Reining in Activist Funds

Control the Funds; Business And Economics

ELI LEHER / The American Enterprise 1sep03

Tracie Woidtke, et al., "Reining in Activist Funds," in Harvard Business Review, March 2003 (harvardbusinessonline.org)

Public employee pension funds now rank as some of the nation's largest stockholders. Many of these funds, such as California's $ 136 billion CalPERS are willing to flex their mighty financial muscles to advocate for issues such as affordable housing and human rights in developing nations. To Texas A&M scholar Tracie Woidtke and her two coauthors, this behavior "often represents a clear conflict of interest" for managers who are responsible for improving funds' returns and, at the same time, want to realize political goals.

Citing her own previous work, Woidtke finds that companies with large numbers of shares held by activist pension funds tend to have lower market values than comparable companies with different stockholders. Pension funds tend to make trouble for companies by making proxy proposals related to their political agendas that often have a negative impact on the companies' profitability. Woidtke and her co-authors suggest that states work to depoliticize pension funds by turning their administration over to professional governing boards.

They also propose increased regulation of shareholder proxy proposals that public employee pensions funds often submit to advance their social agendas. The three believe it should be harder to re-submit proposals that do not draw significant shareholder support, and that groups making proposals should have to pay some of the costs to re-submit them after they, have failed twice.

source: via email 22aug03