The ouster of the president of the California Public Employees' Retirement System comes amid a growing backlash against corporate reform, but shareholder advocates expect the move to have little direct effect on the corporate governance movement.

Labor leader Sean Harrigan lost his spot as a Calpers director after another California agency -- the State Personnel Board -- decided to replace him as its representative on the pension fund's board with another one of its members. Since he joined the Calpers board five years ago, and especially since he became president of the pension fund last year, Harrigan has been an outspoken advocate of corporate reform.

But Harrigan is just one of 13 members of the Calpers board, corporate watchdogs noted. Calpers will likely carry on with its governance agenda even without him, they said.

"Calpers has a long history and culture of doing governance work," said Ann Yerger, acting executive director of the Council of Institutional Investors. "I do not anticipate that this is going to dramatically change the fund's interest in the issue."

Still, Harrigan's removal from Calpers comes at a disquieting time for the corporate reform movement. While recent years have seen a flurry of new regulations and increased scrutiny on corporate boards, some of shareholder advocates' most cherished, proposed reforms, such as

access to corporate proxies and the forced

expensing of stock options, face

questionable prospects. Meanwhile, corporate interests are threatening to

roll back or weaken previous reforms.

Corporate interests such as the Business Roundtable have begun to take an active role in fighting back against further reforms, said Rich Ferlauto, the director of pension and benefit policy for the American Federation of State, County and Municipal Employees. A prime target has been pension funds such as Calpers that have been at the forefront of the reform movement, he said.

"Public fund boards have been under direct attack for more than a year and a half now," Ferlauto said. "Clearly (Harrigan's ouster) was an attempt by those enemies (of reform) to come together."

On Wednesday, California's State Personnel Board voted to replace Harrigan, a Democrat, on Calpers board with Ron Alvarado, a Republican. Alvarado and the personnel board's other Republican member voted for Alvarado, along with one of the board's three Democrats. That Democrat, Maeley Tom, denied that there was a conspiracy afoot, saying she voted for Alvarado because he wanted the position.

"I am committed to protecting the integrity of this board's practice and tradition of allowing any board member interested in representing this board on Calpers an equal and fair opportunity to do so," Tom said in a statement.

In the Wake of WorldCom

After the corporate scandals at

Enron

,

WorldCom

and other companies, corporate governance -- the way companies are run and the responsibility of corporate directors to defend shareholder interests -- has received intense scrutiny from investors and regulators. Calpers, the nation's largest public pension fund, with some $177 billion in assets, has been at the forefront of those organizations pushing for change.

The pension fund

led the charge last year to

oust Dick Grasso as chairman of the

New York Stock Exchange

, after the Big Board revealed that it had granted Grasso a

$140 million pay package. Earlier this year, Calpers was among the

loudest voices calling for Michael Eisner to step down as chairman and CEO of

Disney

(DIS) - Get Report

.

While those moves proved popular and successful, some of Calpers' governance efforts under Harrigan drew controversy or had little effect. In its proxy voting this year, for instance, the pension fund decided to focus on corporations that paid their auditors to do consulting work. That scrutiny led the pension fund to withhold its vote from 24% of all directors at the 2,700 public companies whose stock it holds, according to a Calpers representative.

But, instead of convincing other investors of the seriousness of the issue and pressuring companies to change their practices, the campaign drew ridicule from other investors and business leaders, particularly when Calpers

withheld its vote from renowned investor and shareholder rights advocate Warren Buffett as a director and audit committee member at

Coca-Cola

(KO) - Get Report

.

Similarly, Calpers drew scrutiny for its

opposition to the re-election of Safeway Chairman Steve Burd earlier this year. The company and other critics charged that the pension fund was taking its lead from Harrigan, whose union headed an intense strike against Safeway and other grocery companies in Southern California.

Although Calpers said that its opposition to Burd was due to the company's recent poor performance and that Harrigan recused himself from the decision to oppose Burd, those steps did little to assuage the fund's critics.

In recent months, Calpers has taken measures to address critics' concerns. Most notably, in the coming year, the pension fund plans to target excessive executive compensation. But instead of the shotgun approach it used with auditors' consulting work, the fund plans to target a limited number of companies with the worst records on compensation practices.

In a statement, Harrigan said he expected Calpers to continue its corporate reform efforts, even him.

"You can continue to expect that our initiatives will go on uninterrupted," Harrigan said in the statement. "Our Calpers board will not back off of the need to end the situation in which executives get 500 times that pay of average workers regardless of their performance."

Corporate reformers noted that Phil Angelides, California's treasurer and a member of Calpers' board, has been an outspoken advocate of corporate reform. While Harrigan drew flack for Calpers' stance on auditors' consulting work, the fund's vice president, Rob Feckner, is the chairman of the investing committee that was behind that stance, noted Ferlauto. Feckner, like Angelides, remains on Calpers board and will be the acting president when Harrigan departs at the beginning of the year.

Neither Calpers nor any other public pension fund is likely to be cowed by Harrigan's ouster, reform advocates said. Although Harrigan's departure may lead to a change in the way Calpers pursues its agenda, it won't change the agenda itself, said Nell Minow, founder of the Corporate Library, a watchdog and research group.

"There have been changes (in style) with every leader (at Calpers), but the substance has remained the same," she said.

But Ferlauto suggested that Harrigan's departure may have at least one long-term effect. There is a movement within California and other states to move public workers from so-called defined benefit retirement plans to 401(k)-style "defined contribution" plans. In the former, public employers contribute to and manage a pool of money that they use to pay out a pension to each worker. In the latter, the employees themselves typically provide the bulk of contributions and manage their own investments.

A move to a defined contribution plan could weaken Calpers by drying up its source of power: the billions of dollars in assets that it manages. Harrigan has been a vocal defender of Calpers current role as a traditional pension fund, Ferlauto said. His ouster could weaken Calpers ability to defend its role, and it comes as other pension funds are seeing similar moves, he said.

"There is a back-door attempt to dismantle the power of boards so they can't put up a good fight to prevent (the move to a defined contribution system) from occurring," Ferlauto said. "That's the piece that no one's talked about -- but it's out there."