The California Public Employees' Retirement System, perhaps the nation's most prominent champion of shareholder rights, has never suffered from an ill that plagues corporate America: a supine board, unable to thwart managers' worst instincts.þþIn fact, Calpers, as it is known, is showing signs of the opposite problem, some critics say: a board so activist, so eager to promote social change through investing, that its effectiveness as a corporate watchdog and its ability to provide for the 1.3 million public employees whose pensions it guarantees are in question.þþCalpers, at $136 billion the nation's largest public pension fund, is throwing its weight behind new goals: creating jobs, rejuvenating inner cities, providing affordable housing and putting pressure on developing countries to give citizens basic freedoms.þþCalpers officials say that the top priority continues to be seeking maximum returns, that the fund has not abandoned its mission of pressuring companies on behalf of investors. But outsiders say these assertions mask an important shift.þþÿThe flavor of the board is changing,ÿ said James McRitchie, a state auditor who has run unsuccessfully several times for a seat on the Calpers board. ÿYou're going to see a board that's increasingly tied to labor.ÿþþDriving the change is a new alignment in the fund's boardroom. Calpers trustees have far more power than directors have over companies, and now, for the first time in memory, all 13 represent either labor or the Democratic Party.þþThis situation, in an election year, has prompted some critics to level accusations that the fund has become politicized and is using its capital to promote like-minded entrepreneurs and to reward Democratic donors. Calpers denies that. And San Francisco's mayor, Willie Brown Jr., has caused consternation in some circles by saying he is thinking about running for board president. þþThere are also concerns that the board's new tilt may have prompted at least some of a recent series of high-level resignations.þþNot everyone in the Calpers boardroom wholeheartedly favors investing to bring about social change. But with Gov. Gray Davis expected to win a second term, and with union advocates vying for several seats on the board, the labor movement has a clear shot at a goal it has dreamed about for years: the ability to steer huge blocks of capital toward investments favorable to labor.þþÿThe labor folks want to control Calpers's board because that's where the money is,ÿ Mr. McRitchie said. ÿUnions are realizing that pension funds are a stronger tool than collective bargaining.ÿ þþThe unions may well be right. When investors own a large-enough stake or forge a like-minded coalition of owners, they can influence corporate policy on many issues, like capital investment, social policy and even labor relations. Union strategists say retirement-plan assets have too often been used to finance projects that ultimately hurt workers; getting a say at pension funds, they contend, would help right the balance.þþÿThese institutions set the tone for the capital markets,ÿ said William Patterson, director of the A.F.L.-C.I.O.'s office of investment. He said the public fund most badly burned by Enron was the Florida Retirement Fund, in which none of the three board members represent employees' interests.þþÿIf the workers had had some kind of oversight, somebody would have said, `Wait a second,' ÿ when Enron executives began dumping their stock, Mr. Patterson said.þþNot everyone views labor's involvement in such a positive light. Corporations worry, for example, that the phenomenon of unions as heavyweight investors will inevitably strengthen labor's power in collective bargaining. Some union officials think their job is to seek better benefits, not broad social change.þþSome California public employees view the new mood at Calpers with alarm, too, saying their retirement nest eggs are not a suitable tool for advancing a social cause, worthy or not. And some shareholder advocates fear that the gains for organized labor at Calpers will embolden unions to push the same agenda at other public pension funds.þþRichard H. Koppes, a former Calpers general counsel who for 10 years ran the fund's corporate governance program, said plan participants sometimes spotted him around Sacramento, where Calpers is based, and asked whether their pensions were safe. They are: Calpers is legally bound to pay a specified level of benefits. If it falls short, California taxpayers must make up the difference. þþBut Mr. Koppes, a self-proclaimed ÿlifelong Democratÿ who favors many goals now being espoused at Calpers, still doubts that those goals square with the fund's most fundamental obligation. ÿThe bottom line for the board has to be their fiduciary duty to the members,ÿ said Mr. Koppes, now head of the corporate governance practice at the law firm Jones, Day, Reavis & Pogue. þþ
Source: NY Times
