Thomas DiNapoli should reconsider his priorities.
As New York State Comptroller, and the sole trustee of the New York State Common Retirement Fund, he controls over a hundred billion dollars set aside to pay for the retirements of New York’s government workers. Ensuring that those funds grow quickly enough to meet the state’s obligations is an enormous task. Nevertheless, DiNapoli recently found time to sue Qualcomm, seeking the right to inspect the company’s books and records “to determine how shareholder funds are being spent for political purposes.”
The lawsuit won’t do anything to boost returns for the pension funds he manages, nor will it lead to better investments by Qualcomm. Even if he wins, DiNapoli is unlikely to uncover anything relevant that isn’t already in the public domain. The case is simply a fishingexpedition, capitalizing on the public misinformation surrounding Citizens United to harass a company that all agree has followed the law. That approach may prove popular with some voters and help DiNapoli’s prospects for reelection in 2014 or eventual elevation to higher office, but it will cost New York taxpayers substantialattorney fees while doing nothing to help the state meet its enormous pension obligations.
DiNapoli’s suit will have little, if any, effect on the disclosure of corporate political activity. Corporationscannot contribute to federal candidates, and if a corporate-affiliated political action committee (PAC) does so, those contributions (which reallycome from its employees) must be reported to the Federal Election Commission (FEC). This process predates, and was unaffected by, Citizens United. Every contribution to support or oppose the election of federal candidates made by Qualcomm employees to a PAC or by the company itself to a SuperPAC, if over $200, must also be reported to the FEC. If Qualcomm were to contribute to a nonprofit or industry organization, those funds would be disclosed if they were earmarked for candidate advocacy. Similar rules generally apply at the state level. In short, any political activity undertaken by Qualcomm must already be disclosed and is readily available on a government website.
Besides, if DiNapoli wants to change how Qualcomm reports its political activity, he has options other than paying lawyers to sue the company. For instance, he can propose a vote of Qualcomm’s shareholders on the question. He hasn’t done that here. If he did, the odds would be against him. While shareholdervotes on political activity have become popular in recent years,they nearly always fail. Take last year: according to Institutional Shareholder Services, the average level of support for political disclosure resolutions was only 27.1%. Put differently, DiNapoli is seeking information that the vast majority of shareholders have considered irrelevant at best, or an active distraction from corporate business at worst.
Finally, DiNapoli may very well lose. Courts do not allow shareholders to review a company’s records on a whim or simply because the owners are curious or want publicity – allowing such broad investigations would overwhelm a corporation’s ability to do business. Delaware, where Qualcomm is incorporated, does permit inspections for “proper purposes,” but as is often the case, courts have limited what that means. A “proper purpose” must usually be economic, and not political.
Investigating mismanagement is a proper purpose, but DiNapoli would have to show some factual basis for believing Qualcomm’s management has breached its duties. He hasn’t. Instead he has cited a number of academic articles that suggest, tentatively, that political contributions to PACs and political parties may have a negative impact on share prices. But if Qualcomm were making any such contributions, they would already be publicly available.
Regardless, the expense and uncertainty of litigation is entirely unnecessary. DiNapoli has a broad responsibility to take actions that “are necessary or required for the proper fiscal management of the retirement system.” If he truly believes that Qualcomm’s approach to this issue threatens its value as an investment, he has the same remedy enjoyed by every other investor: he can sell New York’s shares. That he hasn’t done so suggests that he believes Qualcomm is a good investment and that the suit is politically motivated.
Reasonable people can disagree on the proper role of corporations in our national life. But while DiNapoli is re-fighting Citizens United usingother people’s money, the funds he supervises have consistently failed to meet performance targets. Perhaps New York’s employees and retirees would be better served by a change in emphasis.
