Centerfield

Coincidentally, the latest Yahoo finance quiz suggests that good corporate governance signals a good investment:

The 34 companies that received the highest marks for corporate governance according to Governance Metrics International (GMI), outperformed the S&P 500 by 15.9% over the last 5 years. GMI recently released new corporate ratings on 3,220 global companies, rating them between 1 and 10. Only 27 American, 3 Canadian, 3 British and 1 Australian company received a perfect score of 10.

The average score for all US companies was 7.03, the third highest average behind the United Kingdom (7.39) and Canada (7.14). The three lowest country averages were for Belgium (3.93), Japan (3.49) and Greece (2.37).

The GMI ratings incorporate hundreds of data points across six broad categories including, board accountability, financial disclosure and internal controls, executive compensation, shareholder rights, ownership base and takeover provisions and social responsibility. The majority of corporate governance red flags for US companies came from the executive compensation category. The other categories where US companies had the most trouble were "ownership base and takeover provisions" and "board accountability".

So there are other watchdogs, and the data suggests that if you watch the dogs and pick the best-behaved ones, you'll do well.

Schwarzenegger is right in the fat part of the curve. Guaranteed fixed-benefit pension plans really don't seem to be sustainable with people living so much longer. State governments simply can't afford to continue to be as generous as they have promised to be...Massachusetts employees get to opt out of paying into SS, and are guaranteed 80% of the average of their top 3 salary years as an annual payment for the rest of their lives. This is an unbelievably costly plan.

I read just the other day (Harpers via Marginal Revolution) that GM has 5 pension collectors for every 2 employees, and that the per-car-sold cost of financing pension obligations is $750. How does GM stay competitive with such costs? They don't! It's a problem.

Another potential problem for CA's economy, interestingly, is ISTR that CalPERS is a huge venture capital backer.

Since VCs arguably drive CA's economy, this could be a bad move...

The problem is that CalPERS isn't just a coporate watchdog, it's a bit of a labor union shill as well. How do we determine when CalPERS is being a legitimate watchdog, and when its actions have less savory motivations?

Agency problems are inevitable when politics can steer the investments. This would also be my major objection to government-controlled investment of SS funds. Other states have seen major problems (and losses) from politically-controlled public pension funds.

I am surprised Gov. Schwarzenegger has not proposed scrapping PERS altogether and joining Social Security. Democrats have spent the last few months praising Social Security and saying what wonderful shape it is in. They would have to be very agile to be able to simultaneously continue to praise SS while defending AFSCME employees who have no desire to give up their current retirement system. The cost to California would not be much different. I think SS deductions are 6.2 percent on the first 90K+ as opposed to CALPers 7% on all income. Arnold could afford to offer a 1% raise w/o losing money and eliminate any future unfunded liabilities.

Of course, a guaranteed benefits plan is only as good as the assets backing it. When the assets are the power to tax, the benficiaries are happy. But the taxpayers aren't.

I read an article awhile back about how many states were able to establish employer pension plans that included an exemption to SS, and how these are generally MUCH better deals (from the employee POV) than SS. Not even close.

It'll be a huge battle to change these, and there is certainly a fariness issue involved. Many people stay with state jobs in large part due to the generous retirement plan, and its reasonable to consider this as part of your overall compensation.