CalPERS Will Scrutinize Firms’ Workplaces : Investing: The pension fund says it will look at the practices of companies in its portfolio with lagging performance.

Arguing that enlightened workplace practices lead to more productive companies, the nation’s biggest government employees pension fund vowed Wednesday to use its vast financial clout to campaign for giving employees a stronger voice on the job.

The pension fund--the California Public Employees’ Retirement System, or CalPERS--already is a major force on Wall Street known for its shareholder activism. It has wielded its nearly $80-billion portfolio to pressure corporate boards to be more accountable to shareholders and independent of management at such business giants as General Motors, IBM, Occidental Petroleum and Lockheed.

Now Sacramento-based CalPERS is adding a new litmus test for deciding which companies in its investment portfolio to coax for changes. The new standard takes into account such factors as what these companies do to give workers a say in business decisions and how much they spend on worker training.

Based on a study performed by an outside consultant commissioned by CalPERS, “we are now convinced there is a direct connection between workplace practices and corporate performance,” said William D. Crist, president of the pension fund’s board of administration.

Crist said CalPERS will evaluate the workplace practices of companies in its investment portfolio that are lagging financially to determine whether their employment practices are part of the problem. In such cases, CalPERS will press for changes in the workplace, much as it previously has prodded poorly performing companies to do such things as adding more outside directors to check the influence of corporate executives.

At the same time, CalPERS will impose tight limits on how far it will push the issue of workplace practices. For instance, Crist said the fund will not be making decisions on what companies to invest in on the basis of their workplace practices.

Nor will the giant pension fund press for changes on the factory floors or in the offices of companies that are performing well financially and in the stock market. In addition, Crist said issues close to employees’ hearts such as wages and benefits and the growing use of part-time and temporary workers will not be among the major workplace factors considered by CalPERS.

Still, CalPERS’ decision was hailed by U.S. Labor Secretary Robert B. Reich as a powerful message to corporate America that they need to focus more on how good labor relations can improve profits and overall corporate performance.

“Nothing concentrates the mind of a CEO so much as an inquiry from a major institutional investor about your practices,” he said.

Reich called the CalPERS decision an important shift for the business community.

“Workplace performance does matter, it does lead to higher returns over the longer term,” Reich said. “Today, big institutional investors are so large that they can’t move in and out of stocks quickly, and so they have to be concerned about the longer-term performance of companies.”

Although Crist said CalPERS had long considered looking into workplace issues, the Labor Department also has been pushing it and other pension funds to take such action. As such, CalPERS’ move could spark a trend among other money managers.

Among labor economists, however, there still is debate about whether a direct relationship exists between ostensibly enlightened workplace practices and improved corporate performance. “As usual, the evidence is cloudy,” UCLA labor economist Daniel J. B. Mitchell said.

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Times staff writer James Risen in Washington contributed to this story.