CalPERS’ Activism Is Expected to Continue

SACRAMENTO —  People inside and outside the California Public Employees’ Retirement System said Tuesday that they did not believe the expected departure of President Sean Harrigan would damp the pension fund’s penchant for corporate activism.

Harrigan told the Los Angeles Times this week that the state Personnel Board would vote today to replace him as its representative on the 13-member CalPERS board. He said the administration of Gov. Arnold Schwarzenegger lobbied for his removal because his union ties and high-profile corporate governance efforts have angered business leaders -- a charge strongly denied by a Schwarzenegger spokesman.

Yet observers said that CalPERS’ long-standing goal of encouraging companies to be better corporate citizens would surely be maintained, with or without Harrigan around.

At most, Harrigan’s departure “will make a difference at the margin,” said J.J. Jelincic, president of the California State Employees Assn., who was a CalPERS investment officer for 18 years. The pension fund “has been doing corporate governance for a long time, and I don’t expect it will stop” should Harrigan leave.

Any changes, if they are to come, could involve a softening of the $177-billion pension fund’s message, which has been seen by some as overly aggressive under Harrigan’s leadership.

Even before the current flap over Harrigan’s appointment, signs had emerged that CalPERS was beginning to rethink some of its tactics.

Last summer, during a CalPERS retreat at Lake Tahoe, the board informally directed staff members to scale back a recently adopted policy of withholding proxy votes for all companies whose directors allow outside auditors to perform non-auditing functions.

Using that broad-brush approach, CalPERS withheld votes for hundreds of corporate boards and even voted against renowned investor Warren E. Buffett’s reelection as a Coca-Cola Co. director.

CalPERS, the nation’s largest public pension fund, has been trying to influence corporate behavior since at least the early 1980s, when it took on Texas oilman T. Boone Pickens for allegedly “greenmailing” companies with phony takeover bids.

Robert Carlson, a 33-year veteran of the CalPERS board, said he expected excessive executive compensation to be the pension fund’s next target. “It’s our top priority,” he said.

Ronald Alvarado, the Personnel Board member who Harrigan says is slated to replace him at CalPERS, is himself no stranger to pushing for improved corporate governance.

An appointee of former Republican Gov. Pete Wilson, Alvarado sat on the CalPERS board from 1996 through 1999, a period when the pension fund committed itself to being a national leader in corporate activism.

Meanwhile, CalPERS observers speculate that Harrigan’s successor as president will be Rob Feckner, a Harrigan ally who serves as the pension fund’s vice president and is the chairman of its Investment Committee.

“Corporate governance is one of our strongholds,” Feckner said Tuesday, adding that there is “solid support” on the CalPERS board to continue its activist policies.

As for Schwarzenegger, his ability to significantly alter the board’s makeup is limited, if he even wants to.

The Republican governor can appoint at most four of the 13 members. And one of those appointments is held by former San Francisco Mayor Willie Brown Jr., a Democrat, and isn’t scheduled to expire until January 2007.

Critics charge that Harrigan has been more worried about pushing a political and social agenda than getting strong rates of return to pay for pensioners’ retirements. But CalPERS’ overall performance during his tenure has closely tracked that of other major pension funds.