When you think of NSA critics, you probably think of crusading reporters like Glenn Greenwald, whistleblowers like Edward Snowden, left-leaning ACLU types and libertarian Ron Paulites.

Certainly, an image of aging lawmen from the Dixie south probably isn’t the first thing that pops into your mind. And yet, it was none other than the Louisiana Sheriffs’ Pension Fund - aka retired Bayou State cops - that last week jumped to the front of the throng that's been criticizing tech companies’ all-too-close relationship with the NSA.

Of course, many of the headlines surrounding the sheriffs’ shareholder lawsuit against IBM overstated what the suit is really all about. Yes, their case is generally about the tech sector’s work with the NSA, but no it is not necessarily criticizing that work unto itself.

Instead, the lawsuit more narrowly focuses on the company’s longtime association with the NSA and its lead role publicly lobbying for a federal law that would likely expand data sharing between tech companies and the spy agency. Citing that as background, the suit claims that IBM management knew Edward Snowden’s revelations about the NSA’s international spying would almost certainly damage the company’s technology business in China - a country that is already paranoid about corporate-shrouded NSA infiltration. Yet, as the lawsuit alleges, IBM management nonetheless kept issuing positive pronouncements about its business prospects in China even as the Snowden revelations coincided with both a decline in its Chinese revenues and a Chinese government investigation into the company.

As summed up by the pension fund’s legal team in an interview with Pando, the Louisiana sheriffs argue that the company's positive pronouncements were deliberately misleading and that therefore the fund and other IBM shareholders were defrauded.

For its part, IBM management deemed the lawsuit "a wild conspiracy theory." But no matter the resolution of this particular case, it spotlights how the NSA controversies are not just about civil liberties and privacy, nor do the controversies only create predictable political coalitions. Snowden's revelations are also about legal exposure, shareholder rights, and the esoteric politics of investor activism in the brave new world of economic blowback.

Legal exposure in the era of economic blowback

Writing for the Nation magazine in 2001, the late Chalmers Johnson explained that the word "blowback" is the intelligence community's preferred "metaphor for the unintended consequences of the U.S. government's international activities that have been kept secret from the American people." In the context of the NSA's vast international surveillance operations, American firms suspected of working with the spy agency are now facing the prospect of what can be accurately labeled economic blowback.

For instance, in the cloud computing sector, the Information Technology & Innovation Foundation reports that security concerns from foreign governments and foreign businesses about corporate-NSA collusion could lose American companies as much as $35 billion worth of business - and that's a conservative estimate. More likely, says Forrester Research, the revenue loss "could be as high as $180 billion or a 25 percent hit to overall IT service provider revenues."

In other sectors of the American technology industry, signs point to similar losses. Bloomberg News notes that "Germany’s government has called for home-grown Internet and e-mail companies." The Times of India reports that the country may ban its government employees from using Google email services. And just last week, in what Reuters deemed "one of the biggest and most expensive consequences yet of the NSA revelations," Brazil rejected a planned military contract with U.S.-based Boeing and went instead with a Swedish firm.

This economic blowback shouldn't be all that surprising to Silicon Valley in particular. After all, for all the belated outrage about NSA spying now being expressed by U.S. tech giants, there is plenty of evidence proving that various American tech firms were actively colluding with the NSA in its surveillance initiatives. These companies probably thought those initiatives would never be revealed to the public and therefore their relationship with the agency wouldn't hurt their business in countries the NSA has been targeting. That, or they calculated that the financial upside of collusion would be greater than the financial downside of not cooperating, even if the programs were exposed. Either way, their work with the NSA has clearly imperiled their earnings and their shareholders' returns - and that may open them up to new shareholder lawsuits casting companies’ NSA cooperation as fiduciary malfeasance.

At the same time, there may be an even broader form of economic blowback from the NSA's surveillance - one less about direct collusion with specific companies and more about shaken confidence in the U.S.-based technology industry as a whole.

Yes, it is true - foreign governments and businesses have long known of the NSA's reach into so much of Corporate America generally, whether through data mining, equipment contracting, or anything else. That may have made those governments and businesses a bit uncomfortable, but (especially if they weren't official enemies of the U.S.) they didn't necessarily suspect that they could be the explicit targets of the NSA’s extensive surveillance infrastructure. Those foreign governments and businesses also may not have suspected that the U.S. technologies they were buying for themselves may secretly include skeleton keyholes and backdoors.

