Re: Accountability of Union Pension Fund Managers

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

Deb

It is the Trustees of the Pension funds who have the formal power not the
fund managers.  In Australia, all companies must contribute to "industry
funds" which have half the trustees appointed by unions and half by
corporate industry associations but with a corporate representative holding
the chair and having a casting vote.  In each case the Tustees are
appointed not elected for their nominating bodies and to they have to
political accountability to either their appointers or to the fund
beneficiaries.

Union trustees are soon inculturated, led, intimidated, etc, into being
"responsible fiduciaries" to agree that all operational investment
management be contracted-out to professional money managers.  The
management contract may be silent on who has the responsibility to vote on
any corporate shares held by the fund.  This explains why very few
institutions vote in Australia or overseas.  It creates what I call
"negligent owners" in my article in the COG library on the politics of
governance.  I have worked with Australian Union people to try and "direct"
industry pension plans to worker buyouts.  It did not even get to first
base as the contract managers did not want to incur the cost of any
transaction which was less than $50M.  This is considerably above the size
of small and medium sized businesses. We even got the Chairman and union
co-chairman of the fund to advise the contract the fund managers that size
does not matter.  But is was not in their power of the trustees under their
management contract to instruct the managers and of course it was not in
their interest to consider a transaction which would be uneconomic for them
to appraise.  Theres is not, and I cannot see a role, for any union
co-ordinating role in the use of industry funds.

In with publicly traded shares, there is no incentive for contract managers
to spend money in researching governance issues and deciding how to vote.
The trustees may not even know what shares their contract managers own, let
alone be aware of the relevant governance issues with a view on how to
vote.  Neither the trustees or the contract managers are politically
accountable to the beneficiaries.  In theory of course the trustees have a
fiduciary duty to the beneficiaries and my friend Bob Monks states that the
vote has value and part of these fiduciary duties is to exercise the vote.
When he was in Presidents Regan department of Labor he made it compulsory
for trustees of public US pension funds to exercise their vote.  This does
not mean that the vote is used constructively.  Bob thinks that
beneficiaries would have grounds for a class action to take legal action
against the Trustees but this is yet to happen.

So I am very disenchanted by collective investments and repeat my statement
that distributing wealth without distributing power makes the distribution
of claims to assets meaningless.  This is why I am skeptical of any type of
collective investment fund, even if it is a labor managed fund.

Regards

Shann

At 11:45 PM 31/3/2000 , you wrote:
>Shann:
>
>         Are the fund managers not accountable to anyone? Are any of them 
>managers of predominantly union pension funds? Does Australia have an 
>organization like the Center for Working Capital at the AFL-CIO that 
>coordinates the efforts of union pension funds to make their pension fund 
>managers accountable? Monte Taxbox who runs Center for Working Captial was 
>working in Australia prior to his CWC job.
>Deb  Olson
>At 08:20 AM 3/31/00 +1000, you wrote:
>>I would like to support this ideas presented in this posting that
>>distributing wealth without distributing power makes the distribution of
>>claims to assets meaningless.
>>
>>When I ask union leaders why they are not concerned with the concentration
>>of wealth and economic democracy they explain that they have supported the
>>introduction into Australia of compulsary pension plans for all workers.
>>However, over 80% of all pension money is controlled by around 60 fund
>>managers so concentrate control on a non-democratic and very poorly
>>accountable basis.  While union leaders understand the exercise of power of
>>people better than most they appear to have a blind spot in the exercise
>>the power of property rights.
>>
>>Regards
>>
>>Shann 
>>  
>>At 07:15 AM 31/3/2000 , you wrote:
>> >
>> >> >From heller%tavist@pop1.mail.uk.psi.net  Thu Mar 30 05:16:00 2000
>> >>From: "PAMELA HATTINGH" <heller@tavinstitute.org>
>> >>To: dgo@esoplaw.com
>> >>Date: Thu, 30 Mar 2000 11:22:01 +0000
>> >>Subject: Re: EO National discussion
>> >>Priority: normal
>> >>X-mailer: Pegasus Mail for Windows (v3.12b)
>> >>
>> >>Dear Deb
>> >>Thank you for your email of 28th explaining that you
>> >>are interested in participation.
>> >>
>> >>I fully agree with you about the importance of attempts to deal with 
>> >>the maldistribution of of wealth.  Wealth and power are closely 
>> >>related I am sure you will agree. Hence I am interested in a wider 
>> >>distribution of ownership.  Some of the evidence we have reviewed 
>> >>(in the book I mentioned) suggests that there are many 
>> >>circumstances when changes in ownership does not, unfortunately, 
>> >>lead to a better distribution of power and we have to ask ourselves 
>> >>why this is so.  In these circumstances, it seems that he new 
>> >>owners, if their business is successful, then are tempted to sell 
>> >>out.  So to know more about power, how it works or does not work 
>> >>is important.  Hence the need for more collaboration between 
>> >>researchers operating in related fields.
>> >>
>> >>Best wishes,
>> >>Frank Heller
>> >>Frank Heller
>> >>The Tavistock Institute
>> >>30 Tabernacle Street
>> >>LONDON EC2A 4UE
>> >>Tel: +44 (0)171 417 0407
>> >>Fax: +44 (0)171 417 0566
>> >>Email: heller@tavinstitute.org
>>
>>Shann Turnbull
>>P.O. Box 266 Woollahra, Sydney, Australia, 1350
>>Phone: 02 9328 7466 office; 02 9327 8487 home
>>Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
>>Outside Australia, replace first "0" with "61" after international access
code
>>Life long E-mail: sturnbull@mba1963.hbs.edu
>>Alternate:sturnbull@optusnet.com.au
>>http://members.optusnet.com.au/~sturnbull/index.html
>
>Attorney Deborah Groban Olson
>Principal
>Shared Equity Strategies, Inc.
>3163 Penobscot Bldg.
>645 Griswold St.
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>(ph) 313/ 331-7821  or 964-2460
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>
>dgo@EsopLaw.com
>www.EsopLaw.com
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>
>ESOP and stock plan professionals, providing legal, financial and 
>administrative guidance to create and maintain employee stock ownership 
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>

Shann Turnbull
P.O. Box 266 Woollahra, Sydney, Australia, 1350
Phone: 02 9328 7466 office; 02 9327 8487 home
Fax: 02 9327 1497 home & office.  Mobile 0418 222 378
Outside Australia, replace first "0" with "61" after international access code
Life long E-mail: sturnbull@mba1963.hbs.edu
Alternate:sturnbull@optusnet.com.au
http://members.optusnet.com.au/~sturnbull/index.html