Pension Activism Is Giving Legs To Causes Like Disney



NEW YORK -- Pension funds of the world, unite! Your soapbox is a mighty one.

Public pension funds have long portrayed themselves as protectors of the little guy and enemies of Wall Street institutions that seek to fleece the pensioner.

But an all-out assault last week on Walt Disney Co. (DIS) Chairman and Chief Executive Michael D. Eisner by state funds from California to Massachusetts indicates a new aggressiveness they first demonstrated last year may be here to stay. And it suggests that pension funds now hold a kind of swing vote that can make a cause explode into the public consciousness.

"It's become comparable to a political campaign, where a candidate gets an endorsement," said Patrick McGurn, senior vice president and special counsel at Institutional Shareholder Services Inc., a proxy advisory firm in Rockville, Md. "Quite often if people are on the fence, they do like to hear what other people whom they respect are going to do."

Going for the jugular first emerged full-force as a pension strategy last year, when funds around the country banded together in a high-profile effort to oust Richard A. Grasso as head of the New York Stock Exchange. Revelations about Grasso's pay package had caused an uproar on Wall Street. But it seemed to be the pension funds that pushed Grasso over the precipice. Soon after they called for his exit, he was out.

In the case of Disney, a group of pension funds came out one by one last week, like cascading dominoes, to say they would withhold a vote to reelect Eisner and other company executives, including members of Disney's audit committee. Together the funds hold millions of Disney shares, and their criticism struck the public ear just days before the company's crucial annual meeting, which is scheduled for Wednesday.

Cynics say the reason more pension officials are taking to the airwaves is that many are politicians, and Wall Street corruption in the post-Enron world is something the public can understand.

"I don't think you should be exactly surprised that the treasurer of North Carolina is coming out against Disney," said a well-known corporate governance expert who asked not to be named. "Enron's been a front-page issue. Politicians know that these are strong populist themes that they can push. It's no longer esoteric, relegated to the back of the business pages."

Others say the new mode is simply a natural progression from ramped-up pension activism that began in the 1980s in response to antitakeover battles. Since then, pension funds have spoken out about bloated executive-compensation packages and conflicts of interest among corporate boards of directors.

"More recently, they have become involved in specific trouble spots, like companies, the New York Stock Exchange, and the Securities and Exchange Commission proxy access rule," said Nell Minow, editor of The Corporate Library, an independent research group. "They've been coming fast and furious."

Whatever the motivation may be, there is clearly a new edge to the approach pensions are taking. A number of fund officials last week went beyond vague comments about corporate governance, taking Eisner to task in no uncertain terms.

Alan G. Hevesi, New York State Comptroller and head of the $118 billion New York State Common Retirement Fund, pointed out that Disney has not performed well over the past few years under Eisner's leadership.

"His tight control over Disney decision-making and his role as both CEO and chairman of the board call into question his commitment to corporate governance reforms," Hevesi said.

Other funds that weighed in were the $165 billion California Public Employees' Retirement System (CPE.XX), the nation's largest public-pension fund, and the first to start the ball rolling on Disney. The Massachusetts Pension Reserves Investment Trust, and funds in Connecticut, North Carolina and New Jersey also chimed in.

In the midst of it all, Eisner and other Disney executives traveled to Columbus, Ohio, to meet with officials from several Ohio pension funds who had expressed concerns about the direction the company has been taking.

Cynthia Richson, corporate governance officer for the $58.7 billion Ohio Public Employees Retirement System, said the Disney executives came at her invitation. Before their meeting, the pension funds hadn't decided how they would vote in the election. But on Monday, OPERS said it would withhold its vote for Eisner.

"While I think Mr. Eisner is very charming, I felt that we didn't get any new information that would counter the criticism that he's been under," said Richson. "I asked him very specific questions throughout our hour-and-a-half meeting, and didn't feel we got good answers."

And when they don't get good answers, public-pension funds won't be shy about speaking up again. That's how Richson sees it.

- By Arden Dale; Dow Jones Newswires; 201-938-2052;

Updated March 1, 2004 1:56 p.m.