By Zachary D. Roberts
By Anna Merlan
By Jon Campbell and Laura Shunk
By Albert Samaha
By Amanda Dingyuan
By Anna Merlan
By Anna Merlan
By Albert Samaha
Comptroller Carl McCall, who calls himself the "largest single investor in America," has used the power of the state's $112 billion pension fund to insulate major corporations from shareholder challenges on environmental, human rights, and other issues, contradicting his own progressive history and casting a cloud over his gubernatorial ambitions.
A Voice investigation of McCall's thousands of proxy votes on shareholder resolutions since 1993 reveals a chilling pattern of social indifferencejustified by his office on the grounds of his fiduciary obligation to maximize gains for pension-holders. McCall's votes have been demonstrably more conservative than those cast by the California Public Employees' Retirement System (CalPERS) or by former city comptroller Alan Hevesi, who is now running for McCall's job.
While Hevesi championed the CERES principlesa code of conduct developed by the Coalition of Environmentally Responsible Economies, a partnership of investor, environmental, and labor groups formed after the 1989 Exxon Valdez oil spillMcCall voted against resolutions calling on companies to adopt them 88 out of 95 times. He has opposed 34 consecutive CERES resolutions since 1998, voting repeatedly against them at Niagara Mohawk, an upstate energy company currently facing Clean Air Act violations filed by Attorney General Eliot Spitzer. Hevesi and his successor, William Thompson, a McCall supporter, serve as members of the CERES board and, like CalPERS, have always supported its resolutions.
CERES executive director Robert Massie told the Voice: "We have been perplexed by the failure of the New York State Common Retirement System to support the CERES principles, which are the most widely accepted, modest request from shareholders for disclosure and accountability on environmental issues. We continue to hope that this important institutional investor will choose to support the principles in the future." McCall almost invariably voted with corporate managers who opposed CERES, even though its 10-point code requiring an annual environmental audit has been successfully adopted by General Motors, Bethlehem Steel, Polaroid, Coca-Cola, and even utilities like Pennsylvania Power &Light.
The gubernatorial candidate who has campaigned on the basis of his pension fund prowess has either opposed or abstained on 90 percent of the environmental issues that have surfaced as shareholder resolutions, including all four of the ones last year that simply sought reports assessing their own gas emissions from energy companies (Allegheny Energy, Chevron, Eastman Chemical, and Norfolk Southern). He did the same on 2000 and 2001 resolutions requesting disclosure on "the potential environmental damage" of plans by Chevron and ExxonMobil to drill in the Arctic National Wildlife Refuge. These latest votes continue patterns on emissions that go back to 1994, and on ANWR to 1997.
Last spring, he even refused to support a CalPERS-backed attempt to get Enron to analyze "the biodiversity and indigenous peoples impacts" of its operations, though its routing of a gas pipeline through Bolivian tropical forests had just prompted opposition to the project from 25 members of Congress. His office's only defense was to attribute the CERES opposition to the "complicated choices" a comptroller must make and to say that his emissions stance is "under review." The panel has no statutory authority.
McCall's spokesman, Jeffrey Gordon, does point with pride to McCall's votes "for five years in favor of resolutions that told General Electric to disclose how much they were spending on lobbyists to stop the dredging" of the Hudson and to avoid responsibility for polluting it with PCBs. However, even McCall's GE record is mixed, with him opposing the CERES principles at the company (1994), a call for a report on Superfund compliance even though it was listed as the worst violator in the country (1997), and repeated efforts to restrain its nuclear business (up to 2001).
Gordon insists that McCall's "first responsibility" is to "protect the interests" of the fund's "nearly one million retirees" by making investments that make money. He says the comptroller "has been active in areas where he believes he can make an impact," contending that proxy resolutions are not the only "tool at his disposal" to influence corporate policy. Pointing out that McCall met twice with GE's CEO Jack Welch to discuss the Hudson, Gordon cites the comptroller's access to CEOs and directors as an effective way of spurring improvements.
A 14-page policy statement for the fund issued this year by the comptroller's office simply states that it "generally abstains" on resolutions "aimed at protecting the environment" unless a "specific action can significantly improve a company's poor environmental record."
McCall's passive use of his proxy power has rarely attracted media attention. A 2001 Dow Jones news story on pension funds across the country, however, quoted Robert Monks, a corporate governance pioneer, as saying that McCall's state fund had "done virtually nothing," in contrast with the city, CalPERS, and Wisconsin. Monks pointed out that socially irresponsible behavior often leads to lower stock values, and that environmental damage can result in lawsuits, fines, and loss of reputation. Pointing out that 30 percent of "the owners" of public corporations are "the beneficiaries of pension plans," Monks explained that "the average person spends 18 years in retirement and doesn't just want money, but also a safe, clean civil environment."
