The Council of Institutional Investors is seeking approval of a plan to provide $600,000 "to further educate the public and policy-makers of the virtue of defined benefit plans and the essential role of sponsors in promoting interests of shareholders," according to a proposal by the group.
The council would set up and initially fund a separate entity with its own board to oversee the initiative, allowing the CII to stay focused on corporate governance, said Amy Borrus, CII deputy director. The new entity would fund research and other activities and seek to be self-financing. Funding would initially come from CII reserves. CII plans to send the proposal to the general membership for a vote; a timeframe was unavailable.
The initiative "is offered in the spirit of the council membership recognizing that further diminishment of defined benefit plans could seriously erode efforts to fulfill the CII's core mission of promoting good corporate governance," the proposal said.
Separately, financial innovation has undermined the traditional link between corporations and ownership voting rights, said Henry T.C. Hu, professor of the law of banking and finance, University of Texas School of Law, Austin, speaking today at the CII conference in Washington.
Hedge funds in some instances have obtained many more votes than reflected in their economic stake, often harming interests of other investors, he said. "Hedge funds can game disclosure rule," he said, adding that 13F filings are misleading if a fund hedges away its economic interests. He suggested possibly requiring investors to disclose all positions in a stock, both voting and economic, including the extent of hedged positions.
Mr. Hu said he was concerned about imposing restrictions, however, because limiting lending markets eliminates the benefits of short selling to keep stock prices in line with fair market value, he said.
Pension funds, for their part, face a fiduciary dilemma in the risk of losing millions of dollars in fees by forgoing securities lending in an effort to retain voting rights and curtail the practice of separating economic and voting ownership, he said.
"All economic theories that presume a link between corporations and voting rights can no longer be relied on," he said.
