When pension fund boards turn their funds into social justice warriors, do they violate their fiduciary duties? Keith Paul Bishop raises this pertinent question:
Yesterday, UCLA Law School Professor Stephen Bainbridge noted the publication of a recent study that reaches some devastating conclusions for public pension funds. The study by Professor Tracie Woidtke at the University of Tennessee found that “public pension funds’ ownership is associated with lower firm value”. To make matters even worse, Professor Woidtke found:
Social-issue shareholder-proposal activism appears to be negatively related to firm value. In this paper, the negative relationship between public pension fund ownership and firm value is significant for firms targeted by public pension funds engaging in social-issue activism—across two different firm samples—in 2008–13, when the two large funds focused on social-issue activism, CalSTRS and the NYSCR, were engaged in shareholder-proposal activism.
The boards of CalPERS and CalSTRS each have “fiduciary responsibility for investment of moneys and administration of the system”. Cal. Const. Art. XVI, § 17. The board members are further obligated to “discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system.” Cal. Const. Art. XVI, § 17(b). Professor Woidtke’s findings raise the question of whether the pursuit of social-issue shareholder proposals is consistent with these constitutional obligations.
The problem, of course, is that weasel word "benefits." CalPERS claims that things like social justice are just as much of a benefit as higher returns. Personally, I'd disagree, even if I agreed with CalPERS as to the meaning of social justice. Which brings me back to the basic breach: It's not just that CalPERS has decided to be a SJW, it's that the board decides what social interests to pursue regardless of whether their beneficiaries share those views.
Leftist law professors are making a huge stink about corporations spending money to advance political causes that some shareholders might not share. But you rarely hear them say anything when unions or outfits like CalPERS do the same.
