At CalPERS, Change in Style, Not Focus

When Rob Feckner took over as head of the nation’s richest public pension fund this year, he promised a quieter, gentler leadership style.

That was good news to many -- both friend and foe -- who had grown weary of the noisy controversies that were becoming the norm at the California Public Employees’ Retirement System. Critics said that CalPERS at times seemed more intent on policing corporate America than looking after the welfare of its 1.4 million members.

As he nears the half-year mark of his tenure as CalPERS’ president, Feckner remains a fervent advocate for the corporate governance movement. He isn’t shy about using CalPERS’ $192.9-billion investment portfolio as a hammer to drive home the argument that efficient, ethical corporate management provides value to shareholders.

But so far Feckner, 47, a burly, unassuming glazier employed by a Napa Valley school district, pointedly has kept CalPERS out of the public shout fests that riled Wall Street during the administration of his predecessor, Sean Harrigan, a Southern California supermarket union official who was ousted in December.

“We haven’t been out there with publicity, holding press conferences and traveling around the country,” Feckner said during an interview last week in his modest, windowless office at CalPERS’ headquarters. “But we’ve stayed focused, increased the size of the fund and are doing what we said was the right thing to do.”

Feckner’s low-key but firm style seems to be paying off. CalPERS is expected to report today that it notched a 12.7% return for the fiscal year ended June 30.

The fund, which includes bonds, equities and real estate, outperformed a number of benchmarks, including the Wilshire 2,500 index of domestic stocks, which posted a return of 7.6% for the 12 months ended June 30, CalPERS said.

Feckner has managed to push for corporate reform without waving a red flag at the investment community, said state Controller Steve Westly, a member of the CalPERS board and a candidate for governor in 2006.

One of the most potent weapons in CalPERS’ arsenal is its ability to vote against board nominees of companies in its extensive investment portfolio. The idea is to use those votes as a way to change corporate behavior that the pension fund’s union-dominated management finds distasteful, such as runaway executive compensation, unsavory overseas political connections or punitive labor practices.

Under Harrigan, CalPERS withheld support for directors so often that the effect was blunted, Westly said. In 2004, CalPERS opposed 77% of all directors up for election -- including widely respected investment guru Warren E. Buffett at Coca-Cola Co.

“Instead of becoming the guard dog for investors, we were like a Chihuahua, yapping at everybody,” Westly said. “We were losing our effectiveness.”

Under Feckner’s leadership, the percentage of opposing votes dropped to 27%.

“Having a big stick and knowing when to wield it and being a little more judicious in using the stick is proving to be effective,” said Kevin Cameron, president of Glass, Lewis & Co., a San Francisco-based proxy advisor for large money managers and pension funds, including CalPERS.

Even CalPERS’ most strident detractors at the state Republican Party and the California Chamber of Commerce have toned down their criticism of the pension fund, which they see as pursuing a liberal agenda.

Conservatives complained that Harrigan used his position at CalPERS to meddle in a tense 4 1/2-month supermarket strike and lockout in Central and Southern California that ended in February 2004. They also groused that Harrigan politicized the pension fund by letting CalPERS board member Phil Angelides, the state treasurer and a candidate for governor next year, use it as a bully pulpit.

“Feckner isn’t using CalPERS to promote his own personal interests in the same manner as Sean Harrigan,” GOP spokeswoman Karen Hanretty said.

Said California chamber President Allan Zaremberg: “My members have not asked me to put this on the top of my list as they did when Sean was president.”

Independent corporate governance advocates give Feckner credit for keeping his personality from becoming an issue.

“Anytime you take a firm but low-key approach is always helpful,” said Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “You don’t want to become the controversy.”

Harrigan did not respond to requests for comment. Angelides said he and Feckner had worked “hand in hand” to stop corporate abuses.

Feckner downplays his personal involvement. But he shows clear satisfaction that the pension fund has done well while remaining true to its principles.

“Our corporate governance policy is proving itself by adding value to the fund,” he said.

Feckner, who was named interim president after Harrigan’s ouster, faced his first test within minutes of his formal election to the post Feb. 16.

Feckner led the 13-member board in approving a resolution against a ballot measure proposed by Gov. Arnold Schwarzenegger that would have shifted pension benefits for all future state and local government workers from a traditional, defined-benefit program to a 401(k)-style plan.

The governor’s proposal, backed by business groups and Republican activists, represented “a battle for the very survival” of CalPERS, Feckner said in the interview.

Schwarzenegger, facing fierce opposition from both CalPERS and public employees’ unions, dropped the signature-gathering drive after the state attorney general said the ballot measure could imperil death and disability benefits for police officers and firefighters.

The governor has vowed to put a similar initiative before voters in June, a move that could trigger a new round of combat, Feckner said.

Nevertheless, Feckner said he was open to talking to the Schwarzenegger administration about how to create efficiencies and reduce costs for taxpayers, who must foot any part of the public employee pension costs not covered by investment earnings.

He said a new system to spread out contributions to the fund from employers -- the state, local governments and school districts -- would save taxpayers $200 million this fiscal year. And hard bargaining by CalPERS with healthcare providers has kept the latest annual increase in insurance premiums to 8.7%, the lowest jump since 1999.

In the meantime, Feckner said, he is determined to “mend fences” with the corporations in which CalPERS invests while making sure that the most “egregious” underperformers and bad actors on the fund’s small Focus List are pressured to improve.