Thanks to the Snowden revelations they now very much harbor those suspicions. Consequently, the new revelations have jeopardized the international business of American military/intelligence contracting firms (like, say, Boeing or IBM) that may have had nothing specifically to do with the programs Snowden revealed. In other words, the Snowden revelations have raised fears among foreign governments and businesses that America's military/intelligence apparatus has generally infiltrated the American military/intelligence industry, and so those governments and businesses are starting to look elsewhere for their technology procurement.

The IBM suit is a perfect example of how that, too, exposes publicly traded U.S. technology firms to new shareholder litigation. Again, that suit doesn't allege IBM complicity in the specific NSA surveillance programs disclosed by Snowden. But it does allege that in light of the Snowden revelations, IBM knew but didn't disclose that its general association with the NSA would hurt its business endeavors in security-obsessed China.

If this kind of lawsuit was likely to be an isolated incident, it might not be big news. But with public pensions funds now so deeply invested in the tech sector, this lawsuit almost certainly will not be the last of its kind.

The activism of public pension funds

The elderly aren't usually associated with tech culture, but that doesn't mean they don't own some of the means of tech production. In fact, through public employee pension holdings, a group of today's fogies and tomorrow's fogies collectively own a sizable chunk of the very tech sector that's now facing economic blowback from its relationship with the NSA. And here's the thing: these retirees don't typically let their holdings sit idle. From retired Louisiana sheriffs to retired California teachers, these investors tend to use their holdings as leverage.

Before getting to that story of activism and how it might shape the tech sector, first consider some of the ownership numbers.

Though it is difficult to present an exact estimate of the value of public pension funds' tech holdings, it is probably between about $100 billion and $200 billion (and that's counting only public employee pension funds and not private-sector union pension funds, which also periodically support shareholder activism).

Those estimates come from Robert Klausner, a longtime legal adviser to public pension funds. In his sampling of major pension funds, he found that tech equities represent about 3 percent of holdings - or $100 billion of the funds' total $3.7 trillion in assets. That's a slightly more conservative estimate than the one gleaned from a joint 2009 study by University of Illinois and Michigan State University researchers. Their analysis of major public pension funds found that in the roughly 40 percent of fund assets now invested in equities, 14 percent of those equities are in the S&P "computers" (read: tech) sector. Put those two numbers together and it comes to about 5.6 percent - or $200 billion - of pension funds total holdings now invested in tech stocks.

Compared to a tech sector in which a mere five companies alone represent $1.1 trillion in market capitalization, $100 billion or $200 billion may not seem like all that much. However, it is a hell of a lot to the pensioners depending on the sector's economic success for their retirement income. With up to almost 6 percent of pension fund assets in that sector, any serious earnings declines and stock price drops associated with, say, the Silicon Valley-NSA relationship could hit those retirees in the wallet.

Some may assume that because they are comparatively small shareholders in the total tech market, public pension funds are nothing for the tech sector to worry about. But that ignores how those funds in recent years have become some of the most aggressive shareholder activists in the market. Indeed, with many public pension funds governed by trustees directly accountable to employee unions and elected officials, the funds are more inclined than other institutional investors to leverage their equities and their shareholder standing to press for changes in Big Business behavior.

In the past, this has meant public pension funds at the forefront of shareholder resolutions aiming to change companies' environmental policies, human rights behavior and corporate governance structures. Now with the Louisiana Sheriffs’ Pension Fund suit against IBM, it may mean those funds expanding their ongoing use of shareholder lawsuits. More specifically, it may mean pension funds mounting lawsuits asserting that Silicon Valley's collusion with the NSA unduly endangers the value of pension funds’ tech portfolios.

Such a jurisprudential strategy could have two major effects.

First and foremost, it could protect the value of pension funds’ own holdings. Essentially, if the suits successfully pressure tech firms to distance themselves from the NSA, that could eventually restore foreign buyers’ faith in the firms and subsequently restore the firms’ international earnings.

Second, shareholder lawsuits could fill a regulatory void left by a laissez-faire Congress. Whereas the legislative branch hasn't done anything to set up barriers between the NSA and tech firms (or at least give tech firms more legal cover to reject NSA encroachment) shareholder lawsuits like the IBM case threaten to economically discourage the continued collusion.

This would be a new reality of shareholders giving orders to executives and complicating those executives’ way-too-cozy relationship with the National Security State. That is a reality that management likely fears - which could explain one of the year's big political mysteries in Silicon Valley.

Solving the ALEC mystery

At a recent public forum, officials from Google and Facebook were asked to explain their companies' recent decisions to collaborate with the American Legislative Exchange Council (ALEC) - a powerful advocacy group that champions conservative bills in state legislatures. As Grist reported, the Google and Facebook representatives "could not explain why" their companies joined others like Microsoft and Yahoo in working with such an extreme group.

