This is Part III of a conversation between David H. Webber and Michael McCarthy on the prospect of combating neoliberal corporate governance through the shareholder activities of workers’ pension funds. Workers’ retirement savings make up a substantial share of the capital invested in the public stock market and the private equity market. If shareholder primacy is the dominant paradigm of our financialized economy–-usually a problematic proposition in these pages–-then shouldn’t workers have a say in how these companies are run? Webber and McCarthy are both sympathetic to this idea, but disagree about how well such efforts have worked in the past and how likely they are to work in the future.
LPE: We now have several potential obstacles on the table. Let’s take a closer look at some of them. First, the legal obstacle—what does fiduciary law really require, and is this a problem for prioritizing something other than short term financial return in fund governance? Second, politics—what will it take for labor to demand a seat at the table, or a majority of the seats?
David H. Webber: Though I do not view current fiduciary law as an insurmountable barrier to the activism I describe, it could be better. ERISA comes from trust law, though the statute explicitly states one should be cautious in using trust law to interpret it. I have argued that, in many respects, the more flexible fiduciary duties found in trust law’s cousin, corporate law, may be a better fit for pension plans as they exist today than trust law itself. Historically, because shareholders were thought to be comparatively more empowered vis-à-vis corporate boards and managers than beneficiaries were vis-à-vis trustees, more flexible fiduciary duties evolved in the corporate sector.
But I think that in the case of many pension plans, these distinctions have broken down. First, public pension plans now make regular disclosures through Certified Annual Financial Reports, the pension law equivalent of the 10-K. Second, plan participants and beneficiaries get to vote for worker and retiree representatives on boards, and in their capacity as citizens, they also get to vote for the elected officials who serve as employer representatives on those boards. So there is a measure of accountability not found in traditional trusts. Third, on the corporate side, diversified shareholders have effectively lost their capacity to exit. Divesting is expensive, can often hurt you on the way out, and may undermine diversification. Many shareholders are locked in the same way pension beneficiaries are. It may be time for greater convergence between pension law and corporate law, one that takes account of the new institutional realities.