Shareholder Proposals are Key Risk Tool to Protect NY State Retirees

New York State Common Retirement Fund Risk Management Strategy.jpeg

Thomas P. DiNapoli, New York State Comptroller

I have a fiduciary duty to invest the fund’s assets prudently and for the exclusive benefit of the System’s more than one million state and local government employees, police officers and firefighters, retirees, and beneficiaries.… As an institutional investor that employs indexing strategies, the shareholder proposal process is an important risk mitigation tool for the Fund. Indexing strategies do not readily lend themselves to selling a company’s stock entirely as a means of mitigating investment risk. Instead, we encourage companies to address material environmental, social and governance (ESG) issues that could jeopardize long-term financial performance. Consistent with its investment philosophy, the Fund files shareholder proposals with public companies in its portfolio regarding ESG factors that can have a material impact on risk and return.

Note: The New York State Common Retirement Fund, with $207.4 billion in assets under management (as of March 31, 2018) is the third largest public pension fund in the United States.

New York City Pension Funds Promote Boardroom Accountability

Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment in the Office of New York City Comptroller Scott Stringer

Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment in the Office of New York City Comptroller Scott Stringer

With an average retirement benefit of $38,000 per year, it is likely that many of our members only participate in the capital markets through their role as pension fund beneficiaries. Our members are true Main Street investors, as opposed to a group using that name that represents the interests of company managers. We are long-term share owners of approximately 10,000 public companies around the world, including more than 3,000 U.S. companies.

A particularly good example of market change from shareowner proposals relates to “proxy access” — that is, a mechanism to permit shareowners to include their nominees on the company proxy card for a minority of board seats under certain circumstances. In 2014, Comptroller Stringer and the NYC Funds launched the Boardroom Accountability Project, a campaign to implement proxy access on a company-by-company basis in the U.S. market using shareowner proposals.

Today, largely as a result of the Boardroom Accountability Project, approximately 540 U.S. companies, including 70 percent of S&P 500 companies, have enacted proxy access bylaws with terms similar to those in the vacated SEC rule, up from only six companies in 2014 when we launched the project. In July 2015, economic researchers at the SEC released a study that analyzed the public launch of the Boardroom Accountability Project and found a 0.5 percent increase in shareowner value at the first 75 firms that received proxy access shareowner proposals from the NYC Funds. The SEC staff’s findings were consistent with a 2014 CFA Institute study that found that proxy access on a market-wide basis has the potential to raise U.S. market capitalization by as much as 1 percent, or $140 billion.