RI Interview: NYC pension funds, the country’s most active shareholder resolution filers

The funds are lodging fewer resolutions but driving deeper to get better value for money.

As the 2011 US proxy voting season heats up, the New York City Pension Funds, the country’s most active pension fund filers of shareholder resolutions, are honing their governance activities. In September last year, New York City Comptroller John Liu announced the hire of the respected governance professional, Michael Garland, to lead shareholder activism on behalf of the funds in a newly created role of Executive Director for Corporate Governance in the Comptroller’s Office in New York. The funds collectively manage some $118bn. Two years ago, they filed more than 120 resolutions on as many as 20 different ESG issues. One of Garland’s tasks has been to reduce the number of resolutions but enhance their intensity to get better value for money. Says Garland: “There comes a point in time when you have to look again at what you stand for. John Liu has an active interest in what the city’s pension funds are doing and wants their governance activities to look more closely at issues such as sustainability, board accountability and independence and executive compensation.” Garland was most recently Director of Value Strategies for the CtW Investment Group, which he co-founded within Change to Win, a federation of unions representing 5.5 million US workers. In that role he worked with pension funds across the country on corporate governance and performance through regulatory reform and company-specific engagement. A co-author of the article: “The Origins and Goals of the Fight for Proxy Access,” his knowledge of the US governance scene is second to none. Comptroller Liu recognised as much on Garland’s arrival, noting that: “He has been the driving force on numerous high profile initiatives that have resulted in meaningful board of director reforms. With Michael on board, my office will redouble our efforts to enhance the value of the funds.”
Garland’s team in the Comptroller’s Office is responsible for advancing ESG reforms at companies in which the New York City Pension Funds are shareholders. The city has five funds: the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System. John Liu serves on the trustee board of four and is investment advisor and custodian to all five. As each fund is autonomous, however, the governance recommendations of Garland and his team are made to the respective Proxy Committees at each pension board. Collectively, the funds have the overall ESG aim of enhancing long-term value of investments by reducing potential risks. As a result, the funds have historically been one of the leading filers on environmental resolutions and were co-founders of the US Council of Institutional Investors and Ceres, the environmental investor coalition.
The New York funds also have a history of working with SRI asset managers. This year, the funds have joined with others to target what they say is the hypocrisy of corporates that cite their green credentials while remaining members of the US Chamber of Commerce. At its recent AGM, John Liu called on German industrial giant Siemens to sever all ties to the Chamber, which Liu said had “vigorously opposed” environmental reform. Garland says the issue is rapidly becoming a reputational and therefore investment risk for companies who say one thing on the environment and are seen to be acting contrarily. Other issues high on the funds’ agenda this year include that of political contributions by corporations following the controversial ‘Citizens United’ Supreme Court Ruling, which removed a cap on the funding of political broadcasts. Sexual discrimination
and equality is another major campaign backed strongly by Controller Liu. Garland cites the case of reported allegations that advertising for BMW Mini Coopers was being excluded from geographic areas containing ethnic minorities: “We’ll look at these kind of issues where we believe there is a legal and reputational risk to the companies because of a reported policy, as well as the discrimination issue itself.” Garland acknowledges that part of the refocusing of the New York funds’ proxy strategy is a question of resources, but says it is also a question of better complementing what other investors are doing. The funds have worked on proxy issues with overseas investors and are looking to expand their work here. An example of a broader pension fund campaign is running this season with state plans from Connecticut,Oregon and Illinois among others, collectively running $432billion in assets, that have engaged the four largest banks in the US: Bank of America, Wells Fargo, J.P. Morgan and Citigroup — over the US foreclosure crisis. “There are widespread irregularities and poor internal controls throughout the mortgage pipeline. We are pushing the banks to look at their mortgage servicing, foreclosure and modification compliance practices, because we believe there are serious legal risks here,” says Garland. Other major shareholders evidently agree. The resolution at Bank of America’s AGM received 39.5% support. Backing was also high at Citigroup (29.2%) and Wells Fargo (22.8%), while the resolution at JP Morgan was excluded from the proxy.