NCPA - National Center for Policy Analysis


August 25, 2009

Investors reeling from losses in their stock portfolios and 401(k) retirement plans have a potential new threat to be concerned about -- powerful special interests that have goals other than maximizing shareholder value, says Tom Donohue, President and CEO of the U.S. Chamber of Commerce.

The recently introduced Shareholder Bill of Rights would facilitate such a takeover by forcing companies to allow, and essentially pay for, unions and other activist shareholders with as little as one percent ownership to run competing slates of board candidates in corporate elections.  Sounds harmless, but it could undermine the profitability of our best companies and weaken the retirement security of millions of Americans. It would also cause companies to think twice before going public, says Donohue:

  • Unions already employ shareholder activism to advance a special interest agenda that has little, if any, connection to the financial performance of the companies in which they have a stake.
  • Their actions include repeated motions by the AFL-CIO to require pharmaceutical companies to disclose their drug re-importation policies and to pressure oil companies to reduce greenhouse gas emissions.
  • Some union leaders have even advocated using pension funds to force employers to negotiate union contracts or agree to specific demands.

But allowing unions to rig the proxy rules for their own advantage is not only bad corporate governance, it's against the law, says Donohue.  The Employee Retirement Income Security Act requires pension assets to be used for the "sole purpose" of benefiting plan participants and not to pursue unrelated objectives.

Further, a study conducted by Navigant Consulting for the U.S. Chamber found that shareholder activism by union pension funds provides no benefit to union pensioners and may actually reduce shareholder value, says Donohue.

Source: Tom Donohue, "Unions Assault Economic and Retirement Security," U.S. Chamber Magazine, August 11, 2009.


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