Certainly no one at McCall's office is suggesting, as Gordon was quick to make clear, that Hevesi, or CalPERS for that matter, has neglected any obligations to pension-holders by taking a more activist stance. And Hevesi, too, predictably refused to make any comparisons between his and McCall's records. But Hevesi's defense of his CERES and other votes makes its own implicit comparison. He told the Voice he was "very proud of how aggressively" the funds voted, adding that the city's trustees "did so as investors who knew there was a downside to corporate misbehavior or the failure to pursue social goals." Hevesi contends that the funds "met their fiduciary duty by taking the long view of their interests."
In January, McCall told Newsdaythe only paper to examine parts of this proxy recordthat his votes were in line with a policy not to micromanage company executives. "I'm not going to showboat and support a lot of resolutions to show that I'm an activist," he said. Ironically, it was McCall himself, when he voted in March against the Hewlett-Packard merger with Compaq, who indirectly offered a rationale for activism while admitting that his opposition only involved a small percent of the total votes. "Some smaller funds look at the decisions made by larger funds. Often that has some influence on how other funds will vote."
ABSTAINING ON HUMAN RIGHTS
In a pattern similar to the CERES votes, Hevesi went so far as to sponsor resolutions at eight companies last year, asking that they adopt Social Accountability 8000, a set of standards for improving global working conditions. Though the standards were drawn from the United Nations Convention on the Rights of the Child and the guidelines of the UN's International Labor Organization (ILO), McCall abstained every time, including at Kmart, a company long accused of profiting from cheap overseas labor. Hevesi also sat on the Social Accountability International board, as Thompson does now and as do representatives from Dole Foods, Avon, Toys 'R' Us, and the UN Office of Project Services.
In fact, McCall abstained on 31 of the 36 human rights resolutions he voted on in 2001 (opposing four others), though his spokesman conceded that abstentions have the same effect as negative votes, and companies often note they're counted that way. McCall's policy statement, as it did on environment issues, said "the Fund does not support proposals to promote human rights outside the U.S." unless "specific actions can significantly improve a corporation's record of egregious affronts."
The only resolution he supported in 2001 condemned a transnational oil company, Unocal, after a federal judge concluded that its executives "knew that forced labor was being utilized" in the construction of a Burma pipeline before it partnered with one of the world's most repressive military governments to build it. While dismissing the case against Unocal on technical grounds, the judge also found that the company "benefited from the practice" of forced labor and from "numerous acts of violence" committed by the military to aid the project.
The resolution McCall supported called for a committee of independent directors to review ways to link executive compensation with the company's social performance, but he simultaneously abstained on another resolution that cited the Burma experience and tried to bind Unocal to a set of ILO principles similar to SA 8000. Ironically, the resolution he abstained on was backed by a higher percentage of shareholders than any other social policy resolution introduced at any company in the country, while the resolution he supported drew far less support.
Prior to the judge's ruling, McCall had abstained on similar Unocal/Burma human rights resolutions from 1997 through 2000 and voted against them from 1994 through 1996. In addition, he abstained in 2001 on resolutions at three other companies involved in the Burma project Halliburton, McDermott, and Citigroupthough all the proposals sought was a committee of independent directors to determine whether the companies had benefited from forced labor or other abuses. The McDermott resolution got the second highest vote in the country and, like the other Burma resolutions, was backed by CalPERS.
The U.S. government withdrew its ambassador and suspended aid to Burma after the junta killed thousands of pro-democracy protesters in the late '80s, banning new American investment there in 1997. The UN Special Rapporteur, the ILO, and the U.S. Department of Labor have published reports detailing Burma's human rights violations, especially in connection with the pipeline. The resolution McCall backed cited "torture, abuse of women, arbitrary executions, forced labor, forced relocations, and arbitrary arrests" in Burma, yet he has still refrained from supporting minimal reporting requirements, even at a company like McDermott, whose Web site listed Burma as its fifth largest revenue source.
Beyond Burma, McCall has either voted against or abstained on resolutions seeking reports about possible labor abuses in China by at least 10 companies. The companies included Microsoft, GE, Nike, Mattel, Nordstrom's, Lucent, AT&T, GM, Dillard Department Stores, and Boeing, and the resolutions often came up repeatedly. In recent years Microsoft and GE have alternated as the fund's largest single holding.
