Outsourcing Reform

Outsourcing Reform

By Sakura Saunders

Sean Harrigan, president of the California Public Retirement System (CalPERS), union official and outspoken advocate of corporate governance reform, was voted off the CalPERS board on Dec. 1 in a 3-2 vote by the California State Personnel Board. CalPERS provides retirement and health benefits to more than 1.4 million public employees, retirees, and their families, more than 2,500 employers, and controls over $177 billion worth of assets. His ouster has left business interests cheering, while others are concerned about the future of the California retirement system and corporate reform. Republican Ron Alvarado was elected to replace him.

“The corporations couldn’t tolerate my activist voice,” railed Harrigan in an article that he wrote for The LA Times, placing the blame for his dismissal squarely on business and political interests. While the State Personnel Board claims seniority reasons as the impetus behind his removal, Harrigan’s suspicions are grounded. His use of CalPERS’ shareholder might to reform corporate culture has made him unpopular in many boardrooms. Most notably, Harrigan’s crusade against the corporate policy allowing company auditors to perform other services (i.e. consulting) led CalPERS to withhold support from the directors of 2,700 companies. This move was criticized as extreme despite the fact that these conflicts of interests tend to breed corporate corruption, as we have seen with such companies as Enron, Halliburton, et al.

Harrigan also took heat for his support of the Safeway strike in California, and his position as the Executive Director of United Food and Commercial Workers’ (UFCW) California Council made him an easy target for conflict of interest allegations. After the conclusion of the strike, CalPERS unsuccessfully attempted to remove Steve Burd as the chairman of Safeway, claiming that decent labor relations help long-term stock value and criticizing the amount of time that Burd had prolonged the dispute.

Despite Harrigan’s ouster from the board of CalPERS, the public pension fund is expected to “continue with it’s tradition working against excessive CEO compensation and conflicted boards,” said Richard Ferlauto, director of pension investment for the American Federation of State, County and Municipal Employees (AFSME). However, Ferlauto fears that Harrigan’s dismissal is indicative of an effort on the part of Republicans to put an end to CalPERS’ activism and privatize government pension plans. He points to an Assembly Constitutional amendment proposed by Assemblyman Keith Richman on Dec. 6 to reform the California state pension plan from a defined benefit plan (read: guaranteed benefits) to a defined contribution plan akin to a 401(k).

Richman claims that the change will reduce costs, increase budgeting predictability and eliminate new, unfunded liabilities which are creating a crisis in many communities, including Oakland and Contra Costa county. This amendment would also allow for state employees to invest in the private corporations that usually handle 401(k)s, like Fidelity, Vanguard, and TIAA-CREF.

The rationale for allowing private companies to compete for pension funds is that this would increase the amount of choice for the pension plan holder. This argument reeks of irony as State employees will no longer be given the option of having guaranteed benefits if this constitutional amendment passes. The outsourcing of pension plans also has consequences regarding the bargaining power of CalPERS.

“Over time, much of the administrative and investment responsibilities of CalPERS would be phased out,” explained Richman when asked about the consequences of this amendment. He also admitted that private investment companies like Fidelity, Vanguard, and TIAA-CREF do not have similar campaigns against CEO compensation or corrupt auditing practices.

“When special interests are allowed to trump shareholder interests, everyone loses=retirees, workers, investors and companies,” said David Hirschmann, the senior vice president of the U.S. Chamber of Commerce in a press release praising the State Personnel Board’s decision to dump Harrington. But with Harrigan out of the picture and privatization on the horizon, who will be left to look after the shareholder’s interest?