The Costs Of Union Shareholder Activism

Is shareholder activism a good or a bad thing? That depends on what any given resolution seeks to improve the company’s performance, and thereby increase shareholder value. That seems like a simple enough and easily understood measure to determine which shareholder resolutions merit consideration. But resolutions that do not meet that criterion are often introduced at public companies’ shareholder meetings, often by labor union pension funds.

A new study from Navigant Economics, commissioned by the U.S. Chamber of Commerce, analyzes resolutions scored by the AFL-CIO in its “Key Votes Survey” between 2009 and 2012, and finds “no conclusive or pervasive evidence that the shareholder proposals assessed in this study improve firm value or result in an economic benefit to pension plans and plan participants.”

Today, at a Chamber event to announce the study’s release, former Securities and Exchange Commission (SEC) Chairman Harvey Pitt. He noted that shareholder activism can be useful, but not when it seeks to advance social agendas. Moreover, successful shareholder activism should advance the interest of all shareholders.

The Navigant study’s authors, Allan T. Ingraham and Anna Koyfman, list the topics of the resolutions they analyzed under the categories, “governance,” “compensation,” and “non-governance.” If “non-governance” seems like an overly broad category, it’s because it is. It includes the following topics:

  • Health care principles
  • Greenhouse gas emissions
  • Supply chain and human rights
  • Political disclosure
  • Country selection standards
  • Global warming principles
  • Sexual orientation non-discrimination
  • Political contributions
  • Human rights standards
  • Sustainability reporting

Many union-sponsored resolutions deal with potentially more relevant issues, such as executive compensation and board composition. But resolutions focusing on the above listed topics are not rare, which suggests that many unions consider advancing social and political agendas a legitimate use of their pension funds.

At today’s event, during a Q&A session, Damon Rees, acting director of the AFL-CIO’s Office of Investment, got up and waved around what he claimed was a stack of studies showing the soundness of union pension investment strategies (in a display reminiscent of Rick Lazio’s embarrassing podium walk). Rees criticized Ingraham for counting in his study resolutions that were not adopted. That seems like a fair point, until one asks the question: Why weren’t they adopted? The above list of topics provides a good answer.

As former SEC Commissioner Paul Atkins noted, many union-sponsored shareholder resolutions deal with matters that are “immaterial” to shareholder value.

Then there are opportunity costs to consider. Time, resources, and effort spent on advancing political resolutions would be better spent advancing value-enhancing ones.

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