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Public pensions' proxy adventures

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by Steve Eide
Senior Fellow, Manhattan Institute's Center for State and Local Leadership

This entry is cross-posted at publicsectorinc.org, where Steve Eide is a regular contributor.

American states differ, but generally not so much in how they operate their pension systems. Consensus reins over investment allocations and benefit structures. Most trustees and administrators don't believe radical pension reform is necessary, regardless of if they hail from a rich or poor state or red state or blue state. Shareholder activism is an exception. A few blue state pension funds, particularly in New York, adopt a highly activist posture during proxy voting season, while most funds are barely active at all. Proxy Monitor, a project of the Manhattan Institute's Center for Legal Policy, lays out the details in a new report.

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).
Proxy Post Chart #1 (fixed).png

Proxy Post Chart #2.png

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.

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Legal Policy

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The Manhattan Insitute's Center for Legal Policy.