After storming the corporate governance movement in the United States this year, some labor unions are looking to export their shareholder activism overseas.
The International Brotherhood of Teamsters, Washington, is considering aligning with a group of Australian labor unions to nix a proposed 21.5% stock buyback by Coles Myer Ltd., an Australian retailer, from K mart Corp. for an estimated $924 million.
Through various regional pension funds, the Teamsters union owns K mart shares worth approximately $45 million, as well as a substantial but undisclosed stake in Coles Myer, said Bart Naylor, a spokesman. While the proposed Coles Myer stock repurchase may be good for K mart investors, the deal is likely to hurt Coles Myer shareholders, he said. Already, Coles Myer's bonds have been downgraded by Australian credit rating agencies, Mr. Naylor said.
"The bond downgrading of Coles Myer is shorthand for a bad deal," he noted.
Under the terms of the agreement, Coles Myer's shareholders must approve the proposed stock repurchase at a meeting to be held before the end of September. K mart still would receive $20.5 million from Coles Myer if the Australian retailer's shareholders fail to approve the deal.
While one or two other activist labor unions also might take up arms against foreign corporate managements, Jack Marco, president of The Marco Consulting Group, a Chicago-based consultant, doesn't anticipate a groundswell of overseas activism efforts by union pension funds. That's because they hold few foreign stocks in their investment portfolios.
Meanwhile, other American institutional investors this year launched all-out offensives against foreign companies in places as far away as Australia and Japan, as well as Europe.
These efforts, in tandem with the flow of investment dollars overseas, reflect the desire of U.S. institutions to ensure foreign companies adopt basic corporate governance standards already commonplace in the United States.
Moreover, by taking their activism overseas, American pension funds also are inciting local institutions to speak up against discriminatory employment practices, inordinately high pay and perquisites for top management, and boards stacked with insiders.
In 1991, American institutions reported voting just 24% of their foreign stock, notes the Washington-based Investor Responsibility Research Center. In 1992, they voted nearly half of their foreign shares and voted an estimated 58% of their foreign equity holdings in 1993, according to the IRRC.
As in the United States, the $78 billion California Public Employees' Retirement System, Sacramento, is at the helm of shareholder activism overseas. While the giant retirement system continues to speak up and vote against management proposals at various foreign companies, the board of the giant pension fund is working to develop a formal international corporate governance agenda, along the lines of its domestic strategy, to target each year foreign corporations unfriendly to shareholders, said Richard Koppes, acting chief executive of the system.
The question, said Mr. Koppes, is: "Do the standards that we expect here - independent boards and strong oversight - apply in every country, and should they?"
Earlier this year, the $50.7 billion New York City pension funds, which now have approximately $3 billion invested in foreign equities, confronted management of the National Australia Bank at its annual shareholder meeting in Melbourne. Fund officials urged the company to hire more Catholics at its Northern Ireland affiliate.
The New York City pension funds, along with more than a dozen other public pension funds, endorse the MacBride Principles - aimed at ensuring equal employment opportunities for Catholics in Northern Ireland.
The New York City funds also assailed British Gas for its discriminatory employment policies at its Ballylumford power plant in Northern Ireland.
That's not all.
The New York pension funds recently have hired Pensions Investment Research Consultants Ltd., London, to survey the top 250 or so British companies as potential targets for shareholder activism. The New York City funds already are invested in most of the top British firms, said Patrick Doherty, director of investment responsibility. "There may be some shareholder resolutions on employment, Catholic/Protestant imbalances in Northern Ireland," in the upcoming annual shareholder meeting season, Mr. Doherty predicts.
The New York City funds hope to enlist the support of other American institutional investors, as well as British human rights groups and public pension funds in their fight against British managements.
The New York City funds also earlier this year planned a protest against the French cosmetics giant, L'Oreal Corp. S.A., because of its boycott of Israel. The New York City funds, which have a $3 million holding in L'Oreal, planned to send a representative to the company's annual meeting, until L'Oreal announced plans to purchase 40% of an Israeli company just prior to its annual meeting, Mr. Doherty said.
"There is a U.S. law prohibiting U.S. companies from participating in the Arab boycott of Israeli companies, but there is no French law or British law preventing their companies from boycotting Israeli companies, (so) we were happy that L'Oreal agreed to do this," Mr. Doherty said.
"We have been figuring out how to vote shares internationally and how to assert our rights," Mr. Doherty explained. "We are looking to expand our activism further in the next year or so."
Meanwhile, attempts by Japanese companies earlier this year to pass off insiders as "independent" directors caused a stir among U.S. public pension funds with Japanese holdings.
IRRC noted that despite a change in law requiring Japanese companies to appoint at least one "outsider" as director, at least six conglomerates - including Sony Corp., Mazda Motor Corp., Konica Corp., The Nomura Securities Co. Ltd. and Nikko Securities Co. Ltd. - actually were designating employees or former employees as independent directors.
At the same time, the California Employees' fund also protested loudly about dividend policies of Japanese firms.
To be sure, while public pension funds are leading the charge for improved governance practices by foreign companies, Labor Secretary Robert Reich's recent call to corporate and union pension funds to diligently vote proxies of foreign companies also could lead to stepped up international efforts by some U.S. private pension funds.
"They'd better be (voting foreign shares) or they'll subject themselves to legal liabilities," warns Mr. Koppes.