Proxy access: Who'll Use it?

Jay Brown sends out a sarcastic thank you to opponents of proxy access for having created an environment without which, he claims, "we would not be where we are today.  We would be dealing with a far less acceptable provision, one likely compromised by the need to compromise."

Let's pause, for a moment, to think about who really pushed proxy access and is most likely to make use of the new rule. As I wrote in Pension Funds Play Politics:

... activism is principally the province of a very limited group of institutions. Almost exclusively, the activists are union and state employee pension funds. They are the ones using shareholder proposals to pressure management. They are the ones most likely to seek board representation.

I then asked:

One might reasonably wonder what a public employee union knows about running business corporations. Might they have another agenda for board representation?

The interests of large and small investors often differ. As management becomes more beholden to the interests of large shareholders, it may become less concerned with the welfare of smaller investors. If the large shareholders with the most influence are unions or state pensions, however, the problem is exacerbated.

The interests of unions as investors differ radically from those of ordinary investors. The pension fund of the union representing Safeway workers, for example, is trying to oust directors who stood up to the union in collective bargaining negotiations. Union pension funds have used shareholder proposals to obtain employee benefits they couldn't get through bargaining (although the SEC usually doesn't allow these proposals onto the proxy statement). AFSCME's involvement especially worries me; the public sector employee union is highly politicized and seems especially likely to use its pension funds as a vehicle for advancing political/social goals unrelated to shareholder interests generally.

Public pension funds are even more likely to do so. Indeed, the LA Times recently reported that CalPers' renewed activism is being "fueled partly by the political ambitions of Phil Angelides, California's state treasurer and a Calpers board member, who is considering running for governor of California in 2006." In other words, Angelides is using the retirement savings of California's public employees to further his own political ends.

Such abuse of public pension funds by incumbent politicians is unfair to their political opponents, other investors, and especially the retirees who depend on those funds. Studies have consistently shown that the greater the extent to which a public pension fund is subject to direct political control, the worse its investment returns.

More than half of Americans are now stock investors. Yet, only a select self-appointed few have become activists. All too often, their activism is directed at selfish interests inconsistent with those of investors at large. It's long past time for the SEC and Congress to recognize that empowering these shareholders with expanded access to the proxy statement and the boardroom is the worst sort of special interest legislation. (Then again, maybe they already know that.)

This is, of course, precisely the point SEC Commissioner Kathleen Casey made in her dissent from yesterday's adoption of the new access regime:

I believe many activists will concede that their interests in proxy access do not lie solely in the ability to successfully place a nominee on a company’s board of directors; instead, the proxy access right is also an important means of obtaining leverage to seek outcomes outside of the boardroom that may otherwise not be achievable — outcomes that are often unrelated to shareholder value maximization.

So if you want to know who to thank for proxy access, thank the successors of Jimmy Hoffa and Tammany Hall.