If Jesse M. Unruh has learned one thing after four decades in California politics, it is that "the public sector does not have a corner on incompetence."
Unruh, for years one of the best-known and most influential state legislators in America, and now California's state treasurer, is of the opinion that corporate America shares in the wealth of that commodity too.
So it is that Unruh, the consummate organizer, feels doubly committed to his latest crusade: organizing America's largest source of capital, the pension funds, into an influential constituency for more effective decision-making on such critical shareholder matters as takeovers.
Through his brainchild, the newly formed Council of Institutional Investors, Unruh wants to strike out at a vice he holds in as much disdain as incompetence--ignorance.
"We can't just sit there and watch the action pass by, and yet that's exactly what we're all doing," Unruh said of the role pension funds play in the outcome of corporate takeover attempts. "Up to this point, we have all been used and generally abused by everybody--corporate raiders, arbitrageurs (a breed of takeover speculators) and management--because we are all so ignorant and ineffective in these situations."
Target for Criticism
As support swells to find solutions for taming the latest corporate takeover wave and the devices that have sprung up to challenge unwanted takeover bids, pension funds have emerged as a target for much of the criticism.
Target companies, for example, say these institutional investors are much likelier than individuals to side with raiders, a problem for U.S. companies since many are more than half-owned by pension funds and other institutional holders. Moreover, because trustees of pension funds are bound by law to make investment decisions that bring their beneficiaries the highest immediate return, they have been accused of passively playing into the hands of corporate raiders, thereby fueling what some call the takeover craze.
Even Robert Monks, until recently administrator of the Labor Department's pension and welfare benefits program, has called on pension funds to more vigorously exercise their rights as shareholders. "Is it unreasonable to ask," he inquired recently, "that pension funds invest with the future in mind?"
Out of such concerns grew a crusade for Unruh, who served 7 1/2 years as speaker of the state Assembly before giving up the post to run unsuccessfully for governor against Ronald Reagan in 1970.
Shortly after joining the board of two California pension funds--with combined assets of more than $38 billion, two of the largest in the country--Unruh realized to his astonishment that here was a vast collection of wealth wielding virtually no influence. This was an amazing revelation for a politician whose trademarks are the manipulation of power and money.
"Money is the mother's milk of politics," the well-known turn of phrase, was his creation.
"We were sitting there, not really knowing what was going on, not talking to other pension funds, unable to respond in any way except to sit there" while decisions were being made by others that would greatly impact the funds' investments," said the 62-year-old Unruh.
This realization, he recalled in an interview last week in Los Angeles, coincided with the takeover mania's escalation into the big leagues. In quick succession last year, Texaco, Walt Disney Productions, St. Regis and Carter Hawley Hale faced unwanted suitors.
In fact, it was Texaco Inc.'s March, 1984, buy-back from the Bass brothers of Texas of their 9.9% stake in the White Plains, N.Y.--based oil company, widely regarded as the largest "greenmail" case to date, that spurred Unruh into action. (The funds on whose boards he sits own about 2 million shares of Texaco stock.)
"I became acutely aware that something was seriously wrong when Texaco paid off the Bass brothers" with no input from large shareholders, said Unruh, who finds greenmail, the most controversial weapon in the raider's arsenal of hostile-takeover devices, anathema. Often called legal corporate blackmail, greenmail occurs when a company buys back its stock from an unwanted suitor at a premium over the market price. It has been sharply criticized for benefiting a single shareholder at the expense of other investors.
"After a great deal of discussion, we decided to vote our stock against the payoff," he said.
But it was not until the formation in California last month of the pension-funds council that this enormous resource group served notice that it is ready to flex its muscle in an organized fashion.
So far, 22 public pension funds have joined the council. All are public or quasi-public funds (representing state and local governments and unions), but Unruh said he thinks several corporate funds are on the verge of joining.