What is, thankfully, missing from this brief video of a roundtable discussion on labor and globalization held at the SEIU convention in Puerto Rico? Representatives of the state run labor organization in China, the All China Federation of Trade Unions! Only genuine union representatives from Canada, South Africa, the U.S., and elsewhere. 

Perhaps the ACFTU was lurking off camera, who knows. But I consider this a small victory in light of the new cozy relationship between SEIU’s Andy Stern and the Chinese regime. Perhaps Stern knew that bringing his friends from Beijing over to Puerto Rico would have provided his opponents in the rank and file membership a lightning rod for galvanizing their effort to restore democracy to the union. 

Not long ago, Sal Rosselli, the California-based leader of the SEIU opposition, sponsored a visit by independent Chinese labor leader, Han Dong Fang, to Los Angeles. A video of Han’s remarks to an SEIU audience can be seen here.

And, of course, a video of my debate with the academic supporters of the ACFTU can be found here.

I sent the reply letter below to this article by Philip Stephens of the Financial Times on the need to resist those who oppose globalization in the advanced economies.

To the editor,

Mr. Stephens in “Truths for a new world of them and us” (May 29, 2008) overstates his case. I challenge him to support his claim that “[I]n this world of them and us, ‘they’ are accused by Democratic contenders in the US presidential contest of stealing ‘our’ jobs.” I have never seen or heard this claim from any of the U.S. presidential candidates.

Rather than positing a world of “them” and “us,” the argument against globalization is that it represents the efforts of an alliance of global multinational capital and repressive regimes like that of China, joined now sadly by labor leaders such as Andy Stern of the Service Employees International Union who attempt to welcome state controlled labor organizations into the global community, to shape a new world order that relies on the trampling of the rule of law and democratic decision making, weaker labor standards, and rapidly deteriorating environmental conditions to regenerate stagnating rates of profit.

Initially globalization helped accelerate the hollowing out and weakening of western economies. The United States is now seeing the short sightedness of this process, where production of goods and services that people need and want is replaced by the engineering and manipulation of paper claims to imagined future cash flows. However, the unsustainability of the model is also beginning to tell on the development of China and other developing world partners in the process, as darkly hinted at by the recent collapse of stock prices on Asian markets together with the collapse of shoddily engineered school buildings in the recent earthquake.

The global rules that need to be written, and then enforced, must be based on both universally recognized human rights, such as the freedom of association and speech, and on equally universally recognized first best standards of engineering quality and environmental safety.

Sincerely,

Stephen Diamond

We’ll see if it gets printed.

PE Digest has reprinted my paper on private equity on their website here.

Will Hillary run as an independent in the fall?  Check out the post below and this video with the late great Nina Simone providing the lyrics.

Now that Yahoo blew it in their negotiations to sell to Microsoft, they are going to be prey to all sorts of predators. And the Valley now gets to witness the kind of corporate warfare that is usually reserved for the “old” economy – a takeover battle via a proxy contest. I recently advised an ousted CEO recently in an attempt at a proxy contest to take over a public Valley company and it can be a challenging process. But corporate America has very few other mechanisms to bring in new leadership when management hides behind the various defenses that corporate law allows them. 

While I think that Yahoo needs new leadership, I am pretty taken aback by the nominees chosen by Icahn. Lucian Bebchuk, of course, is a very widely respected law professor (and justly so) but how much does he know about the gritty day to day operations of a public company – does he want to pour over corporate financial statements every quarter in order to ask management meaningful questions?? I doubt it.  And, of course, he knows even less about the internet as far as I know. 

The other nominees seem like “marquee” names (Mark Cuban??) aimed at garnering publicity for the proxy contest (which is, indeed, critical for its success) but do any of these people want to put in the time and effort it is going to take to turn Yahoo around? The CEO search alone could take months. So once the research groups and proxy advisory firms get to it I think there is likely to be only a lukewarm reaction to this alternative.

Sit back and enjoy the fight – if you own Yahoo stock it likely is going to be a bit of a roller coaster ride as shares rise and fall on the backs of speculation on the outcome.

A leading figure on executive compensation, Graef Crystal, sees problems with the implementation of CalPERS’ corporate governance reforms as detailed in this Bloomberg opinion piece.  It would appear that the disconnect between the board of the giant pension fund – which is known widely to push hard for progressive reforms in corporate America – and its staff is wider than is well understood.  

That means, of course, that the departure (ouster?) of both the the CEO and CIO of the fund represents an excellent opportunity for the fund to align its values with its policies by picking, first, the right CEO and then working with that CEO to pick the right CIO.  

