Texaco Inc.'s sudden, large-scale hiring of minority and women managers raises a number of issues that all corporations, and shareholders, should address.
Will settlements of discrimination cases at other corporations include, as Texaco's groundbreaking move has, the use of emerging managers for pension fund investing? Will corporations not involved in discrimination complaints voluntarily examine their use of emerging managers for pension funds? Should discrimination cases spur efforts to make workplace practices an issue for shareholder proxy resolutions?
In Texaco's case, some have called its swift hiring of minority- and women-owned money management firms tokenism. That is a simple and unfair reaction. A better description might be impulsive enlightenment.
But it should cause other corporate pension sponsors to examine their own use of emerging managers. In particular, it brings to mind Publix Super Markets Inc.
Publix is paying $81.5 million to settle a discrimination lawsuit, according to reports last week - a considerable sum, almost half as big as Texaco's record payment to settle its own discrimination case. Will Publix seek or be pressured to add minority- or women-owned money managers for its $800 million profit-sharing plan? So far, the pension issue hasn't arisen in the case.
But many corporations - which haven't been discriminating - should look at how to increase services with emerging managers or other investment-related firms, such as brokers. To make an emerging manager initiative only in an effort to quell a discrimination case is tokenism. Some corporations have reviewed their minority involvement and hired some investment services firms. But many more could. They need to look at not only their defined benefit plans, but also their faster-growing, and often now larger, defined contribution plans. Notably, Texaco hired the managers for its defined benefit plan.
The Texaco case likely will prompt comparison with the effort to bring workplace issues to the proxy ballots. But what could shareholders do in these situations? Would they have divined a problem early enough to head it off? Will they seek numbers of minority and women employment, turning the issue into a quota system? Shareholder involvement would become micromanagement.
Time will tell if Texaco's move to add seven minority money managers for its pension fund and one minority money manager for corporate cash management was rash. And it will be tokenism if, over the long term, Texaco retains poorly performing managers for the sake of appearance instead of replacing them after an appropriate performance interval.
Texaco might have acted too swiftly in hiring; some in the pension industry have criticized the company for hiring not always the firm with the best track records. But that is a wrongheaded call. As its consultant, Wilshire Associates Inc., has pointed out, you can't judge a firm by historical performance alone. Otherwise, picking managers would be a no-brainer screen of numbers.
Texaco acted hastily for sure. But it was faced with a difficult situation of trying to show good faith commitment to non-discrimination ideals and to make a business decision to move the issue behind it.
Nothing Texaco or any corporation does should compromise fiduciary duty, or the long-range financial health of pension funds. For this purpose, every minority managers should concur; otherwise they shouldn't be in the pension business.
