PRI Calls for Reform to Disclose Proxy Advisory Firm Biases in Activist Investment Push
Argues That SEC Should Ensure Shareholder Interests Are Top Priority in Investment Decisions
SAN FRANCISCO – Policy reforms should be enacted to ensure that proxy advisory firms promote fund managers’ fiduciary responsibilities to shareholders and increase transparency over the firms’ biases and conflicts of interest, the Pacific Research Institute argued in comments filed with the Securities and Exchange Commission today.
Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics, filed his comments in response to a call by the Securities and Exchange Commission (SEC) for input on whether the services provided by proxy advisory firms are in the best interests of funds and shareholders.
“Without reforms that better align the interests of the proxy advisory firms and the interests of fund shareholders, reliance on these firms is not in the best interests of fund shareholders,” writes Winegarden in his letter to the SEC.
Much of his comments address the effort by the 2 proxy advisory firms that control 97 percent of the market to prod their clients, including institutional investors, public employee pension funds (including CalPERS), and state treasurers, to call for the SEC to require public companies disclose environmental, social, and governance (ESG) information.
In the letter, Winegarden notes that “while ESG programs can be financially viable (for private, individual investors), these programs can also be financially harmful and there are many studies that have determined that ESG proposals are, on average, detrimental to a firm’s financial performance.”
Underscoring the important need for public pensions to maximize investment decisions, Winegarden cites his recently-released pension chartbook showing that California’s public employee pension debt has grown to nearly $1 trillion using a market estimate that more accurately accounts for liabilities and risk. “Institutional investors (particularly public pension funds) may be violating their fiduciary responsibilities when they adopt the ESG voting positions suggested by these proxy advisory firms,” he concludes.
Dr. Wayne Winegarden is a Senior Fellow in Business and Economics at Pacific Research Institute. He is also the Principal of Capitol Economic Advisors.
The Pacific Research Institute (www.pacificresearch.org) champions freedom, opportunity, and personal responsibility by advancing free-market policy ideas. Follow PRI on Facebook, Twitter, and LinkedIn.