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State Pension Fund Uses Clout to Push Corporate Diversity

State Pension Fund Uses Clout to Push Corporate Diversity

  • Mar 26, 2018 Updated 21 hrs ago

Whether making a push to slow global warming or trying to boost diversity in America’s corporate boardrooms, the city and state public-employee retirement systems are part of a national movement that increasingly sees public pensions as a way to leverage social and political change.


While the linking of the systems' retirement investments to weighing in on a particular cause goes back decades to the global movement to end apartheid in South Africa, it's now being applied in multiple policy debates that include everything from pushing the adoption of stockholder resolutions to actual stock divestment.

Both State Comptroller Thomas P.Di Napoli and City Comptroller Scott Stringer are considered national leaders in this growing, though controversial, movement.


What Glass Ceiling?

The most-recent example was the New York State Common Retirement Fund’s announcement that it would now use its proxy voting power to reject slates of exclusively male boards of directors that are nominated by the publicly traded companies in which the fund has a stake.

NYSCRF owns shares in more than 400 public companies that have no women on their boards and more than 700 companies that have just one woman.

Mr. DiNapoli announced the policy shift March 21, citing research that demonstrated “that having diverse boards improves company performance” and that “companies that fail to diversify their boards also put themselves at risk of reputational damage.”

“It is unconscionable that hundreds of publicly-held U.S. companies have no women directors,” Mr. DiNapoli said in a statement. “We’re putting all-male boardrooms on notice—diversify your boards to improve your performance. There is ample research that board diversity benefits companies. We will continue to urge our portfolio companies to adopt inclusive policies to diversify their boards, but we’re also going to be speaking loudly with our board votes. We commend those companies that have agreed to improve their policies in an effort to diversify their boards.”

Too Big to Ignore

NYSCRF is the nation’s third-largest public pension fund with $209.1 billion in estimated assets of as of Dec. 31, 2017.

Mr. DiNapoli and the state fund reached agreements with Bristol-Meyers Squibb, Leucadia National, Packaging Corp. of America and PulteGroup, with the companies committing in writing to seek out highly qualified women and individuals from minority groups when recruiting candidates for their boards of directors. As a result of the agreements, Mr. DiNapoli withdrew the shareholder proposals it had filed at those companies.

In situations where a company has just one woman on its board, NYSCRF will vote against members of the board’s governance committee standing for re-election.

Since 2013, Mr. DiNapoli and the fund have filed 29 shareholder proposals calling on portfolio companies to enhance board diversity. To date, the fund’s shareholder actions have resulted in 20 agreements with portfolio companies, and the companies with which the fund has reached agreements have added 24 diverse members to their boards. 

Seek 30% Women

The State Comptroller and the fund are members of the Thirty Percent Coalition, a national group of institutional investors that promotes greater gender diversity in public-company boardrooms and has a goal of 30-percent female representation on publicly-held corporate boards. In total the coalition’s members have $3.2 trillion in assets under their management.

Since it was established in 2011, the coalition has successfully lobbied 150 publicly-traded companies to diversify their boards. In addition to trying to diversify the nation’s corporate boardrooms, the coalition also supports the career advancement of women and minorities at the senior executive level within companies. “These members provide ample talent resources to companies for board candidates, challenging the idea that qualified female and minority board candidates are in short supply,” according to the group's mission statement.

In the aftermath of the mass shooting at Marjory Stoneman Douglas High School in Parkland, Fla., the leader of that state’s teachers union called for pension-fund divestment from gun stocks.

“I am sure that most of Florida’s public-school employees are as sickened as I am to learn that the state has invested some of our pension-fund holdings in the maker of the AR-15,” Florida Education Association President Joanne McCall told Bloomberg News. “Surely there are better places for the state to invest its public-employee retirement money than in companies that make products that harm our children.”


Teacher Holdings 'Loaded' 

Bloomberg News reported that pension funds “managed for public-school teachers in at least a dozen U.S. states, including New York, New Jersey, Pennsylvania and California, own stocks issued by the makers of firearms.”

“These passive portfolios track a broad market index,” a spokesperson for the New York State Teachers’ Retirement System said in response to a Bloomberg News query about its gun-company holdings. “No decision has been made on divestment.”

In February 2013, the city's Teachers' Retirement System divested from what it described in a statement as “companies receiving material revenue from the manufacture of civilian firearms and ammunition.” The fund modified its policy in December 2017, when it resolved to further divest from companies that receive at least 5 percent of their revenues from the manufacture of civilian firearms and ammunition. That divestment is now complete.


Concern About Returns 

Calls for divestment have spurred controversy. Some public-pension stakeholders see such moves as undermining the most-basic fiduciary obligation of the funds themselves: to generate the highest rate of return for future retirees.

In January Mr. Stringer and Mayor de Blasio announced plans for the five city retirement systems to divest from fossil fuels in response to global warming and climate change.

"New York City is standing up for future generations by becoming the first major U.S. city to divest our pension funds from fossil fuels,” said the Mayor. “At the same time, we’re bringing the fight against climate change straight to the fossil-fuel companies that knew about its effects and intentionally misled the public to protect their profits. As climate change continues to worsen, it’s up to the fossil-fuel companies whose greed put us in this position to shoulder the cost of making New York safer and more resilient.”


Union Resistance 

Several union leaders with a stake in those funds took issue with the move. "Public pensions are a right guaranteed to state and municipal workers and retirees who have devoted much of their lives to protecting and serving the public,” said Michael Carrube, president of the Subway Surface Supervisors Association, which represents more than 4,000 bus and subway supervisors. “Our pensions are and should be protected from ambitious politicians who would try to use them as policy experiments or as part of some broad political agenda that ultimately affects our members and other working families."

In Albany a similar fossil-fuel divestment strategy advanced by Governor Cuomo and environmental advocates in the State Legislature encountered resistance from public-union leaders who saw the move as driven by politics rather than the long-term financial interests of their members.

Last year the Suffolk County Association of Municipal Employees commissioned an independent analysis of the impact of fossil-fuel divestment and found that the Common Retirement Fund would lose $2.8 billion over 20 years if the sell-off were executed.

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