Earlier today the U.S. Chamber released a study by Navigant Consulting showing that shareholder activism by union pension funds provides no benefit for pension plan participants, and may actually reduce shareholder value. We also released survey data showing a sharp negative reaction to the use of pension fund assets to promote special interest agendas.
The Navigant study analyzed both the short-term and long-term effects of union-backed shareholder proposals identified as "key votes" by the AFL-CIO in annual surveys from 2002-2008. Examples from the study include proxy resolutions requiring companies to disclose political contributions, take action on carbon emissions, and adopt proposals making it easier to unionize. In each case, the study found no empirical evidence that the resolutions provided any benefit to shareholders.
These shareholder proxy resolutions have become an increasingly popular tool for labor officials to strong-arm companies into adopting proposals that are unrelated to improving the company's financial performance. In 2008, the U.S. Department of Labor issued new guidance stating that such politically motivated proxy activity may violate the fiduciary duties of union pension trustees under ERISA. The survey data released today showed that 83% of union households approved of the Department of Labor's directive that pension funds should be managed to maximize retirement security, while just 9% believed funds should be managed to "advance the union's social and political goals." Additionally, 86% of voters polled said funds should be managed so they "are financially secure and return the best retirement income for employees."
Clearly special interests have no business in the board room. There is a growing body of evidence that union proxy campaigns provide no value to shareholders. If union pension funds really want to help shareholders, they should stop squandering their members' retirement on political crusades through the proxy process. Rewarding activist investors at the expense of average shareholders does not move governance of our markets in the right direction.
The study and the poll call into question shareholder activism legislation likely to be introduced today by Senator Charles Schumer (D-NY). A federally mandated one-size-fits-all approach to corporate governance is not good government and will undermine shareholder interests. The only thing it will accomplish is, as Larry Kudlow so eloquently put it today, "union command and control of the economy."