Sean Harrigan was ousted from the board of the No. 1 U.S. pension fund on Wednesday after spearheading a controversial corporate reform drive that drew the fund into pitched political and boardroom battles. (Link)
About time. Calpers has always been something of a gadfly in corporate governance, but for a long time the big pension fund actually did some good. Under Harrigan's watch, however, Calpers' missteps have escalated, ranging from mere stupidity to outright abuses of the powers Calpers' vast portfolio conveys upon it. E.g.?'
- In order to advance the political ambitions of Phil Angelides, California's state treasurer and a Calpers board member, Calpers last spring targeted directors for removal at 2700 corporations. As I pointed out at the time: "A campaign directed at 2700 companies cannot succeed."
- Also last spring, Calpers announced that it would note vote to re-elect investor Warren Buffet to Coke's board. I said the decision was based on "a bad policy that will not serve investor interests in the long run."
- Calpers intervened in the Southern California grocery store strike on the side of the unions. At that time, 11 of the 13 Calpers board members were either union members, union officials, or politicians who take union campaign contributions. In particular, Harrigan is also the executive director of the very union (the UFCW) that was on strike! I said: "Those who like classical references will want to ask "Quis cusotdiet ipsos custodes?" Those who lean towards Biblical references will invoke Matthew 7:3-5."
Harrigan took much of the blame for these and other missteps; and appropriately so:
[A] UK governance activist said on Wednesday: “Sean's heart is in the right place but he never understood that thumping the table is not the best way to get companies to change. He comes from a union background, where it's all about confrontation. His approach alienated many of us who previously followed Calpers' lead.”
That same theme was aired at a Calpers board meeting weeks later. The gathering heard from luminaries such as Arthur Levitt, former Securities and Exchange Commission chairman, who warned that the fund must avoid “going off on political tangents which do not directly impact investment performance”.
Richard Koppes, a former Calpers general counsel, said the fund had become “too political”. He added: “There is serious concern that you are causing damage to the corporate governance movement.” (Link)
The problem is bigger than just Harrigan, however. It has been apparent for quite a while that the members of Calpers board are making policy on the basis of their own personal and political preferences, not the good of their beneficiaries. Firing Harrigan must be just the first step. It is time for a thorough going reworking of Calpers governance system, which at present is dominated by political appointees rather than representatives of the beneficiaries. It is time to stop the board from using the retirement savings of countless California public servants as a soap box for ends unrelated to maximization of the return earned by the fund.
