July 03, 2009
Findings of Chamber Report on Proxy Voting are Challenged
by Robert Kropp
Adam Kanzer of Domini Social Investments analyzes report issued by the US Chamber of Commerce, and
finds questionable methodology and political bias.
In a recently released report entitled Analysis of the
Wealth Effects of Shareholder Proposals—Volume 2, the US Chamber of Commerce sought to evaluate the economic impacts
of shareowner proposals on target companies. The report was authored by Navigant Consulting.
In the report, the authors assert that "The
Employee Retirement Income Security Act (ERISA), as clarified in recent guidance provided by the US
Department of Labor, stipulates that pension fund managers may only engage in such shareholder
activism so as to promote the economic interests of the plan beneficiaries. In order to satisfy
fiduciary requirements, pension fund managers may only take action if they can reasonably conclude
the economic benefits outweigh the additional costs associated with shareholder activism."
According to guidance issued by the Department of Labor in October, 2008, "Plan fiduciaries,
who are charged by law with the responsibility for operating employee benefit plans on behalf of
plan participants, may never increase expenses, sacrifice investment returns, or reduce the
security of plan benefits in order to promote legislative, regulatory or public policy goals that
have no connection to the payment of benefits or plan administrative expenses."
favor of "overturning efforts to undercut the consensus view that fiduciary duty may compel
fiduciaries to consider environmental, social and governance (ESG) factors," the Social Investment Forum (SIF) wrote the
following to the incoming administration in January: "In October 2008, the Assistant Secretary of
Labor for the Employee Benefit Security Administration took the unfortunate step of issuing two
bulletins modifying the Department of Labor's official view on fiduciary duties … We call on the
President-elect and the incoming Administration to reject the outgoing Assistant Secretary's
guidance and instead provide fiduciaries with clear, consistent and unambiguous guidance that
adheres to the contemporary and principled understanding of fiduciary duties."
Interpreting the guidance to include the incurred costs and economic impacts of shareowner
proposals, the authors of the report submitted a selection of shareowner proposals to their
analysis. The authors found that there is no evidence that "announcements related to shareholder
proposals result in a material increase in companies' market value," that "both target firms and
the sponsors incur costs as a result of the proxy proposal process," and that shareowner proposals
do not improve firm value.
The report concludes that "anecdotal evidence combined with the
above conclusions suggests that such expenditures produce little if any value, especially when one
considers the potential opportunity costs arising in connection with the introduction, analysis and
voting of shareholder proposals."
Adam Kanzer, Managing Director and General Counsel of Domini Social Investments, submitted the Chamber
report to analysis, and told SocialFunds.com of his concerns about the lack of rigorous methodology
and the political bias that he discovered in the report.
"If you go to the Chamber's web
site and read its press releases, you'll find that the Chamber itself puts these studies in a
political context," Kanzer said. "It's part of the Chamber's campaign against fiduciaries."
In its June 23 press release announcing the publication of the report, the Chamber asserted
that "shareholder activism by union pension funds provides no economic benefit for plan
participants, and may actually reduce shareholder value." The press release also refers to a letter
sent by Chamber President and CEO Tom Donohue to Secretary of Labor Hilda Solis, "calling on her to
protect retirees from politically driven union activism by using the authority of the Department of
Labor to investigate potential abuses."
"This is political propaganda masquerading as an
academic study," Kanzer said of the report.
Referring to the report's methodology, Kanzer
said, "The authors acknowledge that most of what they find in the study is not statistically
significant, but they draw negative conclusions from it anyway."
"What they're trying to
get at is that stock prices should have jumped significantly, and if they didn't jump at all, it
shows that there is no value in the shareowner resolutions," Kanzer continued.
"Shareholder proposals are not filed to affect stock price," Kanzer said. "If you want to
ensure that your study shows that something has failed, measure it against something it is not
designed to do. For instance, how well does your camera hammer in nails?"
fail to identify any causal link between the publication of a proposal in the proxy statement and
stock price," Kanzer continued. "And then they don't even try to describe a hypothesis that would
account for that causal link."
The sample of proposals used in the report were selected by
the authors from AFL-CIO Key Votes
Survey, which the labor union issues in order to "assist trustees in exercising their ownership
rights in ways that achieve long-term value by supporting important shareholder initiatives on
corporate accountability." However, the authors chose to omit from their study the names of the
companies targeted by the shareowner proposals included in the Key Votes Survey.
actually go back to the AFL-CIO Key Votes Survey, you see that a number of the companies that were
seriously affected by the financial crisis last year were in there," Kanzer said. "CitiGroup and
Washington Mutual were in there. General Motors was in there. Are you actually telling me that
CitiGroup's stock price since some time in 2008 was somehow affected by a shareholder resolution
filed three years earlier on executive compensation or board independence?"
continued, "There's no mention anywhere in the study that there was a financial crisis going on,
where stocks went through the floor and the market performed totally irrationally." The omission of
such information was "irresponsible," according to Kanzer.
Furthermore, Kanzer said, "The
authors don't separate out the kinds of shareholder proposals that were filed. It's all blended and
averaged together. If you take ten successful proposals and average them with fifteen proposals
that failed, you come up with mud."
SRI World Group, Inc. All Rights Reserved.