AFL-CIO-affiliated pension fund trustees for the first time are helping the new AFL-CIO Office of Investment examine proxy voting records of 91 large money managers.
The action is part of AFL-CIO hopes to whip Taft-Hartley plans into a more solid voting bloc.
And, with the help of union-affiliated trustees on public funds, the AFL-CIO affiliated retirement plans could become the most powerful force in corporate governance, some union officials believe.
At the AFL-CIO's behest, trustees at these plans are helping identify managers in conflict with new recommended AFL-CIO proxy voting guidelines.
Trustees asked money managers to fill out questionnaires on their proxy voting practices; completed questionnaires were then sent to AFL-CIO headquarters for tabulation and analysis.
The AFL-CIO recommends that money managers found not to be following plan proxy voting guidelines should be asked to follow them in the future and provide justification when they don't follow them, or lose proxy voting authority.
The AFL-CIO is recommending trustees delegate the proxy voting power with problem managers to voting services run by firms such as Marco Consulting Group, Chicago.
While some union fiduciaries have been activists in corporate governance, many others have been virtually asleep on the subject until now, with no idea of how money managers have been casting proxy votes for plan assets, some union officials said.
$203 billion affected
The managers whose voting records are being examined -- all of them prominent firms, including Oppenheimer Capital, New York; McMorgan & Co., San Francisco; and Putnam Investments, Boston -- hold a total $203 billion in Taft-Hartley assets.
The AFL-CIO's new voting guidelines apply only to U.S. corporations now. But the union headquarters is developing international corporate governance guidelines, said Chris Bohner, a research analyst at AFL-CIO headquarters in Washington.
No decision has been reached whether the AFL-CIO will identify a target list of companies, similar to one presented each year by the $124 billion California Public Employees' Retirement System, Sacramento, said Mr. Bohner.
Many of the AFL-CIO's new guidelines are similar to those of activist public funds, seeking more autonomy for independent directors and non-staggered board of director elections.
Emphasis on workers
But the new AFL-CIO guidelines and comments from union officials indicate greater emphasis will be placed on worker concerns than the public plan guidelines now have.
Those concerns will focus on subjects such as downsizing, executive compensation and stock options for employees.
Union officials also believe more emphasis is needed on the long-term health of companies. The reduction of employment rolls seemed aimed more to please Wall Street analysts than to achieve long-term corporate health, some union officials said. They noted many of the downsized companies later had to re-hire workers.
Union employees are "long-term shareholders with a unique perspective," said Ed Durkin, director of special programs at the Corporate Governance Project at the Carpenters International union in Washington.
Union employees are employees of companies and owners of companies as participants of pension plans, said Mr. Durkin.
The Carpenters union, just one of a number of members of the AFL-CIO, has about $20 billion in Taft-Hartley plans. The plans range in size from about $200 million to $1.7 billion and are scattered around the country.
But if the Carpenters trustees and those at other plans can be unified on corporate governance issues, their voting power when combined with public plan shareholders would be enormous. Mr. Durkin estimated public and union plans combined own an estimated one-third of U.S. corporate assets.
An unknown amount of additional Taft-Hartley plan money is scattered among smaller money managers.
In addition to trustees on Taft-Hartley plans, trustees affiliated with the AFL-CIO sit on public plans and are taking part in the examination of manager proxy voting records.
There already is evidence that AFL-CIO related plans and public plans can work together. Some union officials are crowing about getting public plans to "go along on lawsuits" against Columbia/ HCA Healthcare Corp., Nashville, said Simon Russin, a trustee with the $22 billion Los Angeles County Employees' Retirement Association.
Another example, he said, is CalPERS' approval of a prevailing wage clause to be honored by its real estate developers.
The union-affiliated public fund trustees don't control public funds, but they do influence decision-making, such as hiring of managers and the allocation of hundreds of billions of dollars.
Although the tabulations aren't completed, union officials said they have a sense of how the managers are voting. Mr. Bohner declined to reveal that information.
He also declined to say how the information about manager proxy voting records will be used or when it will be distributed to trustees.
Impact on hirings
Money managers probably would prefer not to antagonize Taft-Hartley trustees or union-affiliated trustees on public plans as both make decisions in hiring of firms.
One union official said privately that the finalist managers in any given search usually are equally good. Union displeasure with a particular manager could tip the balance in favor of another firm for plans with union trustees.
One of the money managers being questioned about proxy voting records is Ark Asset Management Co., New York. According to a list of managers distributed to union-affiliated trustees, Ark has $5.59 billion in Taft-Hartley assets.
Peter Iaconis, chief of operations at Ark, said the firm received a questionnaire about its proxy voting record on Taft-Hartley assets. He said the form was completed and given to the AFL-CIO.
The plans might become extremely powerful on corporate governance depending on "how many shares they own and what they are voting for," said Mr. Iaconis.
Another money manager, San Francisco-based McMorgan, has $16.57 billion in assets.
A spokesman for McMorgan declined to state whether McMorgan had answered the questionnaire or how it voted proxies.
How Putnam Investments votes proxies depends on client wishes, according to a spokesman. If the client asks Putnam to follow certain guidelines, it does. But, if no client request is made, Putnam follows its own guidelines, said Matthew Keenan, the spokesman. Putnam has about $3.2 billion in Taft-Hartley assets under management, according to the AFL-CIO.
The new AFL-CIO proxy voting guidelines are being distributed to trustees affiliated with the AFL-CIO as well as to money managers.
Proxy services sought
More Taft-Hartley plans want voting proxy services to vote proxies. Marco Consulting has just launched proxy voting services for Taft-Hartley plans of the United Association of Journeymen and Apprentices of the Plumbers and Pipe Fitters of the U.S. and Canada and United Food and Commercial Workers, said Greg Kinczewski, general counsel with Marco Consulting.
He said other Taft-Hartley plans increasingly are asking Marco Consulting to vote proxies once voted by money managers.
AFL-CIO officials are concerned about recently issued proposals of the Securities and Exchange Commission that they say will adversely affect the voting rights of institutional investors.
In a show of their new-found activism, the AFL-CIO has begun sending faxes to union-affiliated trustees nationwide asking them about what they are doing to protest the SEC's proposals, a union official said.
Harnessing the power of pension plans is a critical part of the new AFL-CIO strategy. Mr. Bohner said it was part of the election campaign of John J. Sweeney, AFL-CIO president.