AFL-CIO Key Votes Survey 2010

This is the survey that started it all, in terms of TU research into how institutional investors exercise their ownership rights. The 2010 edition is available here (PDF).

Pulling at loose threads

The US Chamber of Commerce recently put out a report rubbishing the use of shareholder resolutions to achieve governance reforms. It argued that there was no evidence that such proposals are of benefit to shareholders, and the report itself even queries the amount that investors like CalPERS and TIAA-CREF spend on activism.

The US business community is currently lobbying on two fronts - against governance reform and against the Employee Free Choice Act, which would make it easier for US workers to unionise if they wish to. This report almost ties the two together by attacking trade union investor activism for governance reform.

But I can't help thinking that the general line that employers are taking here (and it is echoed by some of the loonier voices in the UK market) actually opens up some deeper questions that they probably don't want asked.

Let's be clear - most of the shareholder resolutions that US unions put up are on very mainstream governance issues - splitting chair and CEO roles, say on pay etc. That's why non-union investors vote for quite a lot of them, and why the US unions have a strong voice in corporate governance.

If we accept that these resolutions don't have a benefit for shareholders (a big IF, but let's take the report at face value for now) that implies that investor activism in general around governance is a waste of time. Again you do get people in the business community both in the US and here who take this view. And regular readers will know that I am myself a bit sceptical about how much investors can achieve.

But if we accept the broad shape of this argument it suggests we either decide that governance problems failures are pretty much unsolvable, or we find another way of addressing them. Let's assume for now that (though I have a little sympathy with it) the first view is pretty much unacceptable to most people. How else can we address these problems, or more explicitly who else should do it? The obvious answer is the state/regulators. If shareholders can't control the companies they are supposed to own, someone is going to have to do it for them. (And by the way this makes the instinctively anti-regulation stance of some of the investment industry lobby even less credible).

What's more, this also starts cutting away at the role of investors more generally. If they can't/won't perform the ownership role, then they really are just traders. That must affect how we view governance and who the key stakeholders are in it. What's more the professional traders we employ are taking a bigger chunk of our money through increasing fees (where's the competitive pressure here btw?) though returns to our pension funds aren't getting any better. And again the investors almost implicate themselves when they try and explain why they aren't more effective as owners - they can't know as much as the company, so how can we expect them to spot & address potential problems. True enough, but the same argument must surely lead us to question how they can forecast more generally. Put simply, can they even do the job we pay them to do?

I have no doubt that neither business or the investment community think they are making the arguments above, but the more they seek (for different reasons) to downplay the role of investors in governance the more they must lead people to question what the other options are.

AFL-CIO Executive Paywatch

Hat-tip to CorpGov.net, the AFL-CIO has released preliminary figures from its annual PayWatch research:

A chief executive officer of a Standard & Poor's 500 company was paid, on average, $10.4 million in total compensation in 2008, according to preliminary data from The Corporate Library.
Excessive executive compensation has taken center stage since the government bailout of banks that began in September 2008. Americans have expressed outrage as CEOs and other executives responsible for the financial crisis have pocketed millions of dollars from bonuses and golden parachutes. CEO perks alone grew in 2008 to an average of $336,248—or nine times the median salary of a full-time worker. Meanwhile, the economy tanked for working people while many companies were bailed out with more than $700 billion in taxpayer money, as well as low-interest loans and guarantees.

US unions push for financial reform

Just a couple of nuggets from reform proposals being floated by the AFL-CIO and Change To Win. I'm picking a couple of brief bullets and just shareholder-focused stuff for now, as you can imagine there's a lot about ratings agncies, role of the SEC, financial stability objectives etc. I'll also post up links to the original docs.

AFL-CIO:

12. Address Time Horizons in US Capital Markets (regulatory and legislative):
The SEC and the IRS should examine what steps could be taken to improve a long-term focus in the capital markets and US business. This would include structuring initiatives like proxy access to empower long term investors, improving disclosure for short-term oriented investors like hedge funds, looking at increasing capital gains taxes for short term trading relative to long term investing, and initiatives such as examining the accounting rules to determine if they are disadvantaging long term investments by companies, such as investment in human capital.

CTW:

9. Create incentive that encourage long-term investing and discourage excessive risk-taking.
For example, empower long-term investors with tools to hold managers and boards accountable (e.g. access to the proxy); require executive pay at federally insured institutions to take into account risk and sustainability of performance (e.g. by not paying bonuses annually, eliminating stock option compensation, and requiring substantial equity holding requirements, as UBS has done); and require asset managers to disclose the performance period for portfolio manager incentive compensation.

