What "Pitchfork Pat" (and you) can do for workers.
In 1984, the trustees of the $70 billion New York City Comptroller pension funds were meeting to discuss the Sullivan principles, which guided corporate investment in South Africa. Walsh went to the meeting. Why, she asked the trustees, weren't they also looking at companies doing work in Northern Ireland, where Catholic workers were being heavily discriminated against? The trustees considered her question, and then investigated her charge. Soon after, they drew up the MacBride Principles, which insisted that American companies in Ireland halt discriminatory employment practices. They convinced other funds, state legislatures, and hundreds of companies to adopt the principles. Ultimately, the principles led to an anti-discrimination employment law in Britain.
What Walsh did--raising a question at a trustee meeting--is within the rights of every American with money invested in a pension fund. Yet few workers or pensioners exercise those rights; most Americans have no idea which companies they own stock in.
So American workers watch the nightly news and mutter about the layoffs from corporations; sometimes they themselves are laid off. The irony is that together, they own corporate America. More than 50 million Americans own stock, enough that if they exercised their rights and responsibilities as company owners, the results could be revolutionary.
The real players are the "institutional investors," such as public and private pension funds, and most workers have a stake in them. Pension funds alone owned 27 percent of all outstanding U.S. equities as of the end of 1994, according to The Brancato Report on Institutional Investment. Other institutional investors with ready-made constituencies among their shareholders include religious institutions such as the Catholic archdioceses; large foundations; and even some mutual funds set up specifically for stockholders in search of socially responsible investing. Most institutional investors are invested for the long haul--10 or 20 years--and their holdings are so large they can't do the "Wall Street walk" and quickly sell out. Their only hope of influence is to encourage or force a company to reform. They are long-term owners, not short-term traders,
It was the corporate raiders of the 1990s who laid the foundations for shareholder influence. Until then, institutional investors were sleeping giants--they put up money, then shut up. But suddenly, shareholders saw management using their money to entrench itself against hostile takeovers. Up sprang a shareholders' movement in which the owners, and not just the managers, of capital began calling the shots.
Led by the California Public Employees Retirement System (CalPERS)--which currently has $96.9 billion in its portfolio--public pension funds began targeting companies who were underperforming in comparison to their industry average. The investors would first try quiet diplomacy, then pull out the big guns: Wall Street Journal ads and other bad publicity, shareholder resolutions, proxy votes. They have lobbied for more responsive directors, for disclosure of executive compensation--and sometimes for new executives. As such targeting has become routine, companies from Sears to Kodak have felt investors' wrath.
By performance measures, shareholder activists have been extraordinarily successful. Companies pushed to reform by members of the Council of Institutional Investors subsequently outperformed the Standard & Poor 500 by 14 percent, according to a study by the Council. Institutional investors--particularly pension fund--essentially stopped Kirk Kerkorian's takeover attempt at Chrysler because they opposed his plan to deplete the company's cash reserves.
But the activism, to date, has been almost exclusively about shareholders' rights-specifically, the right to maximize investment return by influencing corporate governance. For those who despair at corporate callousness, the real potential of shareholder activism lies in getting shareholders to recognize their responsibilities as company owners.
To date, this type of activism has been limited in scope, but effective where it has weighed in. The most visible campaigns have involved human rights in countries where American companies do business, such as South Africa or Nigeria. But there have also been shareholder campaigns on everything from glass ceilings to environmental protection.
One recent, and inspiring, example came from the New-York based Jesse Smith Noyes Foundation. The foundation was heavily invested in the computer chip maker, Intel. At the same time, it was helping the Southwest Organizing Project, a community-based organization in New Mexico, battle Intel's usurpation of water and land at its New Mexico plant. The foundation decided to take an obvious step: to use its status as an Intel shareholder-meeting with management, bringing shareholder resolutions--to force Intel to negotiate with Southwest. Intel eventually agreed to the foundation's demands.
Another unexpected flare of shareholder activism came in 1992, when Sire/Time Warner released rapper Ice-T's "Body Count" album, with the song "Cop Killer." There was a national outcry. but the most intense pressure came from Time Warner shareholders--particularly police pension funds. Some divested; others protested at the annual meeting. Distribution of "Cop Killer" was stopped; Ice-T and Time Warner later parted ways.
