And Now, Proxy Power

By Janice Castro

The 70 city and state financial officials who gathered last week at the Bayview Plaza Holiday Inn in Santa Monica, Calif., hardly looked like subversives. Nonetheless one participant, New York City Comptroller Harrison Goldin, declared the group's purpose to be "revolutionary." By the end of their two-day conclave, the 31-member Council of Institutional Investors, a group of pension-fund managers who control assets of nearly $200 billion, had endorsed a ringing "Shareholders Bill of Rights," intended as a challenge to every major U.S. corporate boardroom. Among other things, the group of hitherto largely passive investors drawn chiefly from the public sector demanded a new voice in all "fundamental decisions which could affect corporate performance and growth." Predicted Brenda Steinhour, a money- management executive who observed the session: "Proxy power is going to be a major issue in the world of investments."

Both the council and the bill of rights are expressions of growing restiveness at some of the country's biggest public pension funds. The group was founded 15 months ago by fund managers who have some 60% of their assets invested in stocks and bonds and who have felt unfairly battered in the merger and takeover wars that have rocked Wall Street. In their view, many of those battles led to substantial portfolio losses for investors as beleaguered corporate executives paid off would-be takeover artists with greenmail, adopted so-called poison-pill measures to dissuade unwanted suitors by making their firms less attractive targets, or handed themselves fat settlements known as golden parachutes. All too often, argues New York's Goldin, "the shareholders have gotten short shrift."

The guiding force behind the council in its effort to redress that balance is one of California's best-known pols, Jesse Unruh, 63. Once nicknamed "Big Daddy," Unruh achieved national prominence as speaker of the California state assembly from 1961 to 1969, then lost a race for the governorship in 1970 to Ronald Reagan. Four years later Unruh re-emerged as state treasurer, a post that he soon made into a substantial power base. His office now controls $16 billion to $18 billion in investment funds and sells more than $1 billion worth of bonds annually. As he puts it, "We've established a credibility in the financial community. We have their attention."

In January 1985, after California's pension funds had taken a drubbing in the wake of Disney and Texaco greenmail payouts, Unruh persuaded managers from across the country to fight for better protection for their investments. Council members now include representatives of huge funds in California, Kansas, Illinois, Wisconsin, Massachusetts, Minnesota, New Jersey and New York City.

The bill of rights demands that stockholder approval be required for a significant range of management actions. Among them: issuing stock that would dilute the voting power of existing shares by 20% or more, selling 20% or more of corporate assets to a hostile bidder in exchange for a takeover cease-fire, paying greenmail, or adopting a poison pill. Says Roland Machold, director of New Jersey's treasury division of investment: "We just want to be brought in on the big decisions."

So far, the bill of rights is no more than a talking paper. But the voices belong to some powerful investors. "Management is going to have to pay a lot more attention to us," asserts New York's Goldin. Massachusetts Investment Chief Paul Quirk, a council member, agrees. Says he: "In takeovers, management could always count on our vote. Now that has all changed."

With reporting by Richard Woodbury/Los Angeles