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December 01, 2004

Good Riddance

It looks as though Sean Harrigan, of Calpers, is going to get the boot. Both the Washington Post and the Wall Street Journal covered his impending demise. Can't come too soon, as far as I'm concerned.

For instance, Calpers seems to extend notions of conflict of interest to corporate boards that it's not willing to apply to itself.

At Safeway, Calpers charged head-on into the grocery chain's labor dispute. Acting at Mr. Harrigan's direction, Calpers's Mr. Feckner wrote Safeway Chairman and Chief Executive Steven Burd on Dec. 17, 2003, two months into the United Food and Commercial Workers union's strike against the chain's California stores over cuts in employees' health-care benefits. Noting that Calpers owned $77 million of Safeway stock, the letter urged Mr. Burd to wrap up union negotiations "fairly and expeditiously," adding that "fair treatment of employees is a critical element in creating long-term value for shareholders."

...

In the interview last month, Mr. Harrigan said he directed Mr. Feckner merely to look into the issue in response to comments at a November board meeting by members of the public and the board. Besides being Calpers's president, Mr. Harrigan is executive director of the UFCW's Southern California council. Big public-pension funds rarely take sides in a labor strike, corporate-governance experts say. (emphasis added -ed.)

This sort of meddling has already led to further politicization of Calpers:

Meanwhile, another controversy was on the horizon. On Oct. 18, Philip Angelides, a Calpers board member and the California state treasurer, issued a news release on the fund's behalf urging directors at CACI International Inc., where the Army is investigating three civilian interrogators who worked at Iraq's Abu Ghraib prison, to "get out of denial and hold company executives accountable for any misconduct that has hurt both shareholders and the country." Mr. Angelides cited Calpers's $12 million stake in CACI.

CACI responded on Oct. 19 with a statement that rejected Mr. Angelides's "crass, politically motivated antics" and said that if Calpers wanted to walk away from a stock that had risen more than 50% since August, "we fully support their decision."

Good for them.

Harrigan pioneered the use of Calpers as a tool of shareholder leverage, to affect corporate governance, rather than merely selling shares of companies it was worried about. As one of the few institutional investors large enough to throw its weight around, Calpers effectively began exercising regulatory control that it hadn't been given. Certainly everyone wants to be on guard against corporate executives plundering the company for their own benefit, a la Dennis Kozlowski and Ken Lay. It's far from clear that Calpers's judgment as to executive salaries is any better than that of the boards of the companies they invest in.

Calpers's job is to manage a pension fund, not enforce its own ideas of corporate good governance, ideas which may not have been vetted by the marketplace first.

The question of shareholder rights, and corporate governance is a tricky one. On the one hand, shareholders do own a piece of the company. On the other hand, the company has hired Boards of Directors and executive management teams whose job it is to run the company. Shareholder revolts tend to be a pretty blunt management tool.

Without a doubt, board members also tend to be large shareholders, and take very seriously share price drops. In other words, boards already tend to get upset when the market punishes bad management, even if there's no rule that says that they have to.

As stock ownership becomes more widespread, it's clear that a clubby sense of corporate governance won't cut it. But there are existing regulatory tools, like the SEC.

Posted by joshuasharf at December 1, 2004 01:20 PM | TrackBack
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