Pension pugs pack a mean left hook

March 28, 2004|By JAY HANCOCK

DON'T LOOK now, but Karl Marx is back, and he's wearing a Rolex watch and an Armani suit.

The workers of the world have woken up to find they own big portions of corporate America through stock in their pension funds, and now they're rising in righteous anger to set things straight. Or so you might think.

This is proxy season, when shareholders vote on directors, executive pay and other corporate matters. The number of initiatives from dissident stock owners figures to hit a record, and union and government pension funds are leading the parade.

The American Federation of State, County and Municipal Employees is trying to get PeopleSoft, MBNA, Siebel Systems and UnitedHealth Group to properly account for executive pay.

The AFL-CIO is pressing Comcast to change its board nominating committee. CalPERS, the union-influenced, California-government pension fund, is trying to eject Disney's Michael Eisner from the corporate suite. And so on.

Many of these efforts are badly needed and supported by conventional investors. But the rise of "shareholder activism" can also be seen as an ambitious attempt by the political left to accomplish in the boardroom what it couldn't achieve through politics or revolution: ownership and control of the economy.

It has been nearly three decades since management sage Peter Drucker published The Unseen Revolution: How Pension Fund Socialism Came to America, but the issues he raised are back on the stove.

Consider that in 2001 U.S. pension funds owned $4 trillion in stocks -- 26 percent of corporate America, according to the Conference Board. Nobody else comes close. Mutual funds controlled only 19 percent.

As the far-left likes to say, what are pension funds but the deferred earnings of workers? What should be done with worker-owned assets but to wield them on behalf of the oppressed labor class?

To the barricades, mes amis!

If socialism is defined as workers owning the means of production, "then the U.S. is more socialist than Poland ever was," writes Mike Moore, former director-general of the World Trade Organization. (He's paraphrasing Drucker.)

So don't think of Disney's Michael Eisner as a greedy, no-longer-competent powermonger. Think of him, as my colleague Jeff Landaw suggests, as a victim of class struggle.

No wonder unions and other activists have a "capital strategy" to change corporate America from the inside, and they have their sights on more than executive pay.

Tessa Hebb, a consultant who advises unions on pension-fund strategy, calls it "active ownership." For pensions pursuing active ownership, "the pattern generally starts around the narrow corporate-governance [issues] and moves to broader social concerns," she says. "I think that pattern will be evident going forward."

For example, United Steelworkers President Leo Gerard promoted the formation of multi-employer pension pools that invest in small U.S. manufacturers and other "worker-friendly" companies. Public pension operations are considering shunning stocks of some government contractors, reasoning that as "outsourcers" they wipe out government jobs.

What's next? A stock boycott on U.S. companies that ship jobs overseas? Attempts to force corporations to increase employee pay?

"This movement is on the upswing, and they've got themselves a great campaign tool in corporate governance, which can mean anything to anybody," says Charles M. Nathan, a New York corporate lawyer. "Look, it's mother and apple pie. Who can complain about corporate governance? Who can complain about shareholder democracy?"

Nathan says we need to identify "activist shareholders" as mainly government and labor pension pools -- which between them account for perhaps 10 percent of U.S. stock ownership -- and not mutual funds, corporate pensions and other institutional investors.

Corporate pension funds generally have not signed onto the activist agenda. And even labor funds, which include management representatives on their boards as well as union leaders, vary in approach, says Ron Blackwell, head of corporate affairs for the AFL-CIO.

But Nathan faults the major activists for presuming to know what their beneficiaries want in corporate governance without asking them.

He may have a point. So here's a message from this member of the proletariat to my pension managers: Feel free to save the world around the edges, but your main job is to preserve my retirement income.

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