The US Department of Labor has been accused of giving in to pressure from corporate lobbyists after proposing “draconian” rules that critics say undermine shareholder democracy.
Institutional Shareholder Services, the world’s largest proxy advisor, lambasted the DoL over new proposals that cover the way private pension funds vote at annual meetings. If given the green light, the rules would ban some US pension funds from voting at annual meetings “unless the trustee cautiously determines that the matter has an economic impact on the plan.”
Lorraine Kelly, head of governance at ISS, who advises large investors on how to vote at annual meetings, said the proposals were bad news for shareholder democracy.
“Once again, corporate interests and their lobbyists have succeeded in devising measures designed to cut off the voice of shareholders,” she said.
“By attempting to impose unnecessary and draconian barriers to proxy voting, this proposed rule and the broader and concerted campaign to strip investors of their voting rights will ultimately weaken the oversight of holding companies and undermine to the “millions of American workers” that the DoL claims to protect.
This decision is the latest sign of the divergence between Europe and the United States with regard to so-called sustainable investments. The EU is set to put in place rules next year to bring liquidity to sustainable investing and to push asset managers and pension funds to consider environmental, social and governance.
But in the United States, there is a growing regulatory crackdown on ESG investing, which has grown in popularity in recent years as issues related to climate change, labor rights and board governance could. have a significant impact on the financial performance of companies. Some US companies are concerned about the attention shareholders are giving ESG and the use of annual meetings to lobby boards on environmental and other issues.
In June, the DoL, led by Eugene Scalia, laid out plans for a rule that would require private pension administrators to prove they weren’t sacrificing financial returns by investing in ESG investments.
Announcing the latest plans last week, Jeanne Klinefelter Wilson, acting deputy secretary of the department’s benefits security administration, said the proposed rules would reduce pension fund spending by “ giving trustees instructions clear guidelines to refrain from spending workers’ retirement savings on research and voting. on matters which should not have an economic impact on the plan ”.
But Eli Kasargod-Staub, chief executive of Majority Action, a nonprofit shareholder advocacy organization, said the proposals “hurt and silence long-term investors.”
“Proxy voting is the means by which shareholders have their voice heard in the direction of a company and who is in charge,” he said.
“Trump’s Department of Labor tries to protect irresponsible business leaders from the consequences of their actions by undermining the basic principles of shareholder democracy and responsible corporate governance,” he said.
