The Rise of the Working-Class Shareholder by David Webber

Author:David Webber
Language: eng
Format: epub
Publisher: Harvard University Press

7

The Law of Fiduciary Duty and the Risk of Capture

In Whose Interests Should We Invest?

For twenty-two years, Rick Thorne worked as a custodian in the Chelmsford, Massachusetts, public schools. He earned twenty dollars an hour and made payments every other week to his local public employee pension fund. In December 2007, a statewide investment trust invested Massachusetts public employee retirement funds, including those of Thorne and his colleagues, in a company called Aramark Corporation. Aramark is a facility management and food-service company that competes with public employee unions to win contracts from states and cities to service public entities like prisons and public schools.1 Aramark, which was owned by a private equity pool invested in by the Massachusetts trust, then underbid Thorne’s custodians’ union for the Chelmsford schools contract. The company offered to retain Thorne and his fellow custodians if they would accept a 56 percent salary cut to $8.75 an hour. Thorne declined the offer and spent the next year and a half looking for another job. Put simply, Thorne’s own retirement funds were used to invest him out of a job. Once let go, he ceased contributing to the fund. Because his career was cut short, he wound up collecting a reduced pension from his local pension fund.2

Thorne’s plight is not a solitary one. The Teachers’ Retirement System of Louisiana also invested in Aramark. In the aftermath of Hurricane Katrina, the company was hired to run schools in New Orleans. It cut pay for fund participants like Carol Sanders, who had worked as a cook for Orleans Parish since 1982. Before the Aramark contract, Sanders earned fifteen dollars an hour plus benefits. Aramark cut her time in half, assigned her to excruciatingly inconvenient split shifts, and reduced her pay to nine dollars an hour. Sanders “went without medical insurance and began drawing $200 a week in food stamps.” Eventually, she was fired. According to Phil Griffith, executive director of Louisiana Teachers, in weighing an investment like the fund’s in Aramark:

We take a kind of hands-off approach, which is from a fiduciary responsibility.… We manage [the fund] for return and for our own constituents. We don’t get into, ‘Does that mean it lays off public workers?’ The only thing we look at is the security of the trust, not whether or not it creates jobs or takes away jobs, whether it be public employees in Louisiana or public employees throughout the country.… Our responsibility is to the trust.3

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