Who Gains From Ouster? Not Retirees
Like a gang of schoolyard bullies, business leaders nationwide are gloating over the ouster of CalPERS President Sean Harrigan, as though they want to claim credit for hanging his pelt on the wall.
The U.S. Chamber of Commerce, for example, cynically praised the removal of Harrigan, who had become one of the country’s leading spokesmen for shareholder rights, as providing “hope for California retirees and shareholders.”
The group expressed “optimism” that the ouster would “lead to broader reforms at CalPERS and other public pension boards across the country” -- as though it’s public pension funds, not corporate managements, that have produced the financial scandals that have so entertained us in the last few years.
As has been well reported, the State Personnel Board voted last week to dump Harrigan as its representative on the California Public Employees’ Retirement System board of administration. Because Harrigan is also a regional officer of the United Food and Commercial Workers union, the business lobby relishes his ouster doubly: as revenge for his championing of CalPERS’ aggressive action on shareholder rights and as a thumb in the eye of organized labor.
“This is pushback, no question about it,” says state Treasurer Phil Angelides, who as a CalPERS board member stood shoulder to shoulder with Harrigan on the corporate governance barricades.
It isn’t clear how Harrigan’s removal will change CalPERS policy; the 13-member board still harbors other governance mavens, as well as three representatives of organized labor. Moreover, as my colleague Marc Lifsher reported Saturday, Harrigan may yet retain his board seat -- and the CalPERS presidency -- with the help of the Legislature.
Still, it’s worth examining Big Business’ bill of indictment against Harrigan to better understand the issues at stake.
To hear the chamber types talk, shareholder activism is wonderful as long as it doesn’t introduce too much complexity into the life of a chief executive. In that case, it’s disparaged as reflecting a “political agenda,” which is code for any agenda not shared by the Republican Party, or as the work of “special interests” -- i.e., those at odds with the incumbents.
For example, consider the chamber’s snit over how organized labor “hijacked” the CalPERS board “to advance its own agenda.” (As if only management sycophants should be able to hijack the board to advance their agenda.)
Exhibit A is the CalPERS campaign against Steve Burd, the serial destroyer of shareholder value at the helm of Safeway Inc.
Early in the Southern and Central California supermarket labor dispute that pitched Safeway and two other companies against Harrigan’s UFCW, the CalPERS board urged Burd to reach a contract settlement “fairly and expeditiously,” insofar as decent labor relations are crucial for “creating long-term value for shareholders.” Burd, instead, stretched out the dispute for an additional 2 months. The pension fund later sought unsuccessfully to have him removed as chairman.
The CalPERS viewpoint, as it turned out, was correct. Burd’s labor policies have brought only tears to shareholders. Safeway shares have fallen by nearly 20% since the end of the labor conflict Feb. 29, a period in which the Standard & Poor’s 500 index has gained 3%. Safeway earnings still haven’t shed their post-strike hangover; net income for the first three quarters of 2004 was down 32% from a year before.
The business lobby’s goal is to derail the drive for shareholder rights in which CalPERS has been a leader. This movement has many facets, none of which appeal to many corporate officers.
There is, for instance, the campaign against excessive executive compensation. It’s hard to understand why business leaders are so concerned about this, given that 20 years of campaigns against obscene executive pay packages have failed to make a noticeable dent in the trend; still, the CalPERS board recently voted to make the issue a top priority in 2005.
Then there’s the campaign for access to the corporate proxy, a proposed democratic reform before the Securities and Exchange Commission that would look revolutionary only in two settings: third-world dictatorships and American corporate boardrooms.
The proposal’s main provision states that at any corporation where at least 35% of the shares voted have been withheld from a director at an annual meeting, individuals or groups representing at least 5% of shares can put up their own candidate the following year -- and have that candidacy publicized through corporate proxy mailings. The challenger would still have to win a seat by a majority, just like management’s slate.
For all that the rule would reduce the cost of mounting a challenge to entrenched management, it still leaves huge barriers in place against legitimate campaigns. Nevertheless, corporate interests have so far fought it to a draw.
“We’ve been told it’s ‘sleeping,’ ” says Ann Yerger, acting executive director of the Council of Institutional Investors, which represents big pension funds.
The key to the business counterstrike is the notion that campaigners for shareholder rights are really only pressing narrow agendas or promoting their own personal or special interests.
But the bulk of the evidence is on the other side. Angelides, for one, points to WorldCom (now MCI Inc.), an exemplary dictatorship in which an arrogant CEO received free rein from a supine board. The company’s collapse slashed the portfolio value of CalPERS and its sister State Teachers’ Retirement System -- an asset held for the benefit of workers and those retirees to whom the Chamber of Commerce offered so much “hope” -- by a cool $850 million.
*
Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at
golden.state@latimes.com and read his previous columns at
latimes.com/hiltzik.
