New Report: Proxy Monitor 2013 Labor-affiliated pension funds target politically active, GOP-friendly companies.

New York, NY — On Tuesday, September 17, 2013, the Manhattan Institute’s Center for Legal Policy released its third annual survey of shareholder proposals at Fortune 250 companies. This report draws on the Proxy Monitor database to examine shareholder activism in which investors attempt to influence corporate management through the shareholder voting process. The report suggests that the shareholder-proposal process is dominated by a small subset of investors, particularly labor-affiliated pension funds, whose interest may be adverse to the typical shareholder’s.

Coauthored by CLP director and Manhattan Institute senior fellow James R. Copland and Proxy Monitor project manager Margaret M. O’Keefe, the report discusses several key trends in the 2013 proxy season, including:

• The number of shareholder proposals introduced has increased, but support for these proposals has declined.
• Just 1 percent of shareholder proposals were sponsored by institutional investors unaffiliated with organized labor or a social, religious, or public-policy purpose.
• Labor-affiliated shareholder activism appears to target companies that are more politically active, especially those more supportive of Republicans.
• Shareholder proposals related to corporations’ political spending or lobbying were the most common type of proposal but attracted little support.

Companies faced more shareholder proposals this season, but such proposals received less support from voting shareholders:

• In 2013, the average Fortune 250 company faced 1.26 shareholder proposals, up slightly from 1.22 in the previous year.
• Only 7 percent of shareholder proposals received the support of a majority of voting shareholders—the smallest percentage of proposals dating back to 2006, the first year in the Proxy Monitor database.

Labor-affiliated investors sponsored a plurality of shareholder proposals and appear to be targeting companies based on their political involvement:

• More than one-third of shareholder proposals that appeared on proxy ballots were sponsored by labor-affiliated institutional investors.
• 44 percent of the politically most-active companies faced a labor-sponsored proposal, as opposed to only 18 percent of all other companies.
• Corporations that gave at least half of their political donations to support Republicans were more than twice as likely to be targeted by labor-affiliated funds as companies that gave a majority of their donations to Democrats.

Proposals related to political spending or lobbying are the most common type of proposal:

• In 2013, 56 proposals dealt with political spending or lobbying.
• These proposals have largely been pushed by investing funds affiliated with social, religious, or labor interests, which sponsored 90 percent of all political-spending-related proposals in 2013.
• On average, such proposals were supported by only 18 percent of shareholders, a level unchanged from 2012.

Is the process fair to the average investor?

In sum, the evidence suggests that the shareholder proposal process serves to empower shareholders with objectives unrelated to share value and quite possibly against the interests of the broader class of diversified holders of equity securities. These results call into question the degree to which the shareholder proposal process as currently structured is consistent with the SEC’s mandate to promote efficiency, competition, and capital formation.