Pension Funds

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

The second technique — shareholder activism — has also picked up steam in recent years. In this approach, concerned shareholders meet with top managers and urge them to change the company’s ways. If the managers resist, the shareholders file resolutions that, if approved at an annual shareholder meeting, would change corporate policy. In 2003, over three hundred resolutions were submitted on issues ranging from CEO compensation to labor and environmental practices. None passed, because managers, through proxies, control the great majority of shares, although in some cases the resultant publicity did lead to changes.

A grander vision of shareholder activism involves the employee pension funds that, collectively, own over half the shares of many U.S. companies. In this vision, American workers, through their retirement funds, would require publicly traded corporations to place workers, communities, and nature on a par with short-term profit. In reality, pension funds have come to play a larger role in capital markets, but ironically, it’s usually as the swing votes when raiders seek to take over underperforming corporations. In these situations, the pension funds often vote with raiders to enhance stockholder value.

Recently, pension funds have also pushed for improvements in corporate governance. But pension fund trustees are hardly sans culottes in pinstripes. They’re tightly bound by their fiduciary responsibility to retirees, and must seek the highest rates of return or face reprisal from the U.S. Labor Department, which oversees them.

It would be a luscious irony if capital markets could become a check on runaway capitalism. But capital markets suffer from the same disease as corporations themselves — an incurable devotion to maximizing profit. This isn’t to say that efforts to improve corporate responsibility are a waste of time; such efforts raise consciousness and are incrementally helpful. And they’re certainly a form of right livelihood. But do they carry within them a systemic solution to the defects of capitalism? This I deeply doubt. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

The question of who gets the top right in any society is always an interesting one. Invariably, the top dogs in any era assert that there’s no alternative. Kings said it three hundred years ago; capital owners say it today. They hire priests and economists to add moral or pseudoscientific credence to their claims. The truth, though, is that societies choose their top right holders, and we can change our minds if we wish.

Kelly locates many places where capital’s supremacy is written into our codes. Corporate directors, for example, are bound by law to put shareholders’ financial gain first. If a raider offers a higher price for a publicly traded company than its current market value, directors have little choice but to sell, regardless of the consequences for workers, communities, or nature. Similarly, it’s the fiduciary duty of mutual funds, pension funds, and other institutional investors to seek the highest returns for their shareholders or beneficiaries. This duty is embodied, among other places, in the Employee Retirement Income Security Act of 1974. Although the language of the act sounds innocent enough — a pension fund manager, like any trustee, “shall discharge his duties . . . solely in the interest of the participants and beneficiaries” — it results, ironically, in the financing of many workers’ retirements by investing in companies that shift other workers’ jobs overseas. Throw in the WTO and NAFTA, and the rights of capital stand comfortably astride everyone else’s. ... read the whole chapter