Global Policy Forum

By David Teather

"Ahhh ... Bermuda!" The headline appears on a postcard, bearing the image of a man in a suit sitting on a briefcase on the beach, beneath an umbrella and with a laptop open. But the postcard, part of a full-page advertisement in Thursday's Wall Street Journal, was not for a holiday company.

Instead it signified the intensifying campaign by one of America's largest pension funds to stop US companies hiding in tax havens to avoid paying taxes. The umbrella and the briefcase both carry the logo of Tyco, a conglomerate making everything from garden sprinklers to security systems, which has suffered more than its share of scandal in the past year after its top two executives were charged with looting the company. "A nice place for a vacation - but should US companies take legal refuge there?" the advertisement asks.

Calpers, the Californian Public Employees' Retirement System and the largest in the country with assets of $133bn (í‚£84bn), is leading the charge. It has been joined by other public pension funds and unions. Other companies highlighted by the campaign include Ingersoll-Rand, Cooper Industries and McDermott.

Off-shore registrations have always raised suspicions but the concerns have come to the fore since the shocks delivered to corporate America and Wall Street in the 18 months since Enron began to implode and which continue to reverberate. In the past week alone, the Dutch retailer Ahold discovered $500m of accounting irregularities in its US business, two senior executives at the discount store chain Kmart were charged with fraud and four middle managers at the telecoms company Qwest were indicted for allegedly cooking the company's books.

An offshore company, as well as avoiding taxes, is more difficult to hold to account and often more opaque at a time when investors are demanding further transparency. Tyco moved its registration after a reverse takeover of Lord Ashcroft's ADT in 1997.

But more recently, in a post-September-11 environment when the US government is suffering record deficits and facing huge bills to fund the war on terrorism, companies registering in Bermuda have also been denounced as unpatriotic. The prospect of war is weighing heavily on US markets, as is the wider economic malaise, but the blow to investor confidence from the slew of accounting scandals that bruised Wall Street has not yet been shaken off. As a result the campaign for reform of the way American companies do business has thankfully not dissipated.

The rise of the activist shareholder is a welcome byproduct of the financial malfeasance. During the 1990s, the term referred to bumptious, usually small funds that attacked weak companies in the hope of a quick profit. Eliot Spitzer, the campaigning New York state attorney general who acted when financial regulators had their feet stuck in mud, has been a fierce critic of Wall Street. But he has also delivered sharp reminders to shareholders that they have a responsibility to act, to rein in the excesses that led so many executives and investment bankers to overstep the line and to ensure that proper levels of corporate governance prevail.

The influence of shareholders has already been witnessed in the curtailing of some of the more excessive compensation packages awarded to American executives. Calpers has written to the top 100 Tyco shareholders asking them to force Tyco to reincorporate in the US in a non-binding resolution at the company's annual meeting on March 6.

"With its past history, Tyco cannot afford to further erode investor confidence," said Sean Harrigan, president of Calpers. "Everyone should tell Tyco: come home." Calpers has won the key support of an organisation called Institutional Shareholder Services, which many investors rely on to decide their votes at annual meetings.

The campaign has also won backing from the third biggest pension fund in the country, the California State Teachers' Retirement System: "California's educators expect accountability from their pension fund and we expect it from the companies we invest in," said its chief executive, Jack Ehnes. A spokesman for Tyco said the company's new management would take a "close and serious look" at where it should be incorporated.

The US taxman is stepping up efforts to collect revenue from offshore registered firms. Legislation is also pending in congress and several states including California, Massachusetts and Pennsylvania to prohibit governments from contracting with expatriate American companies.

But if the stubbornness displayed by Calpers and others can be maintained then something more worthwhile and enduring than the tightening of regulations will have emerged from one of the most shameful periods in the history of corporate America.

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