Hat-tip: Michael L.

Unions and housing investment

One of the things you can do if you get some degree of control over your own capital is to set some principles about how it should be used. In North America the unions sussed this out years ago, and have been developing policies and, perhaps more importantly, investment products ever since.

One of the long-standing examples of union innovation in the investment world is the AFL-CIO Housing Investment Trust. It attempts to both provide a steady, bond-like return to investors, whilst at the same time supporting the growth in affordable housing and creating jobs where unions are recognised. Here's some of the blurb:

"The HIT supports the values of the union movement through the housing it finances and the good jobs it creates. Although financial performance is its first priority, participants in the HIT have the satisfaction of knowing that their investments also create other positive, tangible benefits for working people and their communities. The HIT has financed close to 500 housing projects, creating or preserving more than 80,000 homes. That financing has generated employment for an estimated 50,000 union construction workers who have labored in the development of these projects."

In essence it's a simple idea, and there are comparable stories from Canada, but there is nothing even remotely similar in the UK. At the moment the only thing I can think of is TU Fund Managers, but it only offers straightforward equity and bond unit trusts, nothing on the property side. The day-today fund management is outsourced to Insight Investment (who are good on SRI, though their voting is a bit questionable).

Given the never-ending expansion in the types of products flogged to trustees by fund managers and others, isn't a bit surprising that no-one has ever thought about developing some TU-friendly options? There are already sustainable property investment options, why not sustainable and pro-union?

And again the Personal Accounts scheme looms large. The default fund will no doubt want to invest in a wide range of assets, and will also want to be seen to be acting responsibly. Something akin the HIT might provide an interesting opportunity. But it means that unions need to get their thinking caps on now.

AFL-CIO's John Sweeney on climate change

Just a snippet. There's an interesting bit here on the AFL-CIO newsblog about John Sweeney's speech to the INCR summit on climate change last week.

More on US union investor activism

Don't want to look like I'm favouring the 'splitters' so here are some links to work the AFL-CIO Office of Investment is involved with.

The main Office of Investment site is here:

http://www.aflcio.org/corporatewatch/capital/corporategovernance.cfm


If you click on the company initiatives link you can see that the AFL-CIO has been targeting the banks:

AFL-CIO Calls on Subprime Lenders to Halt Foreclosures

As the top five Wall Street firms hand out a record $38 billion in bonuses, the AFL-CIO called for an immediate one-year moratorium on subprime mortgage foreclosures. A sample letter sent to Citigroup is below. In addition to Citigroup, copies of the letter were sent to Countrywide, Merrill Lynch, Bear Stearns, Morgan Stanley, Wells Fargo, Lehman Brothers, JP Morgan Chase, Goldman Sachs, Washington Mutual and RBS.

And looking further down you can see some engagement in relation to Burma:

Chevron's Operations in Burma

The AFL-CIO urged Chevron to speak out against Burma's brutul crackdown on peaceful demonstrations by monks. Chevron remains the only U.S. company with significant assets in Burma and is in part responsible for the transfer of millions of dollars to Burma's military regime. It also funds a trade association, which lobbies the federal government and Congress against the imposition of economic sanctions on Burma despite the regime's egregious abuse of human rights.

You can also download the annual proxy voting survey in this section. As I have said before, the US unions are miles ahead of the UK in using shareholder engagement as a tool

Another workers capital blog!

The blogosphere is not exactly teeming with capital stewardship blogs, but I'm not the only one. Check out the Capital Matters blog from the US, linked to the AFL-CIO's pioneering work in this area.

And whilst I'm plugging our US comrades here is a useful AFL-CIO policy statement on hedge funds and private equity.

OECD report on hedge funds and private equity "activism"

Just a link to this report from the OECD on the activism of the two alternative asset classes that tend to trouble trade unionists and lefties generally the most. Haven't read it yet, wil try and post something on it once I have. It sounds like the OECD is pretty positive about the role of both.

Here's a letter AFL-CIO president John Sweeney on the subject.

And here's the blurb from the OECD on the report:

The OECD Steering Group concluded at its recent meeting that “activist” hedge funds and private equity firms can play a positive role in corporate governance of publicly held companies. The corporate governance practices of private equity firms and hedge funds are best addressed within the framework of the existing OECD Principles of Corporate Governance so that a separate code is not necessary.