The comptroller also abstained on or opposed all 22 resolutions between 1993 and 1997 that attempted to get companies to examine their Mexican labor operations, particularly at maquiladoras near the border. Though "market basket" studies showed that maquiladora employees would have to work for 69 minutes to purchase five pounds of rice, as compared to 13 minutes for American workers, and 20 minutes for bananas, instead of two. McCall voted with management to block reports at GM, GE, Ford, W.R. Grace, and many other companies.
Some companieslike Johnson & Johnsoncontemptuously defended their maquiladora exploitation by telling shareholders in their opposition message that these operations "could not economically function in the U.S.," meaning that if forced to shut them down, J&J would have to "seek another country elsewhere in the world." That's precisely what many have done, reducing the number of maquiladors and the frequency of the resolutions, which were most often introduced by labor and religious organizations.
McCall even refused to support 11 resolutions on South Africa between 1993 and 1995, most of which attempted to apply the standards of corporate conduct drafted by the South African Council of Churches to aid the transition to majority rule. Developed with the support of the African National Congress, this framework summoned companies to cooperate with an agenda that included training, job creation, workers' rights, black-owned businesses, and environmental protection.
Ironically, while sitting out the other rights controversies, McCall supported every resolution relating to discrimination against Catholics in Northern Ireland. Even sponsoring resolutions to impose the MacBride anti-discrimination principles on companies whose management resisted them, he demonstrated that he did believe the fund's leverage could be used to advance at least one human rights causeone with a vast political constituency in New York. He also became the first state comptroller to sue pension funds to buy tens of millions in Israeli bonds.
CHEERLEADING CORPORATE GREED
One of the companies embroiled in the Burma scandal was Halliburtonthe Texas oil company run by Dick Cheney when it signed on to the pipeline deal. Cheney has come under firenow and during the 2000 presidential campaignfor what The Washington Post called his "generous retirement package that included about $13.6 million in stock and stock options," as well as $1.2 million in salary payouts.
Yet when the International Brotherhood of Electrical Workers introduced a resolution in the spring of 2001 assailing the Cheney package and asking the board to set up a performance-based compensation system for the five top executives, McCall voted against it. He simultaneously voted for another resolution that did not mention Cheney and asked only that future stock-option policy be performance based. In dozens of other votes over the years, McCall has backed linking options to performance but opposed linking total compensationa position inconsistent with the guidelines he's published, which state that the fund "does not support incentive compensation plans which are not specifically related to corporate and individual performance."
The Cheney vote was just one of a host of curious McCall votes on compensation matters. In 1999, he voted for an Enron management resolution authorizing multimillion-dollar cash bonuses for Ken Lay and Jeff Skilling. He opposed shareholder resolutions at QWest and Consecotwo other companies dominating the current headlinesthat would have increased disclosure or altered the way of calculating executive compensation. The resolutions focused on accounting tricks and transparent corporate piracyincluding a $107 million package for Gary Wendt at Conseco.
Not even Michael Eisner's $640 million Disney salary over three yearsor his grabbing 26 percent of all of the company's stock options in a single yearcould attract McCall's support for a 2001 resolution limiting options to 5 percent for any executive. His vote on each of these proposals appears to be in conflict with one of the "four basic principles of corporate governance" that have guided comptroller policy since 1985, namely that "compensation should be a reflection of performance."
McCall has also repeatedly voted against increasing disclosure about executive compensationfor Welch at GE, as well as a host of other New York companies that have laid off thousands, like IBM and Eastman Kodak. In 2000 he even opposed executive salary disclosure at Con Ed, a public utility. Similarly, he's routinely opposed resolutions seeking fuller disclosure of corporate lobbyists, campaign contributions, and revolving-door hires from the public sector. His consistent votes against disclosure fly in the face of his policy guidelines, which state that "the Fund believes that disclosure of contributions is a vital element of the Board's accountability to shareholders."
As much as the comptroller attempts to defend these positions as market decisions locked in by fiduciary duty, he has bowed to personal or public preferences in at least two areasequal employment and tobacco. His early votes on both in the '90s were often pro-management, even on affirmative action. He also voted against 34 tobacco resolutions in a row between 1993 and April 1996, specifically opposing attempts to restrict the targeting of African Americans and minors.
While he voted against another 11 tobacco resolutions in 1996, he finally turned the corner in '97, supporting most resolutions since. Apparently without any self-consciousness,McCall assailed Governor Pataki last year for delaying some of his appointments to the Tobacco Use Advisory Board, actually offering in a letter the stats on how many New Yorkers got lung cancer while Pataki pondered. In fact, as late as May 2001, McCall voted against a CalPERS-backed resolution at UST Corporation that tried to reduce the availability of smokeless or chewing tobacco to minors.
As with so much else in his proxy voting history, McCall's tobacco record leaves a lot to chew on.