Commentary on Leo Strine's "Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance". (Article by Leo E. Strine Jr. In This Issue, P. 1‪)‬

Vice Chancellor Leo Strine is correct that "forced capitalists"--working men and women--are deeply affected by the capital markets both as the beneficiaries of institutional investors such as pension funds and mutual funds, and as individuals new to the demands of the "ownership society." For example, the 1.4 million public service workers who are members of my union, American Federation of State, County, and Municipal Employees (AFSCME), have their retirement dollars invested through public retirement systems that hold more than $1 trillion in assets. Our members depend on the earnings of these systems to support their financial security in retirement. To meet these plan obligations, public pension system investments in the public markets are diversified, largely owning the market, are heavily indexed, and operate with time horizons of 20 years or more to meet the payment of contractual benefits. Indeed, public pension systems are the foundation of patient capital investment in this economy, which seeks shareholder value creation over long time horizons. In labor's view, the lack of director accountability to shareowners and the inability of the largest intermediary financial institutions to fairly represent the interests of the ultimate beneficiary--the working family--stand out as the fundamental flaws in U.S. corporate governance today. These flaws, centered on the lack of true ownership rights, combine the problems of board agency with the obstacles inherent in common action among institutional holders of capital. Compounding the problem, as Vice Chancellor Strine rightly argues, are intermediary financial institutions that protect their own financial interests and not those of the ultimate beneficiary. Of particular concern to us is the large role that mutual funds and hedge funds play in the markets, which is often at odds with the overall financial objectives of the ultimate investor.