The state Personnel Board voted 3-2 to replace Harrigan as its representative on the board of CalPERS. Harrigan was replaced with Ronald Alvarado, an appointee of former Republican Gov. Pete Wilson.
In recent days, Harrigan had claimed that the administration of Gov. Arnold Schwarzenegger lobbied for his removal because of his union ties and the corporate governance efforts that have angered business leaders — a charge strongly denied by a Schwarzenegger spokesman.
Schwarzenegger's ability to significantly alter the board's makeup is limited. The Republican governor can appoint at most four of the 13 members. And one of those appointments is held by former San Francisco Mayor Willie Brown Jr., a Democrat, and isn't scheduled to expire until January 2007.
Critics charge that Harrigan, who has served as president since early last year, has been more worried about pushing a political and social agenda than getting strong rates of return to pay for pensioners' retirements. But CalPERS' overall performance during his tenure has closely tracked that of other major pension funds.
In March, Harrigan and the CalPERS board were at the forefront of a shareholder effort to remove Disney Chief Executive Michael Eisner, who subsequently lost his post as chairman and announced that he would retire in 2006. In May, the pension fund headed a less-successful effort to force the resignation of Safeway CEO Steven Burd.
CalPERS controls about $177 billion in retirement funds of state employees and retirees. Investing its huge pool of money gives the fund clout as it uses its big ownership stakes in companies to influence their behavior and advance causes such as reining in executive pay.
Even before the current flap over Harrigan's appointment, signs had emerged that CalPERS was beginning to rethink some of its tactics.
Last summer, during a CalPERS retreat at Lake Tahoe, the board informally directed staff members to scale back a recently adopted policy of withholding proxy votes for all companies whose directors allow outside auditors to perform non-auditing functions.
Using that broad-brush approach, CalPERS withheld votes for hundreds of corporate boards and even voted against renowned investor Warren E. Buffett's reelection as a Coca-Cola Co. director.
CalPERS, the nation's largest public pension fund, has been trying to influence corporate behavior since at least the early 1980s, when it took on Texas oilman T. Boone Pickens for allegedly "greenmailing" companies with phony takeover bids.
Harrigan's replacement, Alvarado, sat on the CalPERS board from 1996 through 1999, a period when the pension fund committed itself to being a national leader in corporate activism.
Alvarado, however, is not expected to be named as president of the pension fund. Instead, CalPERS observers speculated that the next president would be Rob Feckner, a Harrigan ally who serves as the pension fund's vice president and is chairman of its investment committee.
"Corporate governance is one of our strongholds," Feckner said Tuesday, adding that there is "solid support" on the CalPERS board to continue its activist policies.