By Tracey Rembert
The Terminator is back, with machine gun blazing and this time the perceived foe is the movement for corporate reform. Recent months have seen a fierce and growing counter-attack against corporate social responsibility (CSR) and ethics reform, and Arnold Schwarzenegger is playing a leading part as governor of California. In its customary role as bellwether for the nation, California has become the stage where the rising backlash is playing out emblematically. The stars in this dramatic fight: Schwarzenegger, squaring off against corporate reform leader Phil Angelides, the California state treasurer who for years has used $300 billion in state pension funds to launch salvos demanding governance and ethical reforms from corporations.
The action began unfolding in April 2004, when the state's Republican Party publicly criticized CalPERS' the California Public Employees' Retirement System, the largest public pension fund in the nation - saying it put a social agenda ahead of profit. Angelides over the years had pulled the fund out of tobacco stocks, installed human rights screens, and emphasized environmental stewardship. Yet he enjoyed healthy financial returns along the way. According to Wilshire Associates, CalPERS in 2004 earned a handsome 13.5 percent return, while the average large pension fund earned just 11.6 percent.
The drama escalated just a month later, when David Hirschmann, senior vice president of the U.S. Chamber of Commerce, wrote cease-and-desist letters to state pension funds in New York and Connecticut, accusing them of "working to advance the social investment agenda of organized labor." Similar attacks cropped up from groups like the American Enterprise Institute. CalPERS "is abusing the public trust in a manner as serious and grave as any I have seen," intoned AEI's economic policy director.
Complaints morphed into action as California Republicans worked to oust CalPERS board president Sean Harrigan, who is also international vice president of the Food and Commercial Workers International Union Region 8 States Council. Harrigan lost his CalPERS seat in December 2004. While Schwarzenegger denied involvement, he soon proposed that state pension funds be broken up into private, 401(k)-style accounts.
Joining with other treasurers, Angelides denounced the privatization proposal as part of a "broad counter-attack" against corporate reform. After public pension funds helped restore integrity to financial markets, said Angelides, Schwarzenegger wants to break them into "?literally millions of pieces."
Schwarzenegger's ally, Grover Norquist of Americans for Tax Reform, made clear this was precisely the intent. "Just 115 people control $1 trillion," he said. "We want to take that power and destroy it."
Something big was stirring. And it was about more than pension power.
The swelling counter-attack focused on public pension clout because the assets in play provide such an effective - and novel - power base. Nationally, public funds control $2.7 trillion, with union-managed funds overseeing another $400 billion. An emerging breed of pension fund overseers has used this base to wield unprecedented influence over corporate America.
To cite just a few successes: The Investor Network on Climate Risk, headed by Connecticut State Treasurer Denise Nappier, has filed shareholder resolutions with two dozen corporations, asking for disclosure of financial risks from global warming. The group's efforts led American Electric Power to publicly acknowledge the reality of global warming and announce plans to address emissions. Treasurer Angelides also led a successful campaign against Richard Grasso, the controversially overpaid president of the New York Stock Exchange, winning his resignation.
Campaigns like these have often involved coalitions encompassing the progressive business community, environmentalists, social investing firms, and labor. It was the sight of these disparate forces uniting in a common agenda that catalyzed anti-reform pundits to organize their own response.
The battle over pension power is emblematic. But the broader agenda of the free-enterprise ideologuesis to undermine the legitimacy of corporate responsibility itself.