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Thursday, June 30, 2005 | When talk of scandals, slippery-slopes and other evils seem to shroud the country in a fog of moral fervor, it’s a relief to know that great minds somewhere can still see the “science” in politics. Professor Peter Gourevitch of the University of California, San Diego’s Graduate School of International Relations and Pacific Studies specializes in international issues and political economy, with a recent and timely emphasis on the politics of corporate governance. After pocketing three highly prestigious fellowships and the Chancellors Award for Excellence while sending his new book to press in 2005, the humble professor takes time out to remind us that beneath the rhetoric of “dirty” politics lies a framework that is, at the very least, rational.
Were you a straight A-student in college?
I certainly was not. I remember freshman year sitting in calculus and the girl next to me who had gone to a very famous public high school saying, “Oh yeah, we’ve been through this stuff already.” My school in upstate New York did not offer calculus and that was a big preparational [sic] disparity and I did not do very well. And then I started to get A’s in one class and I thought, “I can do this!” I just kept working and my grade average just went up and up and up, and then I did become an A-student.
How did you feel when you swept up all of those fellowships?
I was just thrilled. You know, you apply to a lot of things because you don’t know if you’ll get any of them and you hope to get one of them. I was not expecting to get them all.
What is your new book about?
The book is going to be called Political Power and Corporate Control: The New Global Politics of Corporate Governance. It has to do with rules that define relationships between shareholders and managers in a firm. The book is about why countries have such different systems.
How does your research depart from what’s already been done?
The literature on corporate governance is very profoundly shaped by specialists in law and economics and it tends to ignore the political process. They focus more on “what is the law,” as if that’s enough. And I believe that the law always requires political support towards careful enforcement. If we don’t pay attention to the politics, under what conditions we get good law and good enforcement, we aren’t going to understand it very well.
Were you able to shed new light on the American system?
I think we did learn a lot of interesting things, some of which go against conventional wisdom. For example, we assumed that labor groups will oppose good corporate governance while business groups will support it, and we found that’s not true. Labor groups, as their pensions rise, tend to support good governance. And business groups, who often respond to their managers, tend to oppose good corporate governance. But the patterns of support and opposition to transparency are much more confusing than previously thought. We found labor groups and business groups on both sides.
If you see the response to the corporate governance scandal, for example, in the fight that led to Sarbanes Oxley, by and large the Republicans opposed new rules and regulations and the Democrats pushed them. Now why is that? The traditional explanation says that Democrats like regulation and Republicans don’t. I think that’s wrong. They respond to different interest groups. Managers of large corporations do not want new regulations that make them more transparent and responsive to shareholders, whereas some of the big pension funds push for it.
How effective was the Sarbanes Oxley legislation?
Its usefulness was limited. They looked at the composition of boards and said boards should have more independent directors. That’s a very nice idea, but I think that it is actually very hard to decide who really is an independent director. In the case of Enron for example, there was a man on the board who was from San Diego. A very highly respected guy – but he also ran the MD Anderson Center, a major cancer place that got a lot of money from Enron. Is that really an independent director? He’s an honorable person, but what do we mean by independent?
I’m more interested in the role of institutional investors of the large pension funds and agencies; they’re the ones who have the ability to pay attention carefully to what’s going on. You and I as individual stockholders – we’re too busy, we’re not going to read all these things and understand them. So we end up deferring that to somebody. And the question is, who do we defer to? Various groups. We ought to be encouraging the financial institutions to play a more important role.
So you view interest groups in a positive light?
I think most political scientists are puzzled when people complain there are too many interest groups. They’re not against interest groups, they’re against that interest group and in favor of their interest group. The language that people use distorts because “interest group” sounds dirty to people and people think politics is dirty. Our view is, how can you not have interest groups? That is what democracy is all about.
A lot of interesting stuff is happening right here in California with CalPERS and the Governor. One of the issues is, what will the level of pension funds be and who will pay? It’s a perfectly valid issue, as we see here in San Diego because there’s a big scandal over city pension funds. If the media presents CalPERS as greedy public interest employees trying to take too much money for their retirement, it looks one way. But one of the things about unraveling CalPERS is that it’s also one of the biggest activists in America on behalf of shareholder rights. So if you pull CalPERS apart you are removing one of the major players in the national fight for better laws and regulations. I think that would be a disaster, hurting private savers, independent of the question of what level of retirement benefits anybody ought to have.
What is the role of expert opinions such as yours in all this?
There are lobbies on all sides and they tend to find experts who say what they want to hear. I’m not sure the problem lies in the area that we don’t understand the world, so much as it lies in the political process and who’s paying attention. I mean, most scientists now think we’re having global warming. But has that really changed the politics of it?
– JESSICA L. HORTON, Voice Contributing Writer
Please contact Jessica L. Horton directly at