Pension Power

To protect their retirement security, AFSCME members are using their public pension funds to combat corporate scandals and call for greater corporate accountability.

By Clyde Weiss

AFSCME members, who participate in 150 public pension systems throughout the country, saw $1.5 billion of their retirement assets go up in smoke when Enron Corp. declared bankruptcy in December 2001. Greed, mismanagement and outright fraud brought down the nation's seventh-largest corporation — revealing a complete failure of corporate accountability and triggering a loss of investor confidence that led to the biggest stock-market decline in a half-century.

Good corporate governance requires that shareholders have a voice in how companies are run so that a firm's assets support long-term growth that benefits investors, rather than short-term gains that line the pockets of company executives and Wall Street bankers. AFSCME has warned about the issue for years but few institutional investors or government agencies heeded its calls.

Now that WorldCom, Adelphia, Global Crossing, Tyco and several other companies have followed Enron into a rogues' gallery of scandal, investors have begun to demand integrity and openness in the board rooms of Corporate America. Finally, labor's voice is being heard, and its message is clear: No more business as usual!

AFSCME members have a personal stake in corporate governance — such as whether a company's board of directors is truly independent of its officers, how much the CEO gets paid or whether its auditors have a conflict of interest. Why? Because investors are the owners of these public companies through their pension plans, which hold more than $1 trillion in company stocks.

When Enron stock became worthless, the many pension plans that held it lost substantial value. In Florida, the assets of more than 110,000 public service employees represented by AFSCME Council 79 plunged by $330 million — the biggest Enron-related loss of any state retirement fund in the nation. A 2002 investigation conducted by Council 79 revealed a primary cause of the pension loss: serious mismanagement by the government body that oversees the state's investments, allowing its advisers to continue to buy Enron even as it was publicly spiraling towards bankruptcy. That government body is the State Board of Administration — chaired by none other than Gov. Jeb Bush (R), the arch-crusader against public employment (see related story).

The pension plans that AFSCME members participate in guarantee their retirement benefits. Yet workers still face a serious consequence from major stock losses in those plans, says Priya Sara Mathur, a Bay Area Rapid Transit financial analyst who belongs to Local 3993 (Council 57). She was elected last year with AFSCME's support to the board of the nation's largest public pension fund, the California Public Employees Retirement System. "If CalPERS loses money on its investments," she points out, "it will have to ask the employers that contribute to the fund to cough up more to maintain the cash outflow to retirees."

Those employers then "will have less money for other benefits, such as pay increases, bonuses and better health plans," says Mathur. That's daunting news for more than 1.3 million state and local workers who depend on CalPERS for their retirement and health benefits.

SHAREHOLDER POWER. Stock market losses since January 2001 have cost public pension funds approximately $240 billion (14 percent of their value). Those losses undercut the retirement savings of more than 5 million public workers and retirees.

State and local pension boards, which collectively administer more than $2.5 trillion in cash and investment holdings, possess tremendous power to promote change in corporate behavior. But they must use that power as leverage, or corporations will continue to do business as usual.

AFSCME is using leverage through our own employee pension plan. The AFSCME Employees Pension Plan has submitted shareholder proposals to 22 companies for consideration during their annual meetings this year, more than tripling the number offered in 2001. Among the union's key goals: open and fair elections for corporate board seats, greater corporate accountability and pro-worker policies.

Last November, Pres. Gerald W. McEntee, chair of the pension plan, sent a letter to 150 public pension funds that hold AFSCME members' investments, urging them to take a more active role in the way corporations are operated and to support AFSCME's efforts at corporate reforms. "Excessive executive compensation, manipulated earnings, numerous accounting irregularities and the other scandals that have surfaced in the past year are just symptoms of the larger problem," McEntee said. "Shareholders have no real voice in the makeup of corporate boards. Our proposals aim to change that."

In response, CalPERS last November voted to join AFSCME shareholder efforts to pers-uade three major companies — McDermott International Inc., Tyco International Ltd. and Ingersoll-Rand Ltd. — to return to the United States from Panama and Bermuda, where they had gone to evade U.S. tax and shareholder laws.

PENSION ACTIVISM. A growing number of pension boards, especially those on which AFSCME members hold seats, also are pushing for reforms. The New York City Employment Retirement System, in which members of DC 37 participate, "has long been a proponent of changes in corporate governance," according to Lillian Roberts, executive director of DC 37 and a trustee of the system.

Pension-board activism also has taken root in Ohio, where — for the first time last year — AFSCME members elected a labor majority to the state's nine-member board. Among the majority are Ron Alexander, president of the Ohio Civil Service Employees Association/ AFSCME Local 11 and an International vice president; Barbara Thomas, president of Local 3360 (Council 8); and Charlie Adkins, president of Local 1699 (Council 8), who this year began a third term and serves as board chairman.

"When labor gained control of the board," says Adkins, "we were able to examine issues that affect working men and women. We've looked at policies that will keep Corporate America a little more honest — at least it will let them know our view of the world."

With the loss of 59 million "Enron dollars" fresh in their minds, the Ohio board members last summer approved a policy that includes new proxy-voting guidelines. (A proxy policy dictates how the board will vote its shares of public-company stock on governance issues.) The fund now encourages companies to count stock options given to their directors or board members as expenses on the firms' books. That would be a critical change: Not counting options is one way for companies to mislead investors as to their true profitability, while enriching undeserving CEOs.

In other moves last year, the Ohio pension board unanimously approved policies that: put a stop to investing in companies exploiting child labor; prevent the fund from investing in firms that privatize public service jobs; and require that only responsible, labor-friendly contractors be hired by the fund.

NO MORE ENRONS. Corporate reform pro-posals, if adopted by public companies, will go a long way to preventing future Enrons, says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. Without accountability mechanisms built into company boards, he says, "the values of pension fund assets fall, and later — when you want to retire — the money you thought was going to be there won't be there."

Whether calling for better oversight by pension trustees or reforming corporate conduct, public employees and their unions have a vested and vital interest in making their collective voices heard and heeded. In the words of Ohio's Adkins: "As AFSCME members increase their involvement on pension-fund boards, we will be able to ensure that the trillions of dollars in public retirement funds are used for the benefit of working families and not to line the pockets of the wealthy few, privatize our members out of jobs or exploit workers at home and abroad."