In the spirit of politics, lawmakers tend to paint rival Social Security reform proposals in extremes: If one privatizesand another preserves, then never the twain shall meet. The polarized way in which proposals are debated, morethan the actual substance of the proposals, makes compromise difficult. However, compromise doesn’t have to be so daunting a task. Considerable overlap exists among reform proposals presented by lawmakers on both sides of the aisle. Agreement can be found in the following areas.
Save the Surplus
Democrats and Republicans began competing in 1999 to create the best “lock box” with which to protect Social Security’s surplus. Until then, it was common for Congress to allow deficits in other parts of the budget to exceed the size of the Social Security surplus. Read the rest of this entry »
Underlying the policy debate about merits of institutional activism is the empirical question: Does such activism have a significant impact on corporations that are the target of that activism? The short answer is that it’s unclear.
In an attempt to provide an intermediate-level answer, let us review a few points that emerge from this debate on the impact of institutional activism. To begin, the studies do not usually include proxy fights or takeover bids since these are rare events for institutional investors. In addition, these studies are all premised on the efficient markets theory, so they assume that the impact from shareholder activism can be measured by looking at a change in stock price after a specific event, such as a pension fund’s submission of a stockholder proposal.
These economic studies tend to show no or little positive price effects from proposals to change general governance procedures, such as the introduction of confidential voting or the appointment of an external board chairman (separate from the CEO). Read the rest of this entry »
In most cases, mutual fund advisers vote to support the recommendations of company management. This is true not only for management’s proposed slate of directors, which routinely receive the support of 99% of those voting, but also for management proposals on other subjects. For instance, during the 2000 proxy season, management proposals on proxy statements were supported on average by 85% of the stockholders who voted; proposals opposed by management were opposed on average by 74% of the stockholders who voted. This high level of consensus between stockholders and management is not surprising, at least for actively managed mutual funds. Owning the stock of a company ordinarily indicates a belief in the ability of the company’s management; supporting management’s position in voting matters often follows as a matter of course. Read the rest of this entry »
Despite the absence of SEC rules on fund participation in the governance process of publicly traded companies, mutual fund complexes routinely vote their proxies on items submitted to stockholders for approval. (Such proxy voting should be considered part of the normal exercise of fiduciary duties, as distinct from institutional activism, discussed below.) In voting proxies, fund advisers generally follow written guidelines that have been approved by the independent directors of the funds. The fund adviser typically processes and votes all proxies for shares held by the funds in accordance with these guidelines. On an annual basis, the fund adviser usually submits a report on proxy voting matters to the board of directors of the funds or a committee of the board. Read the rest of this entry »
As mentioned above, one group of activists has social rather than primarily financial agendas for U.S. companies. In the view of these activists, U.S. companies should help achieve social goals such as saving animals, protecting wilderness or alleviating poverty. Let’s consider whether these social goals are appropriate for most mutual funds and then for the subset of funds specifically geared to socially responsible investing.
Social activists who attempt to change corporate policies or challenge corporate practices take many different tacks in pursuit of their goals, but all are motivated by one fundamental principle: corporations shouldn’t be solely profit-maximizing entities; rather, they have an obligation to take into account their impact on social issues. Activists seek to influence companies through a variety of means—including litigation, picketing and public relations offensives—in an effort to encourage a company to alter its social policies in some fashion. Read the rest of this entry »
