Ariel/Starbucks

Why is Teachers Pension Fund Not Cutting Ties to Union-Busting Starbucks?

By Jim Vail

Trustee Phil Weiss questioned Ariel Fund and its
affiliation to union-busting Starbucks.

Trustee Phil Weiss raised an important issue at the April 21 Chicago Teachers Pension Fund Board meeting - why is the fund continuing to work with Ariel Management which is not only performing poorly, but also connected to union-busting Starbucks.

He questioned why the CTPF would continue to do business with Ariel Management and its director Melody Hobson who sits on the board of directors for Starbucks.

Starbucks is currently engaged in an ugly union-busting campaign after several of its stores voted to go union because of poor working conditions and low pay that has resulted in high worker turnover.

Chicago Teachers Union VP Stacy Davis Gates who just won the election to be president posted a statement in support of the workers organizing and fighting against the union busting tactics of Starbucks on Facebook just before the election.

Ariel is politically connected to the Chicago machine and is run by an African-American woman who is married to billionaire George Lucas of Star Wars fame. Lucas married Hobson then tried to get a museum connected to his Star Wars franchise built on the Chicago lakefront.

The Ariel Fund was put on the CTPF watchlist in August of 2020 due to high staff turnover and poor returns. Robert Lopez, an equity portfolio manager for the $2.5 billion fund, said Ariel has made strides to improve employee retention.

Weiss, the Investment Committee Chair, was not convinced.

"They are anti-union which is pretty disturbing and does not line up with our philosophy," Weiss said during the board meeting. 

Ariel's Valerie King said Melody Hobson is not anti-union because she is a union card holder and the negative press with Starbucks is unfortunate.

"We're aware of the negative press," she said. "There is no story here. It is distracting. Melody is very hurt by this."

Trustee Lois Nelson, who ran on the CORE ticket, defended Ariel and Melody Hobson.

"Ariel has been with us for so many years," Nelson said. "Hobson does not own Starbucks. She is beholden to them. This is being blindsided."

Ariel appears to be a minority front investment fund run to the benefit of corrupt city insiders. Former schools chief and President Obama's Education Secretary Arne Duncan sits on Ariel's board of directors. Duncan worked on behalf of Mayor Daley and the business class and closed many city public schools and replaced them with charters.

During the April CTPF board meeting, Trustee Dwayne Truss told Weiss to stick to the investment committee issues. Truss represents Mayor Lori Lightfoot and the Chicago Board of Education.

This is not the first time Ariel has been put on the CTPF watchlist when it comes to performance for the Chicago Teachers' Pension Fund. 

The CTPF investment consultant recommended terminating Ariel Capital Management due to poor performance at a Feb. board meeting in 2009 and a motion for termination was approved.

The trustees who abstained on the vote at that time included Lois Nelson, who was an active teacher trustee on the fund, John O'Brill, the president of the fund, Nancy Williams, teacher trustee, and Alberto Carrero, a trustee with the Chicago Board of Education.

Carrero said he abstained from the vote because he was in a position of conflict because of Ariel's involvement with and support of the Chicago Public Schools. 

Nelson said she abstained because Morgan Stanley was on the watchlist for two years and had not been removed.

Managers are put on the CTPF watchlist for poor performance or high turnover.

Trustee Maria Rodriguez was an active teacher trustee in 2009 and she made a motion to accept the pension fund's consultant Mercer's recommendation to terminate Ariel at the March 19, 2009 CTPF Board Meeting.

But then a curious thing happened. At that same meeting a motion was made to reconsider the earlier motion to sever ties with Ariel.

Apparently Ariel's magic worked and they continued to do business with the teacher's pension fund for the next two years. 

Then in 2011 another motion to put Ariel on the watchlist failed in a 7-4 vote. Those trustees who voted in favor of terminating Ariel included current Teacher Trustee Tina Padilla, former Teacher Trustee Ray Wohl, Principal Trustee Chris Kotis and former Pension Fund President Jay Rehak. The nays who voted to not terminate Ariel included former CORE Trustees Lois Ashford who ran on the ticket with Rehak to win CORE's first citywide election before defeating the UPC in the 2010 election, Jeanne Freed, and Mary Sharon Reilly, who at the time was a member of the UPC. Strangely, Reilly had seconded the motion to terminate Ariel, but then voted against the motion to terminate. The Chicago Board of Ed Trustee Rodrigo Sierra also voted against severing ties with Ariel.

The pension fund put Ariel on its manager watchlist in July, 2020 for "personnel turnover and underperformance." They have invested $79 million with the fund that has earned the highest watchlist score, according to the CTPF Asset Allocation report Sept. 30, 2021. Investments that were terminated after being placed on the watchlist included three BMO accounts that totaled $646 million. Funds on the watchlist but not yet terminated include Lazard ($675 million), Earnest Partners ($212 million) and DFA ($181 million), the asset allocation report stated.

According to the CTPF, over the past five years Ariel has returned 4.5 percent compared with the MSCI index of foreign stocks that returned 8.8 percent, costing the fund about $16 million.

Hobson manages more than $640 million in assets for Chicago-area pension funds, earning more than $3 million per year in fees. Many of those funds are connected to the city's unions, including SEIU that is seeking to organize Starbucks workers, according to writer David Sirota who covers pension funds.

Starbucks just fired 16 pro-union workers and Hobson said they will not stay neutral in union elections. 

According to CTPF protocol, recommendations to terminate or place investment managers on a watchlist is initiated by the CTPF consultant and then reviewed by the CTPF investment team. A motion is then made by the investment chair to vote on at the CTPF committee meeting and then voted on by the full board of trustees.

So why wasn't a motion made by someone on the investment committee to terminate Ariel and its ties to union-busting Starbucks?