The 2006 Moskowitz Prize for Socially Responsible Investing has been awarded to Brad Barber, professor of finance at the University of California, Davis, for his work on shareholder advocacy. The prize is awarded each year by the University of California, Berkeley, Haas School of Business for the paper judged to be of most “practical significance” to socially responsible investors.
In his paper, Monitoring the Monitor: Evaluating CalPERS’ Activism, Barber followed the giant public pension fund CalPERS as it pressed companies it has invested in to change their businesses in ways deemed to enhance shareholder value.
Barber draws a distinction between “shareholder activism” and “social activism.” He explains that there is an inherent conflict of interest between managers of a corporation and that company’s shareholders. In shareholder activism, he says, “large institutions can try to solve that problem by monitoring these corporations’ actions and in particular the actions of managers to make sure they’re acting in the best interests of shareholders.”
There can be a conflict between portfolio managers and shareholders, too: Social activism, Barber asserts, happens when a “portfolio manager is pursuing political or social interests with the money of others. Whether that’s in the best interests of the investors whose money he or she is managing depends upon what the political preferences are of those whose money he manages.”
CalPERS has had a reputation for shareholder activism, and has developed an annual “focus list” and a rigorous discipline for reforming the companies in its portfolio that it identifies via quantitative screens as having “both poor economic performance and corporate governance structures that do not ensure full accountability to shareowners.” Barber studied CalPERS’ annual focus lists of those companies and estimates “imprecisely” that the pension fund’s activism resulted in wealth creation of $3.1 billion during the span he studied, 1992 to 2005.–Kathleen M. McBride
(Download Professor Barber’s paper, view CalPERS’ 2006 Focus List, and get more information on the Moskowitz Prize here.)