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• W314403937 abstract "Vice Chancellor Leo Strine is correct that forced capitalists--working men and women--are deeply affected by the capital markets both as the beneficiaries of institutional investors such as pension funds and mutual funds, and as individuals new to the demands of the society. For example, the 1.4 million public service workers who are members of my union, American Federation of State, County, and Municipal Employees (AFSCME), have their retirement dollars invested through public retirement systems that hold more than $1 trillion in assets. Our members depend on the earnings of these systems to support their financial security in retirement. To meet these plan obligations, public pension system investments in the public markets are diversified, largely owning the market, are heavily indexed, and operate with time horizons of 20 years or more to meet the payment of contractual benefits. Indeed, public pension systems are the foundation of patient capital investment in this economy, which seeks shareholder value creation over long time horizons. In labor's view, the lack of director accountability to shareowners and the inability of the largest intermediary financial institutions to fairly represent the interests of the ultimate beneficiary--the working family--stand out as the fundamental flaws in U.S. corporate governance today. These flaws, centered on the lack of true ownership rights, combine the problems of board agency with the obstacles inherent in common action among institutional holders of capital. Compounding the problem, as Vice Chancellor Strine rightly argues, are intermediary financial institutions that protect their own financial interests and not those of the ultimate beneficiary. Of particular concern to us is the large role that mutual funds and hedge funds play in the markets, which is often at odds with the overall financial objectives of the ultimate investor. Mutual funds, collectivizing the investments of millions of individuals, should have a key role to play as large shareholders with proxy voting fiduciary responsibility. But as intermediary institutions with more than $9 trillion under management accounting for about 25% of the market capitalization of all U.S. companies, mutual funds do not often act in the interest of the investing public. The legal regime governing mutual funds requires that they be managed in the interests of their shareholders. Until recently, however, there was no requirement that mutual funds disclose how they cast proxy votes at portfolio companies, making it impossible for mutual fund shareholders to judge whether those votes were in their best interests. It was the leadership of the AFL-CIO and Taft-Hartley funds that pushed through new requirements for the disclosure of mutual fund proxy voting. Unfortunately, after repeated legal changes, the SEC has failed to implement even basic reforms, such as independent fund chairmen to prevent conflicts between serving the pecuniary interests of the investment adviser and the fund investors' desire for reasonable fees, active ownership, and transparent management. Given the size of mutual fund holdings, governance reform at operating companies is unlikely to occur without their support. If there are no market-correcting mechanisms such as the increased scrutiny of executive compensation by these large investors, then further regulatory intervention might be inevitable. Indeed, Judge William Chandler of the Delaware Chancery Court has said: If neither the courts nor the markets are able to constrain executive compensation, and if the decisionmakers fail ... the result will be imposition of regulatory controls.... The entire matter of executive compensation--which seems in some cases to have become spectacularly unhinged from the market for corporate talent--will either be regulated by [the fiduciaries], or by the politicians.... (1) Vice Chancellor Strine is correct that American investors and companies deserve something better if we are to most efficiently create wealth while remaining competitive with the global markets where director accountability and shareholder rights are more advanced. …" @default.
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• W314403937 date "2007-09-22" @default.
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• W314403937 title "Commentary on Leo Strine's Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance." @default.
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