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FSBA report finds gains correlated with proxy-voting decisions

Florida State Board of Administration's proxy-voting decisions correlated with a 9.4% increase in cumulative returns based on the original value of holdings, adding $178 million in appreciation to its assets, according to a new study from the FSBA.

The study by the Tallahassee-based board — which oversees $185.6 billion in total assets, including the Florida Retirement System's $151.4 billion defined benefit plan and $8.9 billion defined contribution plan — “examines all proxy contests occurring between Jan. 1, 2006, and Dec. 31, 2014, at U.S.-domiciled companies with market capitalizations exceeding $100 million,” said an FSBA report on the study.

“We feel it kind of validates the process we go through” in arriving at proxy-voting decisions, said Michael P. McCauley, FSBA senior officer, investment programs and governance, discussing the study with the FSBA trustees. The study is the board's first on valuing its proxy-voting decisions. “We are not a swing vote and not a controlling owner.”

The FSBA's total investments across all 107 companies in the study at the time of the initial proxy-contest announcements totaled $1.9 billion.

The returns are based on the five years after the proxy contest was announced or, for proxy contests after 2011, through 2014.

The report — “Valuing the Vote: the Impact of Proxy Voting on SBA Holdings: Empirical Analysis of Proxy Contests,” produced by Mr. McCauley and other board staff members — includes an examination of four sets of proxy-voting decisions and resulting outcomes to arrive at the cumulative return by netting the investment gains and losses from the results.

Examining initial proxy contests and excluding subsequent proxy contests by the same company during the study period, FSBA support for dissident nominees when dissidents won at least one seat resulted in a $51 million total cumulative gain for its holdings, while FSBA support for dissidents when management won all seats resulted in a $259 million loss.

FSBA support for management nominees when dissidents won at least one seat resulted in a $249 million gain, while FSBA support for management when management won all the seats resulted in a $137 million gain.

Looking at its proxy-voting decisions, FSBA gained a cumulative $188 million in initial proxy contests where FSBA voted with the side that won. When FSBA voted with the side that lost, its holdings lost a cumulative $10 million.

“The results of this study do not necessarily show causation, merely correlation among the SBA's voting decision and subsequent positive stock performance,” the report said.

The report is available on FSBA's website.