Four groups sponsored 89% of shareholder proxy proposals this year at Fortune 200 companies, led by labor unions and pension funds, according to a report released Wednesday by the Manhattan Institute, a public-policy advocacy organization.
Thirty-six percent of shareholder proposals were sponsored by union and public pension funds; 31% by three individual investors, their relatives and family trusts; and 22% by investors with a socially responsible, religious or public-policy purpose, said the report, “Proxy Monitor 2012: A Report on Corporate Governance and Shareholder Activism.”
“Only 10% of shareholder proposals were sponsored by individuals other than the three 'corporate gadflies,' and only 1% by institutional investors unaffiliated with organized labor or a social, religious or public policy purpose,” the report said.
Among the unions and public pension funds, 41% are private labor pension funds; 38%, state and city pension funds; 16%, $850 million American Federation of State, County and Municipal Employees Pension Fund, Washington; and 5% other labor-affiliated funds.
“There is substantial reason to believe that they (public pension plans) are sensitive to organized labor concerns,” James R. Copland, co-author of the report and director of the institute's Center for Legal Policy, said in an interview.
“Labor-union pension funds' sponsorship of shareholder proposals appears to be unrelated to shareholder return and connected to union-organizing activities and other labor objectives.” the report said.
Each company that has faced more than two labor-sponsored proposals this year “had share returns that outperformed its peer group in 2011,” while “each company, however, had been engaged in public disputes with labor unions or had played an active role in the political process against organized labor interests,” the report said.
“What a company did (in shareholder performance) in the last year makes a lot of sense” in analyzing proposals, Mr. Copland said, acknowledging that the full one-year return might not be available to proponents before the proposal filing deadlines and that fiduciaries tend to have longer-term horizons in determining investment performance.
Among other findings, the report said Institutional Shareholders Services, a corporate-governance and proxy-voting advisory firm, exercises significant influence on the outcome of proxy voting through its recommendations to institutional investors.
A favorable recommendation on a proxy issue by ISS generally increases voting support by 15% for a shareholder proposal, “controlling for other factors,” the report said.
“ISS consistently supports a much higher share of shareholder proposals (63%) than do shareholders overall (less than 8%),” the report said.
Lisa Lindsley, AFSCME director of capital strategies, said in an interview that the report is incorrect in attributing union-sponsored proposals to labor organizing activity.
“Our primary screening tool is to look at the one-, three- and five-year total shareholder return (of questioned companies) compared to their peers,” Ms. Lindsley said. “Our only consideration is to file proposals that improve shareholder value over time. To attribute what we are doing to union organizing activity is incorrect.”
Brandon Rees, acting director of the AFL-CIO Office of Investment, said in an interview the union pension funds measure the success of shareholder proposals they sponsor by their ability to improve shareholder performance of companies.
Ms. Lindsley said the report has a number of analytical failings, including not taking into account proposals that were withdrawn by proponents because settlements with targeted companies were reached and weren't offered for a vote.
Mr. Copland said the report looked at only proposals that came for a vote.
The report examined 178 of the largest companies that had filed proxy statements as of July 15, 173 of which have held their annual meeting. Mr. Copland said the institute's limited resources restricted the number of companies examined for the study.
Cheryl Gustitus, ISS spokeswoman, couldn't be reached.