Labor unions, meanwhile. have brought the spirit of labor organizing to their status as major investors. The carpenters' union pension funds. for example, pressed Dow Chemical to improve workplace safety, and even visited plants to check on conditions. Several years ago, the AFL-CIO adopted a set of proxy guidelines that are a model for shareholder responsibility. They advocate the consideration of employee security and compensation in proxy voting; and they encourage funds to prioritize domestic over foreign investment.
In their concern for American workers and communities, though, labor unions too often are the exception. Socially responsible institutional investors are reluctant to confront corporate management on bread-and-butter issues relating to American workers. Shareholders can't--and shouldn't--micromanage the companies they invest in. But they could push for a set of guiding principles, such as avoiding cataclysmic layoffs or investing in retraining, that make clear their commitment to balancing the interest of other corporate stakeholders, from employees to the local community, with profitability.
Larger numbers of institutional investors aren't more active in part because of political dynamics in the investment community. Private pension funds are the largest institutional investors out there (they own 16 percent of all outstanding equity), and they are supposed to be independent of company management. Clubby corporate culture ensures that's rarely the case. Few private pension funds ever attempt to influence the corporate governance of the companies they hold stock in. And at public pension funds, the state or local politicians who sit on the board--or control who does--tend to dissuade activism that might alienate corporations. When one Wisconsin state pension fund targeted T. Boone Pickens, it got an angry call from Gov. Tommy Thompson saying "lay off"--he was trying to lure Pickens to do business in the state.
Other barriers to shareholder activism are regulatory. In 1992, for example, under pressure from the Business Roundtable, the Securities and Exchange Commission ruled that all issues pertaining to the general workforce (any worker below top management, in other words) were "ordinary business," and therefore beyond shareholder domain under SEC regulations; that means everything from whether a company discriminates in hiring to issues of fair compensation and safe working conditions. The ruling seemed designed to muzzle investors who should monitor a company's employment principles--because as owners they are responsible for the welfare of employees and communities.
Under President Clinton, the SEC has not reversed the 1992 ruling. "The SEC [is] bending over to encourage companies to dodge the scrutiny of their own shareholders on polices and responsibilities the administration is encouraging," says Diane Bratcher of the Interfaith Center on Corporate Responsibility, which represents 275 religious institutional investors. She's referring to Robert Reich's support for tax-code carrots and sticks to make corporations behave responsibly. As Bratcher suggests, doesn't it make more economic and political sense to encourage shareholders to wield the sticks themselves?
Wary money managers and trustees tend to portray such activism as a threat to profits; it's either social responsibility or maximum profitability, they think, and a fund manager's duty is to the latter. That dichotomy, though, is a false one: In the long run, how a company treats its workforce has direct impact on the value of its stock. A company that's managed well should never have to resort to the draconian layoffs that AT&T enacted. And insecure, underpaid, or undertrained employees aren't going to be the most productive.
Edward Durkin of the United Brotherhood of Carpenters and Joiners of America notes that when his funds look at a company's health and safety activities, they are acting as a representative of labor, but also as investors: They don't want to absorb liability for regulatory violations or workplace accidents. (The same concern, incidentally, may shake up the tobacco industry; worried about a massing stormfront of anti-tobacco litigation, some institutional investors are beginning to rethink their investments, or press conglomerates to spin off tobacco units or eliminate marketing practices that seem to target underage smokers.) Corporate, accounting procedures, unfortunately, are geared to short-term, quantifiable measures--investment in labor is a cost, not an asset. Reforming those methods could help; so could AFL-CIO efforts to survey companies on issues like employee training.
Individual investors, of course, have far fewer shares, and therefore less clout. But they can still make a difference; any shareholder can bring a resolution or attend an annual meeting. Indeed, as the spring season of annual meetings approaches, who better than "Pitchfork Pat" Buchanan--who owns stock in AT&T and other companies whose labor policies he's deplored--to lead stockholding peasants in storming corporate castles?
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|Title Annotation:||Pat Buchanan|
|Date:||Apr 1, 1996|
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