Walter Olson, senior fellow at the Cato Institute's Center for Constitutional Studies (and founding editor of PointofLaw), has penned a critical piece on the SEC's new proposed rule to implement a mandate under the Dodd-Frank law that U.S. corporations disclose the ratio between the pay of their chief executive officer and that of their workers.
Recently in Corporate Governance Category
Floyd Norris, author of the High & Low Finance column for the New York Times, writes about two cases the Supreme Court has decided to hear dealing with fee-shifting in patent infringement cases. The outcomes could potentially deter future, frivolous infringement suits.
For all you interested readers out there, the Harvard Law School Forum on Corporate Governance and Financial Regulation has re-published a memorandum from the Manhattan Institute's 2013 Proxy Season Review.
This annual review analyzes various pre-voting facets of shareholder proposals, such as the types of proposals introduced, who sponsored them, and the rate at which they were introduced, as well as post-voting results. A particular emphasis is placed on proposals involving political spending and lobbying, which have constituted a plurality of all shareholder proposals introduced in 2012 and 2013.
The full text of the 2013 Proxy Report is available here.
Shareholder activism can take various forms. Public pension funds are particularly keen to advance "agenda[s] unrelated to share value" which attempt to "mobilize the power of the capital markets for public purpose" (that's former California state treasurer Phil Angelides speaking).
Public-employee pension funds...have generally been much more likely to sponsor proposals related to social or public-policy issues unrelated to corporate governance or executive compensation--such as those involving the environment, corporate political spending or lobbying, and human rights--than have other shareholders. Social and policy issues have been the focus of only 38 percent of shareholder proposals sponsored by investors generally dating back to 2006 but 64 percent of all shareholder proposals sponsored by state and local employee pension funds.
And public pension funds have been increasingly active, putting forth even more proposals this year than private union funds, traditionally the leading source of shareholder activism.
But mostly just in New York (see charts).
Even CalPERS, despite its vocal commitment to socially responsible investing, has not been anywhere near as active on the proxy front as the New York City and State funds. According to Proxy Monitor, CalPERS' few recent proposals have focused on corporate governance issues with at least an arguable connection to shareholder value. By contrast, the New York funds' proxy agendas are unabashedly social. In addition to going after companies for failing to toe the line on gender identity and the environment, Comptroller DiNapoli, trustee of the $160 billion New York State Common Retirement Fund, has employed the proxy process to harass companies for giving money to Republicans and for lending support to public collective bargaining reform. Among the 119 shareholder proposals the New York City pension funds have sponsored since 2006, 89 have been about "social or policy issues." (Nearly all have been voted down by shareholders.)
Here's the problem. Public pensions' shareholder activism tends to advance a very partisan understanding of taxpayer/shareholder interests, and it politicizes a government function--pension fund management--that should be purely administrative. There's no smoking gun evidence that New York funds' activism have caused the funds to lose value. But using pension funds to advance a social agenda aggrandizes pension policy, which already consumes far too much public attention. The dreamers among us yearn for a time in which public officials may devote their attention exclusively to matters that may yield some benefit to the public, such as how to improve park service, snow removal, or the schools. Pensions, by contrast, should be a minor administrative responsibility guided only by the humble principle of stewardship: don't lose the money, and make a small return with it. Elected comptrollers and treasurers should stick to their knitting. We elect them to collect revenues, not advance social agendas.
In pre-market trading, Procter & Gamble market cap is up $7 billion on the return of A.G. Lafley to the CEO's chair—more if you consider that the market as a whole is down. Either the collective wisdom of the market is en masse making a huge mistake in valuing the difference an executive makes to shareholder value, or Mr. Lafley's $2 million base salary is a bargain. If a company I held stock in could make an investment with a 350,000% return, I'd sure want them to do it.
This morning, the Manhattan Institute released my latest finding in the Proxy Monitor series: 2013 Proxy Season Underway: JPMorgan Chase Chairman vote looms large in busy May proxy season. As of May 3, 175 of America's 250 largest publicly traded companies, tracked in the ProxyMonitor database, had filed proxy documents and 72 of these had held annual meetings. In addition to summarizing proxy submission and voting results to date, I look at JPMorgan Chase's looming --and widely publicized--May 21 annual meeting, in which shareholders will consider a proposal sponsored by the pension fund of the American Federation of State, County, and Municipal Employees (AFSCME) to separate the bank's chairman and CEO positions, which the market may read as a referendum on the leadership of incumbent chairman and CEO Jamie Dimon--and which may, if the board reacts to the vote by stripping him of his chairmanship, prompt Dimon to leave the bank he steered ably through the financial storm.
Key statistics on filings to date include:
In a front-page story in yesterday's New York Times, Nicholas Confessore reports on the pending rulemaking petition at the Securities and Exchange Commission on corporate political spending, which was submitted in August 2011 by a group of professors led by Harvard's Lucian Bebchuk and Columbia's Robert Jackson. There's nothing really new in the report that hasn't been known to those following these issues for months; it could be the case that the SEC acts on this rather soon, now that former U.S. Attorney for the Southern District Mary Jo White has been confirmed as the Commission's Chairman.
A couple of points in Confessore's piece call for clarification/correction:
In sum, the SEC rulemaking petition simply amounts to a certain group of political activists attempting to get an election-regulation regime they can't achieve through normal legislative, legal, or regulatory channels by going to an already-overtaxed agency statutorily charged with "promot[ing] efficiency, competition, and capital formation." Were the SEC to act in this area, they'd be not only outside their statutory mandate but acting against the revealed preferences of most shareholders themselves.
The Manhattan Institute's Proxy Monitor project, featuring the first publicly available database cataloging shareholder proposals and Dodd-Frank-mandated executive-compensation advisory votes at America's largest companies, released its first Finding of the 2013 proxy season.
In 2013 to date, as in 2012, the most regularly introduced class of shareholder proposals seeks limits on or greater disclosures of corporate political spending and lobbying. The second-most frequently introduced type of proposal, again consistent with 2012, seeks to require companies to have an "independent chairman" separate from the company's chief executive officer.