Pension/Union Group Lobbies for SEC Shareholder Initiative Inaction

November 20, 2007 ( - Twelve large pension funds and a government workers' union have asked securities regulators to put off action on a controversial proposal which the group says allows public companies to ward off shareholder campaigns on director elections.

The group, which includes both the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS), has expressed its opposition to the shareholder rights initiative to Securities and Exchange Commission (SEC) Chairman Christopher Cox and through a public relations campaign.  

The group is also made up of the Colorado Public Employees Retirement Association, the Connecticut State Employees Retirement System, the Washington State Investment Board, and five New York City public employee funds, and includes the American Federation of State, County and Municipal Employees, (AFSCME). The coalition wants the commission to shelve two proxy access proposals for the 2008 annual meeting season until the commission is back up to a full complement of five commissioners.

The proposal AFSCME and the pension funds favor would be a significant change from the current system in which dissident investors must wage costly proxy fights and appeal to shareholders themselves if they want to get different bylaws or board members. According to a Business Week news report, an SEC vote on the issue is expected November 28.

The two proposals include:

  • allowing shareholders who together own at least 5% of a company’s stock to propose changes to the company’s bylaws on director elections. Proposed bylaw changes could then be voted on by all shareholders, giving the stockholders the right to get their board candidates on ballots that have been paid for and distributed by companies. The group supports this option as did Democrats Roel Campos, who left the SEC in September, and Annette Nazareth, who plans to follow Campos within a few months.
  • allowing companies to keep off their proxies shareholder proposals related to the election of board members. This is much closer to the status quo.

Citing “uncertainty” in the market, Cox has proposed an SEC vote soon on the two proposals.

Making Director Elections Easier

For its part, the funds/AFSCME group believes it is a good idea to make it easier and more affordable for shareholders to elect candidates they back to a company’s board.

“We are assembling to highlight what we believe is the specter of a serious wrong turn,” said Fred Buenrostro, CalPERS Chief Executive Officer, in a news release. “The SEC’s major customers – pension funds that invest billions and billions of dollars in U.S. capital markets – are dead serious in opposing this action. We see it in direct conflict with the duties of the SEC to ‘do no harm’ to investors in promulgating regulations.”

“There is no reason for the commission to act at this time,” Meredith Miller, Assistant Treasurer for Policy, Connecticut Retirement Plans and Trust Funds, said in the statement. “The sky has not fallen and the markets are working. And while the vast majority of corporate boards are doing a good job, there are some boards that are failing their shareholders. In those cases, it would be useful and good for shareholder value for shareholders to have an effective tool to at least nominate a few new directors on those boards. Access to the proxy is that tool.”

Separately AFSCME said it will sue the SEC if, as expected, it okays the less extensive rule. “We’re prepared to litigate,” Richard Ferlauto, AFSCME’s director of pension and benefits policy, told Business Week. “I’m assuming that we’d have other major investors that would come in, in one form or another,” on any litigation.

The issue has been extremely controversial. When the SEC  asked for public comment  in July, more than 34,000 letters were sent in before the comment period ended October 2.


Background material about the pension funds/union initiative is here .  Additional background on the issue from the SEC is here .