Businessweek Online, DECEMBER 13, 2004
NEWS: ANALYSIS &
COMMENTARY
Commentary: CalPERS: Getting
Back To Business |
The new chief should refocus on corporate
governance and investor returns
|
It's one of the most powerful jobs in the world of
finance. The president of the board of the California Public Employees'
Retirement System oversees the nation's largest pension fund, with $177 billion
in assets. But the position has also become a bully pulpit, letting the occupant
rattle everyone from underperforming CEOs to the chairman of the New York Stock
Exchange.
It seems Calpers President Sean Harrigan has rattled a few too
many people for his own good. On Dec. 1, Harrigan's nearly two-year run came to
an abrupt end when he was unexpectedly voted out of his board seat. His ouster
has been assailed as a setback by labor union leaders and consumer activists who
considered him a champion of workers and investors. Truth is, though, his
departure gives the giant pension fund a much-needed chance to get back on
track. Known over the past two decades as a crusader for investor rights and
corporate-governance reform, Calpers has suffered in recent years under Harrigan
and his overreaching agenda. He caused a furor in California last year when
CalPERS used its influence to pressure supermarkets to settle a nasty strike.
And Harrigan unnecessarily angered Corporate America by withholding CalPERS'
support for boards at hundreds of companies in order to push what the business
community perceived as his pro-labor views.
In the wake of Harrigan's
departure, CalPERS surely should not back off on the strong reputation it has
earned over the years for pursuing corporate governance that is truly in the
interests of shareholders. But its activism should be focused on improving
management performance and accountability, not on trying to fix the ills of the
world. That's why CalPERS' new president will need to get back to basics and
concentrate on issues that will most clearly improve investment returns for the
fund's beneficiaries, the 1.4 million current and retired government workers in
California. "They need to be targeting individual companies, not issues that are
too wide," says Richard H. Koppes, a longtime CalPERS general counsel now in
private practice. "They became too political."
To say Harrigan was a
controversial leader would be an understatement. A longtime executive at the
United Food & Commercial Workers Union, Harrigan was appointed by
then-Governor Gray Davis, a Democrat, to California's State Personnel Board in
1999. That board, which oversees issues regarding state employees, later chose
him as its representative at CalPERS, whose board elected him as its president
in February, 2003. In addition to leaning on California supermarkets to end a
strike last year, CalPERS later led an unsuccessful attempt to oust Safeway Inc.
(SWY ) Chairman and Chief
Executive Officer Steven A. Burd, who, it said, had mismanaged the
company.
Under Harrigan, CalPERS made other questionable moves. To
protest conflicts of interest that arise when companies hire accounting firms to
perform both auditing and consulting work, CalPERS withheld its votes for
directors at some 2,700 companies last spring. Among the directors CalPERS chose
to not support were legendary investor and Coca-Cola Co. (KO ) board member Warren E.
Buffet. The move angered business leaders who felt the real intention was to
signal to board members that labor was willing to throw its weight around. "I
don't think anyone believes there are 2,700 Enrons out there," says David
Hirschmann, a senior vice-president at the U.S. Chamber of
Commerce.
CalPERS' 13-member board, a mixture of political appointees,
state office holders, and representatives chosen by CalPERS beneficiaries, will
elect a new president in February. Harrigan said in a statement that he believes
CalPERS will continue to be a strong champion for shareholders'
rights.
Let's hope so. CalPERS needs to continue challenging overpaid and
underperforming corporate execs. The fund should also push for changes in proxy
rules to allow shareholders to nominate their own board candidates. What it must
avoid is the overtly political battles that likely cost Harrigan his
job.
By Christopher Palmeri with
Sarah Lacy in San Francisco