Institutions Asleep at the Wheel

History of Dissent

The fund has had its share of victories over the years. According to a study by Wilshire Associates, the performance of 69 companies targeted by Calpers between 1987 and 1997 improved dramatically, going from an underperformance rating of 88.7% to an outperformance rating of 23.3% five years later.

But Calpers and other pension funds have proven to be ineffective in key areas. For example, between 1982 and 2000, executive pay skyrocketed while boards of directors grew less independent than ever.

In 1982, CEOs in the 365 firms that account for the bulk of pension assets were making 42 times what their average worker was earning, according to Gates. But by 2000, the earnings gap had widened to 531 to 1.

In a soon-to-be-published article, Gates cites other examples of flagrant abuses that were never acknowledged by some of the major activists. Advanced Micro Devices(AMD Quote), for example, spent $500,000 providing a chauffeured Mercedes to chairman W. Jerry Sanders despite his $134 million annual paycheck. At Disney(DIS Quote), CEO Michael Eisner was awarded a three-year, $637 million pay package, which was 21,233 times the annual pay of Disney's typical worker, according to Gates.

"What's most instructive about Calpers is not how much they've done -- that's only relevant relative to how little others have done -- but how little they've done compared to what needs doing, and compared to what they could have done with the market power and visibility they possess," Gates said.

Other pundits agree that large institutions, including labor unions -- which have only recently become active players in the field of corporate governance -- have been woefully inadequate in effecting real change.

"The potential for abuse was obvious 20 years ago," said James Mitarotonda, CEO of Barington Capital Group. "You'd think these people would be most upset."

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Different Masters

The fact that mutual fund managers were nowhere to be found isn't surprising to anyone. Because their primary concern is generating fees from managing corporate pension plans, few portfolio managers are willing to rock the boat by complaining about corporate governance issues.

"There are huge conflicts of interest," noted Nel Minnow, director of corporate governance at the Corporate Library. "All too often, institutional investors have voted 'yes' because they want to maintain good relationships with the portfolio companies and get business from them."

"There were a number of indicators about some of the disasters and the shareholders should have been more sensitive to them and should have responded," Minnow said.