Pension Power

Pension Power: Unions, Pension Funds, and Social Investment in Canada

Isla Carmichael
Copyright Date: 2005
Pages: 225
https://www.jstor.org/stable/10.3138/9781442678347
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  • Book Info
    Pension Power
    Book Description:

    Canadian pension fund assets are second in size only to the combined financial assets of the major banks and have become a critical source of capital for national and international markets. Given their tax-exempt status, pension funds can provide the long-term capital needed to build a new economy based on real productivity. The funds are controlled by an intricate web of financial and legal standards but, as deferred wages, are largely beyond the control of workers or their unions.

    InPension Power, Isla Carmichael argues that unions could and should have a new role to play in the economy by gaining control over their members' pension funds. She demonstrates how the financial industry's access to the capital goes against the interests of working people, and she provides convincing evidence that union management of pensions would better protect benefits and offer support in building infrastructure in communities and protecting the environment. This is a work of singular commitment to a fundamental shift in the structure of managing one of Canada's largest pools of capital.

    eISBN: 978-1-4426-7834-7
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Tables and Figures
    (pp. ix-x)
  4. Preface and Acknowledgments
    (pp. xi-2)
    Isla Carmichael
  5. Introduction
    (pp. 3-10)

    In 1968, as the new president of the Telecommunications Workers Union (TWU) in British Columbia, Bill Clark was astonished when he learned of the large amount of money in his members' pension fund. He considered pension money, 'just different wages,' even though the money was in a pension fund rather than a pay cheque. Clark was strongly influenced by Peter Drucker'sThe Unseen Revolution(1976). He reasoned that if other pension funds were similar, there must be a lot of money leaving British Columbia 'because Ontario, Quebec, New York, and places like that were better investments for fund managers.’ This was...

  6. Part 1

    • chapter 1 The Development of Unions and Workplace Pension Plans
      (pp. 13-22)

      Workplace pension plans have existed in Canada for 140 years. They developed largely in response to labour unrest, the rise of unionism, and demands from working people for a national social security pension for the elderly (Morton and Copp, 1981; Stafford, 1987a, 1987b; Palmer, 1992; Heron, 1996). Pension plans were originally introduced in the late 1800s by the banks, railroad companies, and the federal and later the provincial governments to provide for their large workforces and, incidentally, as a means of workplace control. Pensions were used as a form of patronage by government employers and by other employers as a...

    • chapter 2 The ‘Prudent Man’ Rule and Maximum Rate of Return
      (pp. 23-36)

      The prudence rule is a central concept of trust law and a legal requirement of the management of pension fund assets in the United Kingdom, the United States, Canada, and most other industrialized countries. The trust concept has its origins in the Middle Ages, and has a history of jurisprudence and litigation covering several centuries. The concept of the ‘prudent man’ is central to the accumulation of private capital through the protection of family wealth. The roots of trust law are patriarchal, lying in the remnants of feudal society where wealth was passed on through the male heads of households....

    • chapter 3 The Expansion of Capital Markets
      (pp. 37-47)

      During the 1960s and 1970s, as the courts attempted to come to grips with the impact of the prudence rule and trust law on pension fund investment decisions, pension fund assets continued to expand. In 1980, pension fund assets in Canada were $65.5 billion, having grown from $4.8 billion in 1960. Their growth exceeded that of any other financial institution (Deaton, 1989, p. 234). By 1985, they had outstripped most other financial institutions to become second only to the chartered banks in Canada (ibid., p. 237). Pension funds had also become a major source of capital in financing government expansion...

    • chapter 4 Shareholder Activism
      (pp. 48-61)

      This chapter examines the feasibility of pension funds becoming more active as shareholders, given the barriers (cited in the previous chapter) of capital concentration and a lack of market liquidity, and the centrality of shareholder theory in corporate law. Since, in Canada, the cost of selling shares can be high, is it possible for a pension fund to be active in improving the value of its shares or even the behaviour of the company, without the effective threat of withdrawing funds?

      This chapter is included in this study for two reasons: (1) It addresses the issue of pension fund power...

    • chapter 5 Unions, Social Investment, and Corporate Accountability
      (pp. 62-79)

      This chapter offers a definition and framework for examining several types of social investment. This framework has two key elements. The first is that the framework itself is a model for social change, and the second is that it calls for corporate accountability in terms of the corporation's social and economic benefit to the community. The debate within trade unions on involvement in investment and social investment, in particular, is illuminated. This chapter also reviews the literature on corporate social performance (CSP), including the measures that have been used to assess corporate behaviour. A further question is whether investment returns...

    • chapter 6 Value, Capital Accumulation, and Radical Accounting
      (pp. 80-91)

      The financial industry and the corporate sector, in general, do not acknowledge the social values implicit in their policies and practices. This approach promotes profit at the expense of social concerns. Furthermore, the social investment and corporate performance literature offers little in the way of tools that assess social value in financial terms. This chapter surveys the literature of radical accounting for a framework of value, and assesses studies from various disciplines that can assist in building models of social accounting for pension fund investment.

      Accounting is taught as the process of ‘recording, measuring, classifying, summarizing, communicating, and interpreting economic...

