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Adding up a comptroller’s power

Candidate Eliot Spitzer seeks to regain influence over Wall Street — if the city's fractured pension system will let him

On the first day of his campaign to become the next New York City comptroller, former New York Gov. Eliot Spitzer laid out plans to revolutionize the office, much the way he said he had transformed the office of state attorney general years before.

Spitzer’s plans, which he outlined in a series of interviews and at a press conference in the noonday heat in Union Square, include aggressive audits to determine if city policies are worth the money invested in them and using the city pension funds’ clout to force through changes in corporate governance at publicly traded companies.

Former Gov. Eliot Spitzer was mobbed by reporters in Union Square on Monday, the first day of his campaign for New York City comptroller. Photo: Sebastien Malo

Former Gov. Eliot Spitzer was mobbed by reporters in Union Square on Monday, the first day of his campaign for New York City comptroller. Photo: Sebastien Malo

“It is a position that has tremendous opportunity,” Spitzer said in an interview Monday morning with WNYC’s Brian Lehrer.

As he sweltered in his blue pinstripe suit amid a frenzy of five dozen reporters in Union Square, Spitzer drew a crowd of fascinated onlookers intrigued by his sudden re-entry into political life five years after a prostitution scandal forced his resignation as governor.

And behind closed doors, financial experts were equally fascinated by Spitzer’s candidacy. As attorney general, Spitzer was as famous for his creative and aggressive prosecutions of the city’s financial industry as he was for his clumsiness with the horse-trading that defines Albany politics.

In multiple interviews, Spitzer implied that he’d bring the same aggression to the comptroller’s office, using his position as manager of the city’s $140 billion investment in five pension funds not only to safeguard money, “but also using the equity stake that we control as a means of control of corporate governance.”

That kind of shareholder activism “is not trying to play politics in corporate America,” Spitzer told Lehrer.

“This is, shareholders control corporations and if shareholders abdicate, passive institutional investors lead to bad governance and that is to a certain extent why we had the cataclysm of 2008,” he said, referring to the financial crisis.

Those words echoed the populist rhetoric Spitzer once used in cases he brought as the state’s attorney general, a post from which he earned the nickname “Sheriff of Wall Street.” Spitzer told the crowd at Union Square that cases he brought as attorney general mattered “because we highlighted what was wrong with the marketplace.”

“Being ahead of those issues, being right on those issues, that’s what I’m running on,” he said.

Among the items he declared on his agenda: ensuring corporate CEOs do not simultaneously serve as board chairs, staggering board elections and eliminating so-called poison pills — maneuvers by corporate boards to thwart outside takeovers.

Spitzer’s activist agenda is not entirely novel. Both City Comptroller John Liu and State Comptroller Tom DiNapoli have used their offices to pursue divestiture of pension funds and press changes in corporate governance.

Late last year, both Liu and DiNapoli sought to divest pension funds from Cerberus, the private equity fund that owned the maker of the rifle used in the school shootings in Newtown, Conn. And companies such as Dick’s Sporting Goods and Constellation Brands implemented gender non-discrimination policies in response to requests from Liu’s office.

After the Citizens United U.S. Supreme Court ruling allowing companies to make unlimited political expenditures on behalf of candidates, DiNapoli, the sole trustee of New York state’s $160 billion fund, sued Qualcomm, Inc., for the right to inspect the company’s records, eventually reaching an agreement with the corporation to disclose its political expenditures in exchange for withdrawing the lawsuit.

If Spitzer brought the same aggression to the comptroller’s office, the results could be electric, said John Murphy, a pension plan consultant who previously served as executive director at the New York City Employees Retirement System, one of the five funds managed by the city comptroller’s office.

Yet as comptroller, Spitzer — who once described himself as a “steamroller” in negotations with a state legislator — would be unable to act on most of his policy initiatives unilaterally.

That is because the city’s pension funds make investments and decide corporate governance policies through their boards. While the city comptroller has a seat on four of the five pension boards, in many cases the mayor has more control than Spitzer would have if elected, Murphy said.

“I don’t think he [Spitzer] really realizes how little power the comptroller has,” Murphy said.

Proposed changes in the city pension funds’ corporate governance policies, like those proposed by Spitzer, must first be approved by the five funds’ proxy committees. Those committees include representatives from civil service unions and the mayor’s office, and while consensus is not required for approval, it is almost always practiced, officials from the city comptroller’s office said.

The comptroller used to be more powerful, but a 1989 change in the city’s charter gave more investment authority to the mayor, Murphy said.

“When the mayor grabbed all the control,” the offices of both the comptroller and the public advocate “became eunuchs,” he said.

Former City Comptroller Elizabeth Holtzman says that while the mayor and borough presidents have some say as trustees, the comptroller’s office nonetheless wields serious power.

“The Comptroller carries the laboring oar, or to say it in a different way sets the agenda — at least that was true during my tenure,” she wrote in an email. “Of course, just pushing proposals doesn’t mean companies will adopt them, but you can make a difference as Comptroller.”

Holtzman, whom Spitzer cited as a “role model” in his interview with Lehrer, said she’d achieved successes as comptroller despite the office’s limitations. For instance, Holtzman recalled confronting Mayor David Dinkins’ administration over not just the cost but also the health impacts of a growing number of municipal solid waste incinerators. “The reports focused attention on the problem and when Giuliani became Mayor he abandoned the expansion and shut down all the existing incinerators,” she wrote.

But Spitzer’s plans for more aggressive audits of city policies could set up a fight with the mayor’s office. In his interview with Lehrer Monday, Spitzer said he planned to deliver “substantive policy audits to determine what works and what doesn’t work.”

“It’s not measuring whether the paper clips got delivered that you paid for, it is whether the policies we’re paying for are working,” Spitzer said to Lehrer, citing examples such as audits of the city’s educational, infrastructure and health care policies.

If Spitzer were to go after the mayor’s policies with an aggressive audit, the mayor could respond by slashing the comptroller’s budget, Mr. Murphy said.

But Spitzer, seen as less likely to use the office as a stepping stone to another position, might not be intimidated by threatened budget cuts.

“He could actually say ‘Screw you’ to the mayor and say ‘I don’t care what you do to my budget, I’m going to go after you,’” Murphy said.

“Spitzer actually has the kind of personality where he doesn’t care what he does, he’ll burn the building down. That would be very interesting,” he said.

“He may be the one guy who is in a position where he doesn’t have anything to lose in doing that. That would be phenomenal.”

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