My scholarship on shareholder activism has consistently demonstrated that the most active shareholders tend to be union and state and local government pension funds. I've also demonstrated that these funds often pursue private agendas at odds with the interests of shareholders as a whole. See, e.g., Shareholder Activism and Institutional Investors. A case in point comes to us today from the WSJ:
State and federal budgets are deep in the red and no one is fretting more than public-employee unions. Thus their latest brainstorm: Help the IRS squeeze more tax dollars out of companies, filling government coffers and saving union jobs—and do it under the banner of "protecting shareholders."
We refer specifically to a letter the American Federation of State, County and Municipal Employees' (Afscme) pension plan sent to financial advisory firm Lazard Ltd. in November. The pension, which invests in Lazard stock, cites the company's Bermuda incorporation and risks that U.S. tax authorities may "challenge" the company's tax status. It asks Lazard to make an annual report to shareholders about the "risks created by the actions Lazard takes to avoid or minimize U.S. federal, state and local corporate income taxes."
In other words, a government union pension that is legally supposed to look after the fiduciary interests of its shareholders—union workers—is asking one of the companies it invests in to expose itself to a potentially higher tax burden, and thus lower returns for shareholders, including the public pension. And all for the greater good of plugging government deficits created by, among other things, unions that struck financially unsustainable pension deals with those very governments.
I'll be interested to see how apologists for shareholder activism like Lucian Bebchuk and Nell Minow spin this one.
