[Congressional Record Volume 142, Number 87 (Thursday, June 13, 1996)]
[Senate]
[Pages S6251-S6252]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   AND IN THE LONG RUN--WE SHOULD WIN

Mr. SIMON. Mr. President, recently the New York Times carried 
an item in its business section, written by Richard H. Koppes, deputy 
executive officer and general counsel of the California Public 
Employees Retirement System, the Nation's largest public employee 
pension fund with almost $100 billion in assets.
  What he writes makes a huge amount of good sense.
  He calls on corporate America to look long term rather than short 
term. Both in politics and in business we have the tendency to look 
short term.
  I ask that the New York Times article be printed in the Record.
  The article follows:

                [From the New York Times, May 19, 1996]

                   And in the Long Run We Should Win

                         (By Richard H. Koppes)

       Last Thursday, President Clinton put the spotlight on 
     excessive corporate profits and exorbitant layoffs by holding 
     a party at the White House to congratulate those companies 
     that ``do well'' by their employees and their shareholders.
       The Administration, however, may want to take to the 
     woodshed the real culprits of corporate greed: the boards of 
     directors that have allowed ``the hollowing out'' of 
     America's corporations to obtain short-term increase in stock 
     prices.
       That statement may be surprising, coming from the Nation's 
     largest public pension fund and one of this country's 
     strongest advocates for good performance. But contrary to 
     assumptions being made in some board rooms of the United 
     States, Calpers, the California Public Employees Retirement 
     System, is not pushing to bump up short-term stock prices. We 
     are a company's long-term patient capital and are troubled 
     when companies sell out to short-term Wall Street traders.
       So let me set the record straight: Calpers opposes layoffs 
     to lift stock prices in the near term. This is wrong and will 
     not work to create wealth over the long run. One public 
     pension fund official put it best recently when he said, 
     ``You can shrink your way to profitability in the short term, 
     but it isn't the road to greatness in the long run.''
       Calpers doesn't condone what's going on. We won't 
     participate in that kind of greed. And we intend to be a 
     constructive voice to change it, by demanding high-quality, 
     independent directors.
       How did America's corporations get to this point? To 
     understand, we need only examine the evolution of the balance 
     of corporate power over the last decade.
       When investors began to zero in on corporate governance 
     issues in the early 1980's management held most of the power 
     that might rightfully have belonged to the company's 
     directors and its share owners.
       As corporate governance activism grew, share owners, from 
     the short-term Wall Street traders to the long-term investors 
     like Calpers, became increasingly influential, and managers 
     began to heed their share owners' bidding. Some managements 
     over-responded to the point that they were willing to slash 
     human assets to improve stock prices.
       Either way, the balance of power is out of whack, this time 
     have swung too far toward share owners. Institutional 
     investors recognize it is not their role to govern the 
     company. That is the responsibility of the board. Only the 
     directors can insure that neither management nor share owners 
     hold an unequal share of the power.
       How do they do that? They can learn a lot from the Chrysler 
     Corporation and what transpired when Kirk Kerkorian 
     vigorously sought to distribute more of Chrysler's $7.5 
     billion in cash to shareholders last year.

[[Page S6252]]

       Chrysler is led by a strong, independent board that is 
     strategically focused and knows the business. It could resist 
     Mr. Kerkorian's proposal because it engaged its directors, 
     managers and investors in debating what was best for the 
     company. ``None of our institutional owners asked us to 
     change directions,'' Chrysler's chairman, Robert J. Eaton, 
     said in recent speech to the Economic Club of Detroit. ``Not 
     one of them told us to compromise the future for the sake of 
     today.'' In the last five years, Chrysler has added more than 
     15,000 hourly workers while creating impressive shareowner 
     value. At its own pace, it has moved to give share owners 
     more money, including another dividend increase last week.
       The approach taken by Chrysler's board thus serves as a 
     model for how to remedy the needles ``hollowing out'' of the 
     corporation. Strong, independent boards must be formed with 
     directors who will individually and collectively ask 
     questions about proposed layoffs to satisfy themselves that 
     the layoffs are motivated by a strategic plan for long-term 
     growth, not a desire to increase the stock price.
       What critics of public pension fund investors do not 
     realize is that we don't care about next quarter's stock 
     price or even this year's stock price. At the company's 
     patient capital, we hold our positions for a decade or 
     longer.
       Therein lies Calper's next stage of corporate governance 
     activism. We will be looking for measures of performance that 
     are based not simply on quarterly earnings and the most 
     recent rise in the stock price.
       We will be examining how a corporation is positioned for 
     the long term. Part of that screen will be an evaluation, for 
     example, of whether executive compensation is rewarding 
     short-termism and whether the company has placed true value 
     on its workers.
       Calpers will continue its focus on board structural issues 
     with an expansion into board performance, evaluating 
     directors individually and collectively. Among the key 
     questions it will ask is whether the position of board 
     chairman or chairwoman is separate from that of the chief 
     executive. If the positions are combined, is there an 
     independent director as lead outside director to act as a 
     counterbalance to the power of the chief executive? We will 
     also want to know if directors own enough stock to make 
     themselves meaningful owners.
       When we meet with directors, we'll be asking them what they 
     have done to add value to the their company. We will look at 
     issues that affect their own objectivity and their ability to 
     devote sufficient time to board work: the number of boards 
     they serve on and whether they represent cross-directorships, 
     for example.
       We shouldn't let the underperformers with bloated payrolls 
     off the hook. But Calpers and many other institutional 
     investors will continue to advocate real long-term growth and 
     recognize, as Mr. Clinton did on Thursday, those who resist 
     short-termism. We will listen to quality boards that commit 
     to actively pursue long-term growth.
       With this structure in place, America will see an end to 
     what's been called the ``looting of corporate America's human 
     capital.'' It can't happen soon enough.

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