’ Permissible Country Index
Since the early 1990s, pension funds have played a major role in equity financing in emerging market economies. Equity financing refers to the method by which publicly traded companies in the global South raise long-term capital through the sale of shares (equity) to investors rather than through other financing means such as a bank loans (International Finance Corporation, 2006; World Bank, 2007). Notwithstanding the role of foreign direct investment (FDI),1 which still constitutes the bulk of private capital flows; equity financing has become a significant source of credit for emerging markets (World Bank, 2005).2 According to the US investment bank J.P. Morgan Chase & Co., corporate debt in the developing world has risen from $21 billion in 2002 to $111 billion in 2006 (Financial Times, 2007; World Bank, 2007). Given their central position in global financial markets, pension funds are believed to be particularly vulnerable to a wide array of risks (Clark and Hebb, 2005). To monitor and manage these risks, pension funds, like other institutional investors, have created various assessment instruments for ‘benchmarking’ individual non-US public stock markets to determine their ability to support investment. A chief concern of these assessment exercises has been the compliance of strong corporate governance practices in the developing world.3 Since the 1990s, various institutional investors have attempted to expand their understanding of corporate governance to include non-financial indicators, such as labour standards, which have also been associated by some with SRI. The benchmarking strategy of the largest US-based public pension fund, CalPERS, is an important case in point and will serve as the primary focus of this chapter. With assets valued at $176.1 billion (as of 2009), CalPERS represents the leading public pension fund in the US and one of the largest in the world.4 While the majority of CalPERS’ funds are tied up in US corporations, an increasing amount is destined for 27 emerging market economies. CalPERS draws on information gathered by its investment assessment instrument – the Permissible Country Index (hereafter PCI or Index) – to identify suitable investment climates. The Index provides an interesting study, as the ‘activism’ it is purported to reflect embodies the growing trend in corporate governance discourse to assume a greater concern for social issues (Kawamura, 2002: 14).5 Through the application of its PCI, CalPERS has sought to promote an understanding of
corporate governance based on what it terms ‘enduring value’ in the developing world. The PCI aids CalPERS’ Investment Committee in determining, on a quantitative basis, the levels of enduring value in an emerging market by measuring not only economic indicators (market factors), but also social factors (nonmarket factors) involving equitable treatment of workers, the environment and other commonly shared public assets. My argument in this chapter is twofold. On the one hand, I suggest that once we move beyond the surface appearance of the Index, it becomes clear that CalPERS’ assessment instrument is not only contradictory and conflict-ridden, but also aimed at ensuring that the conditions for continued expansion of capital accumulation in the Third World are obtained and reproduced through the neoliberal strategy of the corporate governance doctrine (see Chapters 1 and 2). This is largely accomplished through the promotion of the Anglo-American variant of corporate governance, which affords more attention to shareholder value and market forces more generally. The attempt to facilitate the social power of foreign institutional investors in emerging markets is subsequently legitimated and embedded through the ethical gloss of SRI. This move, I propose, is an attempt to ensure the continual extraction of higher returns on investment than are presently available in the advanced industrialized countries, most notably, in the case of CalPERS, the US. On the other hand, the PCI is neither a natural phenomenon, nor has it emerged in an ahistorical and apolitical vacuum. The basic premises and objectives of the Index, including its appeal to ‘enduringvalue’, are firmly rooted in, and informed by, the most recent revision of neoliberal-led development discourse and policy, which the IFC, a sister institution of the World Bank, refers to as ‘entrepreneurial development’. This prevailing and overarching capitalist strategy aims not only to encourage greater involvement of the private sector in development, but also legitimates deepening forms of dependency on, and discipline of, transnational capital in emerging markets. This argument is developed in four sections. The first section discusses the significance of entrepreneurial development as it pertains to ongoing neoliberal revisionism within official development discourse and policy since the mid1980s. The second section examines the circumstances and assumptions underpinning CalPERS’ rationale for commissioning Wilshire Associates (hereafter Wilshire), a leading investment consulting firm in the US, to devise a comprehensive index for evaluating public stock markets in emerging market economies. The third section deepens this critical investigation of the Index by seeking to understand its capitalist nature, as well as how it normalizes and legitimates relations of domination and exploitation in emerging markets. I accomplish this task by identifying and elaborating on how three key premises underpinning the PCI act to normalize and thus recreate its capitalist nature. The final section draws some conclusions regarding the argument presented in the chapter.