The chief financial officers of two large states and two large cities on Wednesday issued an open letter in their role as pension fiduciaries criticizing the practice of share-buybacks by corporations and questioning whether companies “are adequately reinvesting for sustainable returns over the long term.”
The four financial officers — from New York state, New York City, Chicago and California — are fiduciaries to pension funds with $860 billion in assets, covering 4.3 million participants, the letter said.
The letter cited McDonald’s Corp. as an example of what troubles these public pension fund executives. The company “is facing serious performance challenges,” the letter said. “But despite a recently announced and much needed turnaround plan, the company continues to direct capital towards an aggressive share buyback program.”
The letter was signed by New York state Comptroller Thomas DiNapoli, the sole trustee of the $181.7 billion New York State Common Retirement Fund, Albany, and New York City Comptroller Scott Stringer, the fiduciary for the five city pension funds that make up the $163.4 billion New York City Retirement Systems.
The other signers are Kurt A. Summers Jr., the Chicago city treasurer, who is sits on the four city-sponsored pension fund boards with about $11 billion in combined assets, and Betty Yee, the controller of California, who is an ex-officio member of the $308.1 billion California Public Employees’ Retirement System, Sacramento, and the $191.2 billion California State Teachers’ Retirement System, West Sacramento.
Alleging that “95% percent of corporate earnings are being distributed to shareowners,” the state financial executives wrote that they are concerned “if the pendulum swings too far in favor of returning capital to shareowners, (then) the future viability of the companies in which we invest may be placed at risk.”
The four executives said they support a shareholder resolution requesting proxy access that will be voted on at the McDonald’s annual meeting Thursday.
Proxy access would allow shareholders who meet minimum shareholder requirements of holding at least 3% of shares collectively to nominate candidates for up to 25% of the firm’s board of directors. Currently, board nominations come solely from the company.