See UPDATE here.

At 11am PST tomorrow, CalPERS is expected to announce a settlement to the suit filed by the California First Amendment Coalition on September 7. Under the settlement, CalPERS will disclose the fees it pays to the private equity partnerships it invests in. We first wrote about the suit here. Below is an edited version of our story that runs in tomorrow’s Mercury News. We’ll provide more conclusions about the disclosures here at 11am Tuesday.

harrigan.jpgThere was a lot of ink spilled about the ouster of Sean Harrigan on Wednesday from the nation’s largest pension fund, CalPERS.

But get ready for round two, Harrigan’s attempt at resurrection.

As president, Harrigan (pictured left) was one of the most aggressive wielders of the $177 billion fund’s stick to cajole the nation’s largest corporate boards toward more transparency and independence.

Some critics say he went too far, including witholding a vote against respected investor Warren Buffett from election to the board of Coca-Cola — because Buffett was on the audit committee when auditors got paid for non-audit advisory business, a potential conflict of interest.

So the gossip was that business interests, led by Gov. Arnold Schwarzenegger and others, led the coup at CalPERS — a conspiracy theory that Harrigan himself seemed to encourage.

As soon as the news hit that Harrigan was booted — which happened when a state Personnel Board voted three to two to replace him as its CalPERS representative — buzz started that that state Legislature would try to reinstall him.

On Wednesday, Clint Harris, a partner at Grove Street Advisors and an advisor to CalPERS, told us he’d heard the legislature was considering giving Harrigan the seat held by Mike Quevedo, who remains pending replacement or extension by State Assembly Speaker Fabian Nunez and Senate President Pro Tem Don Perata.

Why’s all this relevant to the venture community? Because Harrigan’s hard-line stance against disclosure of the fees paid by the state to venture capital and other investment firms showed he wasn’t simply a left-wing railer against big money, as some suggest.

Settlement expected tomorrow: In fact, we’ve learned that CalPERS will announce a settlement on the lawsuit filed Sept. 7 against it by California First Amendment Coalition. CalPERS’ agreement is more disclosure-friendly than Harrigan’s stance when he visited us later that month.

The CFAC had been demanding more information about how much money CalPERS is giving away in fees to each of the managers of those big investment firms.

During his visit with us Sept. 22, Harrigan spoke out against disclosure of those fees, saying it would hurt the state’s ability to negotiate favorable fee arrangements. The top investment firms, he said, would be ticked off and boot CalPERS as an investor. “If it turns out to impact our ability to invest well,” he said, “we’ll fight it all the way.”

As it turns out, CalPERS and the CFAC will announce a settlement today Tuesday? that calls for disclosure of dollar amounts CalPERS pays in fees, but not of further fund-specific details, such as what the annual percentage the fees represent.

The settlement is significant because CalPERS is considered a bellwether of investment trends in the venture world.

When Harrigan visited us, he apparently had no inkling of the coming putsch. He spoke forcefully about the need for reform in health care (which we blogged about here), and to remain vigilant on good corporate governance. But he also spoke passionately about upholding the state’s best interests, maximizing returns to the state’s pension fund, and making sure CalPERS was prudent in its activism.

Which is why we’re slightly surprised that Karen Hanretty, spokeswoman of the
California Republican party, said that the party considers activism counter-productive and inappropriate for pension trustees (NYT subscription req) — this in the wake of corporate disasters at Enron, Worldcom and Tyco.

Harrigan came armed with statistics about how putting heat on companies had improved their performance — and boosted retirement returns.

True, he was outspoken: “Corporate board for the most part are little clubs of people who feel total allegiance to the CEO,” he told us, “and no sense of responsibility to shareholders.” On the CalPERS’ vote against Buffett, he said: “He may be a great investor, but he’s not the greatest advocate of corporate governance.”

Still, Harrigan acknowledged that CalPERS might have considered a more moderate approach. He knew of the criticism, and admitted to getting “weak-kneed.” In the end, it may not have been Harrigan’s activism that brought him down, but his failure to watch his back. Other board members, he noted during his visit, had become “critical of the (audit) rule they voted in favor of.”

UPDATE: Dan Primack follows with his take here.

Also, a good story here by the LA Times which, while speculative, provides more reason to believe Harrigan’s ouster was due to plain ol’ inside personal politics (namely, moves by an ally of Willie Brown, who may have been jealous because Harrigan beat him out for the presidency post last year) rather than any sort of coherent right-wing or business-led conspiracy.