Sunday, August 16, 2009

An awful lot of people who have never even run a lemonade stand are presuming to micromanage corporate conglomerates. General Motors Corp., now headquartered at the White House, is the most prominent example. Less well-known are the legions of left-wing activists attempting to micromanage companies through shareholder proxies.

A legitimate right of those who own company stock, the shareholder proxy process is increasingly being co-opted by political-issue activists. Their quest is, as a shareholder activist group called Green America puts it, “a socially just and environmentally sustainable society.”

Activists have every right to espouse their views of utopia. But when they hijack the proxy process to advance their agenda, their advocacy comes at the expense of the millions of workers and ordinary shareholders — like pension beneficiaries and mutual-fund investors — who count on the bottom-line performance of these companies for jobs and retirement security.

Left-wing shareholder activists seek to leverage the mass economic power of institutional investors, such as pension funds whose managers are supposed focus strictly on their fiduciary responsibilities to retirees.

This trend has become so alarming that in 2008, the U.S. Department of Labor issued new guidance to pension managers and trustees, putting them on notice that such politically motivated proxy activity could violate their fiduciary duties under the Employment Retirement Income Security Act of 1974 (ERISA).

In addition to leveraging pension funds without the consent, or even knowledge, of most workers and retirees, these activists also pressure religious institutions and universities to use their investment funds to advance left-wing agendas.

They are aided by some unions that try to push union expansion and labor issues under the rubric of social responsibility. They are pressuring mutual-fund companies such as Vanguard Group Inc., Fidelity Investments and Oppenheimer & Co. Inc. to, as Green America stipulates, “wake up to the reality of climate change” and “vote for shareholder resolutions addressing climate risk at the companies in their portfolios, each and every time they have the chance.”

Activist shareholder resolutions do not have to pass to succeed. The process itself can be so injurious to a company that management will cave to demands. Green America observes that: “shareholder action campaigns are often accompanied by coordinated consumer and media campaigns, resolutions represent damage to a company’s reputation and branding, and a potential loss of revenue through negative publicity, consumer boycotts, and loss of investor confidence. In fact, the mere act of filing a proposal has prompted some companies to amend their policies. When a resolution succeeds even before it comes to a vote, investors will usually withdraw it from the ballot.”

Shareholder resolutions have also been directed at corporate governance. Structural matters like these are of legitimate interest to stockholders, but it is noteworthy there is no concrete evidence that shareholder resolutions in this vein have had a positive bottom-line benefit for companies or shareholders.

If you work at one of these companies, own stock in them, are a mutual-fund investor, a pension-fund beneficiary or just have an interest in any institutional investment fund, you may want to find out if your and your family’s interests are being compromised to advance a political agenda you may not support.

Elaine L. Chao was U.S. secretary of labor from 2001 to 2009. She is now a distinguished fellow at the Heritage Foundation.

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