DiNapoli makes political hay from shareholder activism

by E.J. McMahon |  | NY Torch

dinapoliLeveraging his clout as sole trustee of New York State’s $160 billion Common Retirement Fund, Comptroller Thomas DiNapoli is making increased use of corporate shareholder resolutions to push political and social agendas that have little or nothing to do with corporate performance, according to a Proxy Monitor special report released today by the Manhattan Institute’s Center for Legal Policy (CLP).

DiNapoli, a Democrat, has been pushing proposals that, as described in the report, neatly intersect with the policy priorities of key Democratic and progressive constituencies. In fact, under this leadership, the state comptroller has begun rival the longtime shareholder activism of the New York City comptroller’s office, the report says. The CLP notes:

In general, the New York State fund’s shareholder proposal submissions have not been related to increasing shareholder value: 17 of the fund’s 27 sponsored proposals have involved corporate political spending or lobbying, five have involved environment-related concerns, four have involved employment nondiscrimination policy, and one has involved executive compensation. No proposal sponsored by the New York State fund has received the backing of a majority of shareholders.

Typical are the proposals submitted to ExxonMobil (XOM) and Anadarko Petroleum (APC), the only two companies facing more than two shareholder proposals from the New York fund over the four-year period. The four proposals submitted by the New York State fund to ExxonMobil shareholders, introduced in 2010, 2011, and 2012, and 2013 each called for the company to add sexual orientation and gender identity to its equal-employment-opportunity policy—a concern that, whatever its merits, has little bearing on shareholder returns. The fund’s three proposals sponsored at Anadarko, in 2011, 2012, and 2013, each called on the company to issue a report on its political spending. The special focus on Anadarko is unlikely due to a perceived adverse impact of the company’s political spending on its performance: over the leading three-year period corresponding to the introduction of these three proposals, Anadarko’s share price has outperformed that of its competitors. Instead, DiNapoli’s focus on Anadarko is likely political: the company gave 90 percent of its $244,500 in political action committee federal-candidate donations in 2012 and 79 percent of its $310,500 in 2010 PAC donations to Republican candidates.[emphasis added]

In its first proposal not dealing with social policy, the CLP noted, the New York State retirement fund this year introduced a shareholder resolution designed to change the incentive compensation practices at Abbot Laboratories — whose management is organized labor’s favorite target among Fortune 250 companies.  ”As was the case in 2012, it seems unlikely that these union-affiliated funds are targeting Abbott because of concerns about its performance: the company’s stock appreciated 19.1 percent in 2012, significantly better on average than that of its competitors,” the CLP report said. It continues:

The shareholder proposals sponsored by the New York State fund that show up on proxy ballots only partly reflect the increasingly active role that the fund and DiNapoli have played in advancing an agenda unrelated to share value. In many cases, companies hoping to avoid the expense and publicity of responding to a shareholder ballot proposal will negotiate with proposal sponsors to accommodate their wishes —as did the retailers Best Buy and Bed Bath & Beyond earlier this year, in agreeing to promote “sustainable business practices” with their suppliers in exchange for the New York State Common Retirement Fund’s agreeing to withdraw shareholder proposals advocating that idea. In some cases, companies will accommodate activist shareholders’ wishes even against the express desires of an overwhelming majority of all shareholders: Pepsico agreed to disclose lobbying and trade association ties so that DiNapoli would withdraw the New York fund’s 2013 shareholder resolution to that effect, notwithstanding that a shareholder proposal introduced at Pepsi last year seeking such disclosure won the support of only 7.1 percent of shareholders voting. In 2013, DiNapoli has also taken to the courts in pursuit of his political-spending-disclosure agenda, filing suit against Qualcomm in Delaware state court before the company agreed to certain disclosures in settling the suit on February 22.

The question of whether pension funds should be used as platforms for making political points first came to a boil in New York in the 1980s controversy over proposals to force the funds to divest from companies doing business in South Africa.  Former state Comptroller Edward “Ned” Regan, a Republican who served from 1979 to 1993, supported putting corporate pressure on South Africa to end apartheid but nonetheless opposed divestiture. By contrast, one of DiNapoli’s earliest acts as comptroller in 2007 was to divest from companies doing business in Sudan.

While the Sudan move was far afield from his actual the fiduciary responsibility, DiNapoli could at least argue he was striking a symbolic blow against genocide. By contrast, the shareholder resolutions spotlighted in today’s CLP report generally deal with comparatively less weighty domestic concerns, which are conveniently consistent with the goals of interest groups whose support DiNapoli will find handy when he seeks another term.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.