Pension funds are often among a corporation’s largest shareholders, a position that gives them unique ability to influence corporate decision-making and governance.
But a handful of the nation’s largest public pension funds are leading a push for more oversight over corporate governance – namely, the ability to hire and fire a company’s director.
From the New York Times:
Weary of what they see as a dysfunctional dynamic, a band of institutional shareholders is mounting the first push ever at 75 United States companies to allow investors to hire and fire directors directly. The plan is intended to bring greater accountability to corporate boardrooms and eliminate some of the “clubby” aspects for which they have been criticized.
Leading the drive is Scott M. Stringer, the New York City comptroller and a Democrat, who oversees five municipal public pension funds with $160 billion in assets — much of it invested in the kinds of companies his effort will target. His office will submit a proposal at each of the 75 companies, asking the company to adopt a bylaw allowing shareholders who have owned at least 3 percent of its stock for three years or more to nominate directors for election to the board.
Among the 75 companies targeted by Mr. Stringer are eBay, Exxon Mobil, Monster Beverage and Priceline. None of the companies commented on the comptroller’s shareholder proposal.
“The bottom line is, friends still put friends on boards,” Mr. Stringer said in an interview Wednesday. “My job as a long-term investor is to make sure that these companies truly represent the interest of share owners.”
The effort by the New York City pension funds will focus on companies that have been unwilling to change practices in three areas: board diversity, climate change and executive compensation. Companies with no women as directors or those with little or no ethnic diversity were identified, along with companies whose shareholders had recently expressed dissatisfaction with executive pay practices but had done nothing to address them. On climate change, more than a third of the companies identified by the shareholder group are in the energy industry.
The proposals will be put to shareholder votes at the companies’ annual meetings in the coming months. While the companies would not be required to adopt the bylaw even if a majority of shareholders voted for it, advocates say the boards would be more likely to go along with the idea if it won strong support from shareholders.
Scott Stringer is leading the charge, but he has other powerful pension funds on board, including CalPERS. From the NY Times:
Working with Mr. Stringer’s office to drum up support are officials at the California Public Employees’ Retirement System, the nation’s largest public pension fund. Calpers said it would hire a proxy solicitor to discuss the proposal with other institutional shareholders. “We view this as a five-year project and will be back again and again as needed,” said Anne Simpson, senior portfolio manager and governance director at Calpers. “But making the commitment and getting an alliance formed on this issue is so important.”
Public pension overseers in other states, including Connecticut, Illinois and North Carolina, are also supporting the effort.
Pension360 covered last week how CalSTRS, CalPERS and New York’s largest pension systems were upset over governance changes at Bank of America.