Unfortunately, CalPERS does not seem to have been well prepared for the departure of their two top officers and have now named an “interim” CEO while a search continues.  Not a good sign that there is clear understanding on the board of what it will take to “right the ship.”  Unfortunately for the board public scrutiny is on the rise and it may not be long before the legislature gets involved. Strange that an entity of this size and sophistication did not have a succession plan in place for its C-level execs…that’s SOP in corporate America today, but it is something I have seen on several occasions is missing in the non profit world – at the Getty and Gates Foundations, for example, and at the Screen Actors Guild.

My article on private equity funds in Dissent magazine (Winter 2008) is now available on line.  I argue that PE funds are an important part of the institutional changes underway in modern capitalism.  I believe the critique that some in labor and on the left make of PE funds is misconceived.  Many argue that PE funds are part of something that is called “financialization,” which I think over emphasizes the role of the fictitious, or paper, side of the role of PE funds at the expense of understanding that PE funds reorganize the creation and appropriation of value.

A few years ago I was interviewed by the New York Times about an article I had written called “The PetroChina Syndrome.”  You can find a copy here.  My basic argument was that the globalization process was largely an economic activity that had left behind legal and political institutions.  As a result, globalization would trigger a backlash that could pose a crisis for global capitalism.  The process I discussed then was based in large part on American reaction to the IPO of PetroChina, the giant state controlled oil company.

Now several years later, the “PetroChina Syndrome” has reached the shores of China itself as this New York Times story about protests against the environmental impact of a proposed petrochemical project by PetroChina suggests.

As some have speculated, the departure of two top CalPERS execs is, at least in part, linked to the giant fund’s commitment to social accountability in a harshly competitive financial environment. The search for a new CEO will be critical in this effort. It won’t be easy for the fund to find an individual with the vision to understand the potential impact that CalPERS can have. Ordinary CEOs of fund managers are unlikely to be attracted to the highly political situation nor have the political skills to succeed. 

One important development: the CalPERS board has struggled to find the right balance over the last decade, but finally appears to be on track (gone are the days when a labor representative ran against a labor friendly Willie Brown for the presidency!). And I say this despite my initial criticism about the lack of transparency right now in midst of this governance transition. This makes all the difference to an incoming CEO – when the board’s values and direction are clear it is much easier to provide the necessary internal and external leadership.

One bit of unsolicited advice to CalPERS: pick a CEO first, and then work with the CEO to pick a new CIO.  The CIO has to follow the political lead of the board and the CEO has to be in place first to make sure the chemistry is right.  And resist the temptation to hire interim figures.  The search does not need to take forever.  Make the right choice; do it quickly and get up and running!

I am a huge fan of the efforts of CalPERS to clean up corporate governance, and I even helped in the drafting of their emerging market activist equity screen a few years ago. And I argue with my law and economics colleagues that the unusual board structure at CalPERS is evidence that boards representing all stakeholders can function efficiently. 

But now it appears that CalPERS is itself embroiled in a governance problem.  They have recently lost (fired? quit? pushed out? had lured away?) three senior figures, including their two top executives just this past week.

The heart of the problem appears to be a perennial one for large public sector pension funds.  How do you create a culture in the professional staff that implements the board’s vision?  And how do you do that when the vision itself is subject to change as politics changes?  Six of the board members are elected by California public sector workers and retirees; four are ex officio appointments serving by virtue of their public office; two are appointed by the Governor and one by the state legislature.  

When a pro-labor Democrat is in office usually things can go smoothly, but not always (the last time the CalPERS board was headed up by a labor representative and there was a Democrat in power in Sacramento, the board went after Warren Buffett!)  But when you have a market oriented Governor and a labor influenced board, then you are in for some serious tensions.  

Most recently, the CalPERS investment strategy had begun shifting away from some of its commitments to human rights and labor rights including opening up to investments in China.  While that is problematic, in my view, that does not appear to be the source of the current problems.  Instead, it appears that a decision to invest in private sector based infrastructure projects (where the giant fund might earn above market returns) clashed with the natural tendency of the labor folks on the board to want to protect union jobs on those projects and existing civil service positions. 

It is also possible that the downturn in the economy is going to lead to some red ink in the fund’s returns.  Better for those top execs to get out while the getting is good.  No huge severance package like other failed CEO’s but at least they can land softly in the private sector.

But this is all speculation because CalPERS has as of yet not clearly explained what is going on. Since they have no SEC to worry about or shareholders they can say pretty much what they want. But it is disappointing and a bit hypocritical for the Board now to suggest that these executive departures are simply because the CIO and CEO could earn more in the private sector (that is the first line of defense, anyway).  That was always the case for both individuals.  The CEO, for example, has 20 years experience rising up the ranks of CalPERS.  And now he wants to leave?  CalPERS argues around the world that it values transparency. It should practice what it preaches.