As part of the Obama administration-wide rush of midnight regulation, the Obama Department of Labor put out an "interpretative bulletin" on Exercise of Shareholder Rights and Written Statements of Investment Policy, including Proxy Voting Policies or Guidelines. It basically purports to tell ERISA fiduciaries--most notably pension fund managers--what their obligations are with respect to proxy voting corporate stock of companies in their portfolios.
As you might expect, it'll make shareholder activists and social justice warriors come over all tingly. With any luck, however, President Trump and Secretary of Labor Andy Pudzer will put it high on their list of last minute Obama regulations to be repealed.
The Labor Department's prior guidance had emphasized that "plan fiduciaries may not increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote collateral goals." In other words, plan fiduciaries could not use their portfolios to try to effect social change.
The Obama DOL, however, claims to be worried that this rule might discourage "fiduciaries from recognizing the long-term financial benefits that, although difficult to quantify, can result from thoughtful shareholder engagement ...." The interpretative guidance therefore now encourages plan managers to engage with management on such social issues as:
- "the nature of long-term business plans including plans on climate change preparedness and sustainability"
- "the corporation's workforce practices (e.g., investment in training to develop its work force, diversity, equal employment opportunity)"
- "policies and practices to address environmental or social factors that have an impact on shareholder value"
In other words, plan fiduciaries now will have greater freedom to expend portfolio resources to effect liberal social goals simply by claiming that they think doing so will have long-term benefits without having to quantify those benefits.