In reporting on this mystery, the Daily Beast posited that tech firms are enlisting ALEC's help to pass bills limiting anti-free-speech lawsuits by plaintiffs trying to unduly censor negative content. But that specific legislative goal may merely be one part of a larger campaign by tech firms to try to engineer legal immunity for themselves across the board. A big part of that campaign, in fact, could have to do with ALEC's devious attempt to radically alter public pension systems.

As I've previously reported, ALEC is today pressing legislators to convert traditional defined-benefit pension plans into 401(k)-style systems. These proposals are depicted as pragmatic “reforms” prompted by apolitical budget concerns. However, there are other unstated and insidious objectives at play.

For example, conservatives love these proposals because 401(k) systems reduce guaranteed retirement income for the government workers they so despise. They also don't mind that such systems often cost taxpayers more than traditional pensions because the additional costs end up enriching the right's Wall Street benefactors. And they love that converting traditional pensions into 401(k) plans ends up taking power away from the pesky pension managers who tend to ruffle corporate feathers.

That's right, as Steve Kreisberg of the American American Federation of State, County and Municipal Employees says, "The shift to individual retirement accounts (like 401k’s) gives the shareholder voting right to mutual fund managers who rarely exercise those rights and even more rarely challenge company management."

To know that engineering such a power shift is a major motive of ALEC - and, by extension its corporate donors - is to appreciate that reducing shareholder power and activism has long been a priority for the entire constellation of groups that comprise the conservative movement. That's because ideologically, the right and their corporate sponsors simply don't like anyone other than the management class to call the economic shots. It is also because, as this report from the conservative Manhattan Institute shows, so much shareholder activism comes from public pension systems that are more accountable to the public and that therefore tend to champion popular left-leaning causes.

The Manhattan Institute (like other conservative groups) bitterly complains about this reality, as if only executives and oligarchs should be allowed to wield corporate power. Yes, to the right, there's apparently something terribly wrong with middle-class shareholders - like, say, retired Louisiana sheriffs - wanting more democratic control over the companies they partially own. And so as part of the conservative movement's ongoing national effort to limit the public's power over corporations, groups like ALEC are not only pushing generalized "tort reform" bills to limit legal exposure, they are also pushing state-based pension "reform" proposals that not-so-accidentally disempower the very public pension funds which most aggressively flex shareholder muscle. As the Silicon Valley execs who back ALEC well know, those proposals - if successful - could mean fewer shareholder lawsuits targeting tech firms' relationship with the NSA.

A history of hostility toward public accountability

No doubt, ALEC is involved in many issues, so it is difficult to know if major Silicon Valley companies have sponsored the group exclusively because of the group's efforts to reduce shareholder lawsuits and shareholder activism. However, history suggests it is more than fair to assume that many tech companies do not oppose such efforts - and that at least some are more than happy that their resources are being used in the right's anti-shareholder campaign.

Recall that since the mid-1990s, Silicon Valley executives have supported political initiatives to limit the ability of Americans to file lawsuits against corporations. New York Law School's Center for Justice and Democracy notes that in recent years, the tech industry has become one of the "leading players" in the so-called "tort reform" movement. For the tech industry, that movement has racked up legislative successes, culminating most famously in the 2008 congressional bill that provided blanket retroactive legal immunity to tech firms which helped the federal government engage in warrantless surveillance.

That Silicon Valley triumph, though, is not where the industry's anti-lawsuit crusade ends. In recent years, major tech firms like Google and Microsoft (and up until recently Apple and Yahoo!) have not only funded the pension-focused ALEC, but also the U.S. Chamber of Commerce. Why is that revenant? Because that group's central legislative causes has been (surprise!) eroding shareholders' power and reducing shareholders' ability to file lawsuits against management. These initiatives have been multi-pronged and successful - so successful, in fact, that the U.S. Supreme Court is right now considering a Chamber-backed lawsuit that would make it much more difficult for shareholders to win fraud suits.

With the Louisiana sheriffs lawsuit against IBM generating so much publicity, and with so many other tech firms potentially facing similar suits over their proximity to the NSA, there's a good chance this anti-shareholder-rights campaign will now go into overdrive.

That lawsuit reminds tech executives whose companies acquiesced to the NSA's panopticon that they and their firms are legally exposed. It additionally reminds them that public pension funds are adept at using that kind of exposure to press for real reform of corporate behavior. But those executives also know that the simplest way to limit that kind of democratic control and to protect their own unilateral power is to quietly disenfranchise their companies’ own shareholders.

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