The Aug. 26 edition of the Wall Street Journal features a compelling opinion piece by Susan Combs, the Texas comptroller of public accounts. Ms. Combs correctly assesses the inherent responsibility of public pension funds to the businesses in which they hold shares. Namely, they should ensure company profitability rather than push agendas that may harm market share and growth.
Just so. Writes Combs: “Not long ago, people who used their few shares to push a point at shareholder meetings may have been marginalized as oddballs. Today, hedge funds and other major players are using their clout to lobby for – and get – big changes in corporate governance.”
Whatever this activism has to do with the ethical obligations of shareholders to one another is beyond the comprehension of Combs and, frankly, your writer. Such has been one theme of my repeated cavils related to the so-called religious-based shareholder activists who submit proxy resolutions year after year related to overturning Citizens United, limiting the depiction of tobacco use in film and television, curtailing hydraulic fracturing and taking expensive measures to avert global warming.
One may agree or disagree with the activists’ point-of-view on any of these given topics, but as Combs notes:
Putting public funds in the activist arena in this way strikes me as seriously bad policy. As the comptroller of public accounts for the state of Texas, I have to manage billions of dollars in taxpayer money, and I have a fiduciary obligation to achieve the very best returns possible. This is a rock-bottom, non-negotiable duty that goes with the office. Our “shareholders” are the tax-paying public.
The same holds for private investments made on behalf of clergy, nuns, and other religious. Many investment opportunities exist for companies more than willing to comply with ill-founded science, questionable public policy, and social progressivism.
Turning once again to public pension funds, Combs writes:
The Employee Retirement Income Security Act known as Erisa specifically requires private pension funds to focus on the economic value of their investments. There’s no similar requirement for public pensions – and that may explain some of their problems. Nine states, for instance, have less than 60 percent of the funds they need to honor their current pension commitments, according to a recent report from CNBC.
The economic-focus requirement for the public dollar should reflect an even more stringent standard. There’s little or credible evidence that activist investing improves shareholder financial return, and some research – such as a 2002 study in the Journal of Financial Economics – suggests that an activist orientation reduces valuation for public pension funds.
And what about all the investors in targeted companies who don’t share these officials’ view of what’s ‘right’? Should their investments be harmed just to further someone else’s notion of ‘correct’ investing? What about the members of the public, who may or may not support the coercive use of their tax dollars?
In sum, social and political activism involving public funds is wrongheaded: It’s bad public policy and it’s not in the best interest of the people we serve.
Nor is it in the best interest of those who pursue progressive agendas through proxy shareholder resolutions in the private sector. Threatening financial returns of fellow shareholders on behalf of left-of-center ideologies is nothing short of immoral.