THE PRESIDENT of the nation's largest public pension fund was ousted from its board last week - and that could have ramifications for anyone invested in stocks. An aggressive advocate of corporate governance reforms, union leader Sean Harrigan led CalPERS - the California Public Employees Retirement System - to the front lines of the post-Enron campaign to clean up corporate boardrooms and wrest more corporate control away from management to shareholders.
In that, CalPERS has more than a bully pulpit. With almost $180 billion to invest on behalf of 1.4 million public-sector workers, it can have tremendous influence on stock prices and markets all over the world. Having initiated its first corporate reform program in 1984, it has a long history of asserting that working toward improved company governance is a key aspect of maximizing the return on its investments. But in the wake of the Enron scandal in 2001 and under Mr. Harrigan's leadership for the past year, CalPERS has really been trying to take corporate America to school.
CalPERS pushed the New York Stock Exchange to dump CEO Richard A. Grasso over excessive compensation and sued the exchange over its trading practices; aided Walt Disney investors in getting rid of Chairman Michael D. Eisner; tried to remove Safeway's CEO for its poor stock performance (not long after Mr. Harrigan's union settled a bitter strike against the grocer); launched a campaign to force U.S. automakers to accept tough new California emissions standards or risk losing $840 million of the fund's investments in the industry; announced it will highlight examples of CEOs who are too highly paid; opposed this year the election of certain directors at a whopping 83 percent of companies in which it has invested; and lobbied for a new federal rule that would allow shareholders to nominate company directors.
For that, Mr. Harrigan, not surprisingly, came under fire from the California Republican Party and state business groups. As he was being voted off the board Wednesday, Mr. Harrigan charged that California Gov. Arnold Schwarzenegger had engineered his departure at the bidding of corporate interests. The governor, his party and business leaders denied that, and other CalPERS board members vowed to carry on the fight for more independent corporate boards and more shareholder democracy.
We hope so. CalPERS is not the only large pension fund - or mutual fund - to become a corporate activist in the post-Enron era. Its vast holdings give it tremendous clout to protect not only its own investment interests but also those of other stockholders - by overcoming corporate America's still-considerable resistance to more accountable and independent governance.