    • chapter 7 Venture Capital, Economically Targeted Investment, and Economic Development
      (pp. 92-110)

      The existing investment practices of pension funds mimic the prevailing practices of the capital markets and may be socially unproductive and even speculative. Furthermore, pension funds have little control over their investment and, hence, their rate of return. Finally, pension fund investment is primarily short term, influenced by quarterly reporting by the fund’s managers. Some forms of social investment have been described that, on their own, are of limited use to pension funds, but that can nevertheless complement a strategy of productive and socially useful investment. This chapter describes investment practices in emerging markets, as well as investment in companies...

  7. Part 2

    • chapter 8 A Case Study of Concert
      (pp. 111-129)

      This chapter is the first of three that presents this study’s findings. It traces the background history of Concert Properties, using interviews with people who were significant in its development. Next, the formation and development of Mortgage Fund One is described. This mortgage trust was designed to complement and support Concert Properties as an investment vehicle for pension funds. Both Concert Properties and Mortgage Fund One are examples of strategies for allocating the assets of pension funds. The success of these strategies is examined in this chapter.

      In 1968, as the new president of the Telecommunications Workers Union (TWU), Bill...

    • chapter 9 Carpenters and Concert: Social Accounting Models
      (pp. 130-142)

      This chapter describes the role of the Carpentry Workers’ Pension Plan (CWPP) in Concert. It presents social accounting models for Concert using the variables of job creation, increased contributions to pension funds, and fiscal benefits to government and the broader community.

      The carpenters' union is the largest construction union in British Columbia, with over 9,000 members. Although its membership, and organizing policy, is not restricted to carpenters, that trade predominates. The Carpentry Workers’ Pension Plan of B.C. (CWPP) has been in existence for over thirty years, and for much of that time Wayne Stone was its administrator. The CWPP is...

    • chapter 10 Collingwood and Concert: Union and Community
      (pp. 143-158)

      First, this chapter examines the Collingwood housing project and provides a short case study of the neighbourhood and a history of the development of housing projects within it from 1994 to 1999. It assesses the proportion of jobs created that are directly attributable to Collingwood and estimates the returns to stakeholders. Second, this chapter applies these same models to all Concert projects since its inception, providing an estimate of Concert's direct impact on the community, as well as its benefit to stakeholders. Finally, this chapter uses multipliers to estimate the impact of Concert on the economy of British Columbia.

      Collingwood...

  8. Part 3

    • chapter 11 Accounting for Social Investment
      (pp. 159-169)

      One topic of this book has been an examination of the barriers confronted by union trustees in establishing meaningful, and implementable, social investment strategies. Part 3 offers an antidote, by proposing interpretations of the findings described in Part 2 and a way forward for union trustees to implement social investment strategies in managing their pension funds. This chapter is organized into two sections. First, definitions and standards for social investment are discussed. Integral to this discussion is consideration of the validity of using the term ‘social investment’ as a classification for ethical investment, shareholder activism, and asset targeting. Second, the...

    • chapter 12 Two Models for Union Control of Pension Funds
      (pp. 170-180)

      Union control over investment of pension funds is a critical step, if unions are to participate in building more productive social investment strategies. First, this chapter will examine whether the Concert model is transferable. Second, as a guide for unions in pursuing union control and social investment strategies, two models are proposed that are transferable. The first model illustrates the levels of control necessary for unions to implement social investment strategies. The second is a social action model for union control over investment.

      There is no easy formula for social investment that makes the Concert model directly transferable. First, it...

    • chapter 13 Education and Research
      (pp. 181-189)

      This chapter provides an extensive discussion of the implications for education, based on the models provided in the previous chapter. While most of the discussion on education is devoted to the role of trade unions, joint trustee education is also proposed.

      Education is the third component of the social action model (see Fig.12.2), but it is also a major issue in its own right and critical to an effective investment strategy. This book proposes a strong role for trade unions in research and education in pension governance, investment issues, and social accounting. Without a coordinated strategy within the trade union...

    • chapter 14 Future Research
      (pp. 190-194)

      The limitations of this study and the implications for future research will now be considered. This study should be viewed as but a beginning of research on more productive ways to invest pension funds. Much more remains to be done.

      Like all studies, this one have a number of limitations. It is unlikely that Concert itself can be replicated because of limitations imposed by the Income Tax Act: There are only so many pre-1978 real estate companies which can facilitate a role for pension funds as active builders. This is a somewhat startling discovery, particularly since much asset targeting in...

  9. Conclusion
    (pp. 195-196)

    Canadian pension fund assets are estimated to be at approximately $550 billion. In terms of financial assets, in Canada pension funds are second only to the combined assets of the country’s major banks. Pension funds have become a critical source of capital for national and international markets. They are controlled by an intricate web of financial and legal standards such as fiduciary responsibility and yet, as deferred wages, they are largely beyond the control of workers or their unions.

    Especially given their tax-exempt status, pension funds can provide the long-term capital needed to build a new economy based on real...

  10. APPENDIX: CANADA’S TOP TWENTY-THREE PENSION FUNDS BASED ON ASSET SIZE
    (pp. 197-200)
  11. References
    (pp. 201-219)
  12. Cases Cited
    (pp. 220-220)
  13. Index
    (pp. 221-226)