I can’t hide it. I’ve got a bad case of Proxy Envy, a rare but contagious psychosocial malady that strikes citizens of states (in my case, Massachusetts) whose proxy voting guidelines have been badly outclassed by those of California, New York, Wisconsin, Minnesota, Connecticut – even Florida, for Pete’s sake.
State proxy voting guidelines direct public pension funds on how to vote on shareholder proposals. Public pension funds, managed on behalf of state employees, control a huge number of votes in the one-share-equals-one-vote system of corporate governance. Other major blocks of shares are controlled by institutional investors such as mutual funds and insurance companies, and to a lesser extent, individuals. (Most individuals who own stock do so through mutual fund or insurance products, so the company who manages those funds votes the proxies on their behalf.) When Trillium Asset Management and other shareholder advocates file proxy proposals on social, environmental and corporate governance issues, this is our audience. These institutions tend to vote reflexively against social and environmental shareholder proposals due to a mix of apathy, downright antipathy, and/or an unwillingness to oppose corporations, who are potential clients for mutual fund and underwriting business. On corporate governance proposals, more independence of thought is exercised since the proposals’ relevance to the bottom line is more apparent than for broader-reaching social proposals.
Currently, disclosure of proxy voting guidelines is a purely voluntary activity, and very few institutions bother. Such disclosure would expose how thoughtlessly proxy votes are are often cast. Consider the following example. Last year, 13% of ExxonMobil’s stock was voted in support of a resolution we co-filed last year that urged the company to add ‘sexual orientation’ to its nondiscrimination policy. But far more than 13% of the voting stock is controlled by firms who have the same policy in place internally. If Wall Street investment firms aren’t even bothering to vote for shareholder proposals that urge replication of their own internal policies, then how much care and thought are they giving to shareholder proposals at all?
Fortunately, the Securities and Exchange Commission (SEC) is now considering whether to mandate proxy disclosure for mutual funds after pressure from the AFL-CIO and other shareholder activists. Grassroots pressure will be mobilized in 2002 by the Shareholder Action Network, a project of the US Social Investment Forum. The subject has come before the SEC in the past, but hopefully the virtues of scrutiny, diligence and transparency will be more obvious post-Enron.
Wall Street firms are accountable only to their clients and shareholders, but a higher level of accountability should be demanded from public pension funds, who must report to citizens as well as their beneficiaries. State public pension funds, for example, are often overseen by the state’s treasurer and public employee union representatives. Yet most states are as secretive as Wall Street about their proxy votes. The handful of states mentioned above are exceptions to this rule. Some are much more engaged beyond simply voting their proxies, and at one time or another, each have sponsored shareholder proposals. California’s state pension fund, which is the largest pension fund in the world and has a long track record as an activist fund on corporate governance issues, made history last month by deciding to divest its holdings from companies located in the Philippines, Thailand, Indonesia and Malaysia until those countries’ human rights situations improve. Among cities, New York has been an active filer of shareholder resolutions for two decades. Massachusetts, in contrast, is using vague and outdated proxy guidelines that actively discourage the Commonwealth from supporting most social or environmental proxy proposals.
As I said, Proxy Envy is contagious. Massachusetts State Representative Jim Marzilli is infected. He is the lead sponsor of two bills that would require that the Massachusetts Pension Reserve and Investment Board (PRIM): (1) disclose its proxy voting guidelines and its voting record, and (2) support any proposals that call for reports to shareholders from management. Legislation won’t be necessary if PRIM decides to adopt those policies on its own. James O’Keefe, the Green candidate for state treasurer, is also stricken with Proxy Envy and is pledged to support disclosure in the unlikely event that he is elected.
This disease can be cured, with your help. If you are a resident of Massachusetts, please write to your state legislator asking him or her to support House Bills 3618 and 3620. (Contact information can be found here.)
For more information on proxy voting, we recommend these sites:
LETTER TO THE MASSACHUSETTS PENSION RESERVES INVESTMENT MANAGEMENT BOARD (PRIM) FROM TRILLIUM ASSET MANAGEMENT
April 12, 2002
Dear PRIM Board Member:
Trillium Asset Management is a Boston-based investment firm that specializes exclusively in a socially responsible asset management. Founded in 1982, we currently manage approximately $700 million for both individuals and institutional clients. As an integral part of our mission, we frequently engage in dialogue with our portfolio companies on matters of social and environmental concern, and we exercise our right to file shareholder proposals when appropriate.
We write today in support of the recent letter you received from Representatives James Marzilli and Byron Rushing. As you know, the letter urged PRIM to support a series of proxy resolutions up for a vote this spring concerning certain social and environmental issues. Some of these proposals have been sponsored by Massachusetts-based investors, including Trillium Asset Management.
We believe that the Commonwealth’s proxy voting guidelines fall short with respect to social and environmental guidelines. The 12-page guidelines barely address social and environmental issues, and the criteria for implementing them is for the most part extremely vague. This despite the fact that PRIM must vote on hundreds of social and environmental resolutions every year — 261 this year, according to the Investor Responsibility Research Center.
Although the guidelines call for a case-by-case analysis of most social and environmental proposals, PRIM’s voting record on last year’s resolutions indicated that little or no analysis was applied. The Commonwealth’s practices are woefully behind such states as California, New York (and New York City), Florida, Maine, Wisconsin, and others. We urge PRIM to undertake a review of its guidelines and to update them to reflect the diversity and importance of the numerous issues the Commonwealth can influence through its proxy voting.
Massachusetts, like all fiduciaries, has an obligation to vote thoughtfully on proxy issues. Securities and Exchange Commission Chairman Harvey Pitt wrote in a February 12 private letter, “An investment adviser must exercise its responsibility to vote the shares of its clients in a manner that is consistent with…its fiduciary duties under federal and state law to act in the best interests of its clients.” This position echoes a 1988 Department of Labor letter regarding pension plans’ proxy voting responsibilities. As the still-unfolding Enron story so forcefully reminds us, investor passivity can have dangerous and expensive consequences.
For the current proxy “season”, we urge you to instruct PRIM staff to apply deeper analysis to this year’s proxy votes, and to disclose PRIM’s voting record and criteria for this year’s votes.
Shelley AlpernAssistant Vice PresidentTrillium Asset Management