Trump DOL, SEC Strike Out Again Against Shareholder Rights, ESG

*Correction* In our September 3rd issue of the Expresso we referenced an article in error. Please read this corrected version of our introduction below.

The Trump Administration continued its multi-pronged attack against workers, retirees and shareholders with two more blunt, irrational rules and proposals from the U.S. Department of Labor (DOL) and Securities Exchange Commission (SEC). While the Expresso has not had the time to examine the DOL proposal carefully, they appear to be an affront against responsible investment, shareholder rights, and common sense. The proposals were anticipated due to an executive order by the White House posted in 2019. Similarly, the NLRB and other agencies have taken additional actions that hurt workers’ rights.

On August 31, the DOL released its proxy voting rule proposal. Workers’ pension experts generally agree that the proposal will thwart shareholder engagement and stifle the exercise of shareholder rights on environmental, social, and governance issues (ESG). This is on top of the ill-considered and flawed DOL rule-making from a little over a month ago on the Financial Factors in Selecting Plan Investments. The blowback from that proposal resulted in 1100 comments from global investment managers, industry associations, pension funds, unions, and investment advisors. Some 95% of the comments opposed the rule .

On July 22, the SEC held an open meeting to finalize rules on proxy voting advice. According to the PRI, the final rules “provide onerous new procedural requirements for proxy advisors and investment advisors pertaining to practices with regard to proxy voting.”

These new rollbacks come in an unprecedented time of a global pandemic, racial injustice, stark unemployment, climate chaos, and increasing business risk (as firms deplete emergency funding). The investment and retirement industries are already struggling to keep up with the “rules tsunami” from the DOL.

As we showed in the Responsible Investor Handbook, workers are both stakeholders and shareholders, and workers’ pension funds can—and should--seek to positively influence the behavior of investee companies through shareholder activism. Such activism can range from private engagements with companies to formal shareholder proposals presented at a company’s annual meeting that seek to tackle issues related to governance such as CEO compensation, board of director selection, mergers and acquisitions, as well as non-financial corporate sustainability issues such as human rights, diversity, environmental pollution, etc.

Trustees and other fiduciaries can thus bring attention to and support those issues that are expected to contribute to the long-term economic best interest of workers and their beneficiaries. These actions also tend to improve the long-term financial performance of firms. This is how good governance should work.

But that’s not what is happening in this Administration. We want to share the following articles or re-posts on the fiduciarily-irresponsible schemes of DOL and the SEC, and the broader injuries to workers, retirees, and society laid at the door of the White House:

America needs responsible, sustainable investment legislation, as in Europe, to end this maddening see-saw every time the occupant of the White House changes. The Expresso is on the case, and we will be reporting more on these developments as they mature.

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