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Govt. Fund Managers Playing Political Hanky Panky with Shareholder Resolutions?


Public pension funds are some of the largest shareholders in the country, and increasingly they love to throw their weight around. That’s what we learn from the Manhattan Institute’s Proxy Monitor, at least, which reports that public employee pension funds in New York City and New York state are branching out into social activism issues that have nothing to do with profit. These highly active shareholder proposals, whose concerns include “gender identity”, “the environment” and “human rights”, tend to focus on hot-button social issues like these rather than matters of corporate governance and responsible investing:

Typical are the proposals submitted to ExxonMobil (XOM) and Anadarko Petroleum (APC), the only two companies facing more than two shareholder proposals from the New York [State Common Retirement Fund] over the four-year period. The four proposals submitted by the New York State fund to ExxonMobil shareholders, introduced in 2010, 2011, and 2012, and 2013 each called for the company to add sexual orientation and gender identity to its equal-employment-opportunity policy—a concern that, whatever its merits, has little bearing on shareholder returns.…

Among the 119 shareholder proposals sponsored by the New York City funds since 2006, 14 have involved corporate-governance concerns, 16 executive compensation, and 89 social or policy issues. Among the last group, 25 involved employment nondiscrimination policies (18 calling on companies to adopt nondiscrimination policies regarding sexual orientation and gender identity, and seven calling on companies doing business in Northern Ireland to adopt the MacBride principles of nondiscrimination), and 20 involved corporate political spending or lobbying.

If these pension programs were normal, run-of-the-mill private sector pension programs, this kind of activism would be illegal, notes the report:

For private pension funds, the federal Employee Retirement Income Security Act (ERISA) requires that fund managers “consider only those factors that relate to the economic value of the plan’s investment,” and they are expressly forbidden to “subordinate the interests of the participants and beneficiaries in their retirement income to unrelated objectives.”

There are good reasons for this law. Pension managers don’t own those shares for themselves; those shares are held in trust. Some of those whose money is invested in these funds disagree with the social views of the fund managers; we think it’s appalling arrogance for these political appointees and hacks to use other people’s retirement money to back their own social views, however enlightened.

But the reason we’d like to see reforms limiting freelance activism by public sector pension managers isn’t about arrogance and bureaucratic hubris. And it isn’t that we think all of the various social goals of the state pension fund managers are bad. The real point here is that these pension boards should stick to their knitting. Most state pension funds lag far behind making the returns members need to get the benefits they’ve been promised.

States everywhere have set high targets for these funds, sometimes unrealistically so. The people who manage these funds should be focused on meeting those targets and should be working to find and make the best possible investments. If the pension managers have so much time on their hands that they are thinking up cool new shareholders’ resolutions and putting them on company ballots, those staffs are too big and need to be cut. The money saved can reduce the expenses the pension funds pay to the managers, boosting overall returns.

[Money image courtesy of Shutterstock]

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  • bigfire

    When you give someone that much money to throw around, they will considered it their money to play as they see fit. Why else would they go into this business?

  • ljgude

    Why just do a boring old job as tax collectors or fund managers when you can play politics? See Pournelle’s iron law of bureaucracy.

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