New Massachusetts pension fund voting policy takes stances on gender diversity, renewable energy, tobacco
The board of Massachusetts’ public pension fund voted unanimously on Tuesday to adopt a more socially activist role in the votes it takes on corporate boards.
The new guidelines, proposed by Treasurer Deborah Goldberg, require the pension fund to vote against a company’s board nominees if less than 25 percent of the board is female or from a racial minority. The guidelines require Massachusetts to vote in favor of shareholder proposals seeking reports from companies related to renewable energy use, energy efficiency, tobacco advertising and recycling. The guidelines urge companies to lead on the issue of wage equality and to link executive pay to non-financial factors such as customer and employee satisfaction, human rights and performance on social and environmental goals.
“We want to invest in companies that adopt good business practices that are going to make them more successful in the long run and enhance our investment in them,” Goldberg told the Pension Reserves Investment Management (PRIM) Board before the vote.
Goldberg, a Democrat whose family founded Stop and Shop, said she comes to the issue not only as a social progressive but as someone who has been involved in running a business.
“This isn’t simply admirable social goals. They are economic necessities in the 21st century,” Goldberg said.
The nine-member PRIM board voted for the policy after a short discussion, with no dissent.
“This certainly is not a partisan issue. It’s a common sense issue,” said Dennis Naughton, a PRIM board member and member of the State Teachers’ Retirement Board. “Massachusetts will stay ahead of the curve on these kinds of most important issues.”
Theresa McGoldrick, a PRIM board member and member of the State Employees’ Retirement Board, said similarly that Massachusetts is “moving in front of the curve” on these issues, and Goldberg’s proposal reflects the values state retirees would like to see. “Studies have shown all these factors correlate to positive growth and positive returns. It’s win-win situation,” McGoldrick said.
The pension fund is an investor in nearly 9,000 boards, according to Goldberg’s office. It hires a firm to cast votes on behalf of PRIM at the corporations’ board meetings, using standards that PRIM lays out. The voting decisions are more about taking a stance and sending a message than having a financial impact, since PRIM does not have a majority share in these boards.
The requirement to withhold support from any board nominee if 25 percent of the board is not diverse is a major change from past policy, which only required PRIM to withhold support if the board had zero diversity.
The PRIM board itself includes three women and one black man. Goldberg’s appointee to the board is a woman.
There are other significant shifts. The previous PRIM policy was to generally vote against proposals requesting that a company invest in renewable energy resources. “Such decisions are best left to management’s evaluation of the feasibility and financial impact that such programs may have on the company,” the old policy stated.
The new policy says PRIM will vote for shareholder proposals seeking increased investment in renewable energy sources “unless the terms of the resolution are overly restrictive.”
The old policy was to vote against proposals regarding tobacco product warnings, finding that those decisions “are better left to public health authorities.” The new language requires PRIM to vote for proposals asking companies to increase health warnings about cigarette smoking.
The old policy was to vote on a case-by-case basis on proposals related to recycling, while the new policy is to vote for proposals that ask companies to increase their recycling efforts or adopt a formal recycling policy.
The old policy was to generally vote against proposals to link executive compensation to environmental or social criteria such as corporate downsizing, human rights, predatory lending or employee satisfaction. The new policy is to vote for such proposals.
There is a new guideline that is largely advisory urging companies to lead on ensuring men and women receive equal pay for equal work, potentially through open access to salaries.
Several activists protested outside the meeting asking the board to divest from fossil fuel companies. One activist, James Michel of Boston, called the new guidelines related to renewable energy “a good thing” but said they “did not go to the core of the issue,” which is the behavior of fossil fuel companies.
Although Goldberg supports divestment, divestment is a different issue from the voting guidelines. Divestment would have more of a direct financial impact, and has been far more controversial, with some people arguing that it would breach the pension fund’s fiduciary duty to investors. Some opponents of divestment support the policy of using PRIM’s vote on corporate boards to make an ideological statement, because it will not harm the pension fund’s investments.
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