http://www.latimes.com/business/la-fi-calpers20may20.story
Backlash Confronts CalPERS
Business interests say the pension fund's fight for good governance hides a
pro-union agenda.
By Tom Petruno
LA Times Staff Writer
May 20,
2004
The nation's biggest public pension fund has a long history of
pushing companies to mind shareholder concerns.
This spring, some of the
country's most powerful corporate interests are pushing back — contending that
the California Public Employees' Retirement System has become arrogant in its
demands and aggressively pro-union in its agenda.
The war between the
California fund and opponents including the Business Roundtable, the U.S.
Chamber of Commerce and the California Republican Party has escalated
significantly in recent weeks. Both sides say that reflects the high stakes
involved.
Some observers see the attacks on CalPERS as a clear sign that
the business community is drawing a line in the sand on the pressure for
corporate reforms that began with the Enron Corp. accounting
scandal in 2001.
"There are people out there who would like [the CalPERS
efforts] to backfire," said Paul Lapides, director of the corporate governance
center at Kennesaw State University in Georgia.
The battle takes center
stage in Pleasanton, Calif., today at the annual meeting of supermarket giant
Safeway Inc. CalPERS, which owns 2.7 million Safeway shares, is
insisting that Chief Executive Steven Burd resign, arguing that he has
mismanaged the company for years.
CalPERS' critics, in turn, charge that
the fund's campaign is personal — an attempt by CalPERS directors with union
ties to punish Burd for the recent 4½-month strike by workers at supermarkets in
Central and Southern California. The dispute ended Feb. 29 with a new contract
that cut pay and benefits for new hires.
Corporate lobbying groups and
some state Republican leaders have seized on the composition of the 13-member
CalPERS board. CalPERS represents a largely unionized workforce, and not
surprisingly, most of its board members have ties to organized
labor.
"Labor disputes are best settled at the bargaining table," said
David Hirschmann, senior vice president of the U.S. Chamber of Commerce in
Washington. "We agree that investors should play an active role" in corporate
governance, he said. "But we don't believe that company boards should become a
forum for every social agenda in the public domain."
CalPERS denies that
its push to unseat Burd is driven by a desire to avenge union
workers.
Sean Harrigan, the president of CalPERS' board, said the fund
was motivated by Safeway's net loss of nearly $1 billion over the last two years
and by the 65% drop in its share price since early in 2001.
CalPERS
pointed to support it has received from other big investors. Public-employee
pension funds in Connecticut, Illinois, New York and New York City say they will
withhold their votes for Burd and two other Safeway directors.
Two large
investor-advisory firms — Institutional Shareholder Services
and Glass, Lewis & Co. — also oppose Burd's
reelection.
Harrigan said his role as a senior executive of the United
Food & Commercial Workers Union, which represents grocery store workers, had
no bearing on CalPERS' position.
"I'm not an old-school labor leader," he
said. "There's no reason for me to want Safeway to be anything but
successful."
But his comments didn't appease state Sen. Jim Brulte of
Rancho Cucamonga, one of the state's leading Republicans.
"If there is no
union agenda here, then this has to be one of the greatest coincidences in the
history of California governance," Brulte said of CalPERS' stance on
Safeway.
The California Republican Party on May 5 issued a sharply worded
condemnation of CalPERS' drive against Safeway.
The supermarket firm
declined to comment this week on today's vote. In recent statements, Safeway has
said it was disappointed in the opposition to Burd, and that it had adopted a
number of reforms requested by dissident shareholders.
Apart from its
Safeway stance, CalPERS has drawn fire this spring for a broader effort opposing
the reelection of certain directors at 2,700 companies nationwide.
The
fund, which has the bulk of its $166-billion in assets invested in the stock
market, says it is sending a message that corporate boards must pay closer
attention to some key shareholder concerns, in particular about companies'
relationships with the accounting firms that audit their books.
Harrigan
said the fund adopted a policy to automatically withhold share proxy votes from
all directors who are members of a board audit committee, if the audit committee
has allowed the company's independent accountants to perform non-audit-related
services to the firm.
That policy has put CalPERS in conflict with 90% of
the companies in its investment portfolio, the fund concedes. What's more, one
of the directors it targeted was billionaire investor Warren E. Buffett, who
sits on the board of Coca-Cola Co. and is a leading proponent
of better corporate governance.
The Wall Street Journal, in an editorial
May 11, said the CalPERS vote against Buffett was taking governance reform "to
absurd new lengths."
CalPERS argues that accountants face serious
conflicts of interest if they are paid for services besides monitoring a
company's books. And once CalPERS adopted a "zero tolerance" policy regarding
audit committee decisions, Harrigan said, the fund believed it couldn't make
individual exceptions in its voting, even for Buffett.
But "our withhold
certainly does not mean we're in any way objecting to Warren Buffett's service
on the board of Coca-Cola," he said.
At least one CalPERS director, state
Controller Steve Westly, a Democrat, has called for the fund to reconsider its
proxy-voting policies. Harrigan said the board would do so this
summer.
In one sense, criticism of CalPERS' governance efforts is nothing
new. The fund has periodically taken heat over the last two decades when it was
largely alone in pushing companies to change practices that the fund believed
were detrimental to long-term shareholder value. Since Enron, many other public
pension funds have joined such campaigns.
The argument for activism is
that pension funds are simply stuck with many stocks because their size and
their long-term focus dictate that they must be buy-and-hold investors. Under
those circumstances, if certain shares are laggards, agitating for change can't
hurt, the funds say.
But some investor activists now fear that business
interests are marshaling their forces to restrain corporate governance reform,
just as the effort attracts more big shareholders. The concern is that CalPERS'
controversial policies this spring have given opponents potent weapons to use
against the reformers.
Specifically, both sides are lobbying hard to
influence the Securities and Exchange Commission, which is weighing whether to
give activists the ability to nominate their own director candidates to
corporate boards. Reformers say greater access to the nominating process is
crucial. The business community is adamantly opposed, fearing that some large
investors would try to stack boards with special-interest candidates — for
example, union representatives.
John J. Castellani, president of the
Business Roundtable in Washington, said that his organization would cite
CalPERS' campaigns in advising the SEC not to change the rules.
"What
we're concerned about is that there are groups out there that will hijack the
process of picking directors under the guise of good governance, but for reasons
that have nothing to do with good governance," he said.
Copyright 2004 Los Angeles Times