Labor union-backed shareholder activism has failed to increase shareholder value, according to a report released Thursday by the U.S. Chamber of Commerce.
“(T)here is no conclusive evidence of measurable improvements in (short-term or long-term) stock market or (long-term) operating performance in target companies as a result of shareholder proposals,” the report concludes. “Therefore, we find no evidence that shareholder activism has a positive impact either on firms or on the entities offering shareholder resolutions.”
“Should there be no reasonable expectation of a financial benefit from shareholder activism, plan fiduciaries may need to reconsider the extent to which they engage in this practice,” the report states.
The U.S. Chamber commissioned Navigant Consulting to prepare the report, examining all the proxy proposals in the AFL-CIO “key votes” surveys from 2009 to 2012 to “determine whether they have produced an economic benefit,” the report states.
Key votes represent what the AFL-CIO considers representative of a “worker-owner view of value that emphasizes management accountability and good corporate governance,” according to an AFL-CIO report.
The U.S. Chamber of Commerce’s 24-page report — titled “Analysis of the Wealth Effects of Shareholder Proposals — Volume III” and written by Allan T. Ingraham and Anna Koyfman — looked at proxy proposals on governance issues such as proxy contest reimbursements and non-governance issues such as disclosure of political contributions. The report, the U.S. Chamber’s third on the subject since 2008, found “no statistically significant changes in company value associated with the proxy proposals assessed in this study.”
Brandon Rees, AFL-CIO acting director of the office of investment, called the study “false and misleading.”
“The study actually finds … shareholder resolutions … added value,” Mr. Rees said, pointing out it shows a 0.3% gains over three years. For a one-year period the report shows a 0.4% gain. “These are what the report calls statistically insignificant,” Mr. Rees said.
Mr. Rees said the report is flawed because it fails to examine proposals withdrawn by proponents often because targeted companies agreed to implement them.
“We don’t measure value of shareholder resolutions based on them coming to a vote.” Mr. Rees said. “We measure the effectiveness of shareholder resolutions on changes companies implement voluntarily (in response to them). Scores of companies do so every year.”
According to the U.S. Chamber report, the findings are consistent with academic literature on shareholder proposals in general, noting there “appear to be no results that conclusively find positive short-term or long-term economic benefits from shareholder proposals in the United States.”
The report analyzed 97 of 103 shareholder proposals at 73 different companies filed by Taft-Hartley pension plans, public pension plans, union and other investors. It excluded four because of inconsistent data.
Pension plans under the Employee Retirement Income Security Act “must be able to demonstrate” their shareholder activism is done “to promote the economic interests of the plan,” the report states.
“Pension funds affiliated with organized labor have become significant players in shareholder activism, supporting and filing a wide variety of proposals,” the report said.
The AFL-CIO measures effectiveness “by the changes we make in best practices” in corporate governance, Mr. Rees said. “Many of the shareholder resolutions (labor-related organizations) have introduced (over the years) have been adopted by the capital markets” that is many companies, such as annual election of directors, independence of auditor and board compensation committees.
“There are academic studies that have found good corporate governance adds value to shareholders,” Mr. Rees said
Charles M. Elson — who is the Edgar S. Woolard Professor of Finance and a professor of legal studies and director of the John L. Weinberg Center for Corporate Governance, University of Delaware — said: “I think there are better things for the chamber to spend its time on.” Many shareholder proposals, union-supported and from other investors, on managerial and board accountability add shareholder value, Mr. Elson said.
“To claim they don’t add value is in my view incorrect,” Mr. Elson said. “I am confident many AFL-CIO-supported issues will create shareholder value.”
“I agree with many things the chamber does, but on this one I disagree,” Mr. Elson said.
Does good corporate governance add value? “Absolutely,” Mr. Elson said. “Its value is hard to quantify. It’s a circuit breaker. It helps you avoid disaster.”
