DOL Guidance Sparking Corporate Fears of More Activism in 2017

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By Michael Greene

Shareholder activism could increase this year in the wake of new Labor Department guidance on when employee benefit plan fiduciaries can vote their proxies.

Interpretive Bulletin 2016-01, issued Dec. 28, clarifies that plan fiduciaries can exercise their proxy voting rights as part of their fiduciary duty to manage plan assets. The guidance also clarifies issues around environmental, social and governance (ESG) investments.

The guidance was done without the benefit of adequate notice, comment and study, Tom Quaadman, executive vice president of the U.S. Chamber Center for Capital Markets Competitiveness, said in a statement e-mailed to Bloomberg BNA.

“We are deeply concerned with these amendments,” he said. “These changes can have negative impacts on investors and businesses and should be thoroughly explored before moving forward.”

The DOL’s new interpretation could encourage plan fiduciaries to engage in shareholder activism activities, Stanley Keller, of counsel in Locke Lord LLP’s Boston office, told Bloomberg BNA Dec. 30.

Permitted Activities

The guidance identifies a number of permitted activities consistent with the performance of fiduciary duties, such as engagement with management, adoption of proxy voting policies and participation in proxy contests, said Keller, whose practice includes advising public companies on corporate governance matters.

In addition, the release identifies a broad range of issues that are the proper subject for plan shareholder involvement, including ESG issues such as climate change, sustainability, workplace diversity and equal opportunity, Keller said.

“Taken as a whole, the DOL action endorses the activist policies followed by some plans and is likely to contribute to an increase in shareholder actions that will affect how corporations are managed in the future,” Keller said.

Environmental Resolutions

The guidance comes amid steadily increasing shareholder engagement on environmental concerns. Shareholder proposals on topics such as sustainability and greenhouse gas emissions were the most prevalent type of resolution sent to Fortune 250 companies in 2016 and 2015, according to the Proxy Monitor database, which tracks shareholder proposals.

A group of shareholder activists known as the 50/50 Climate Project that includes public pension plans such as the California Public Employees’ Retirement System and New York City pension funds already has vowed to improve the “climate competency” of boards at 50 carbon-intensive companies.

In the bulletin, the DOL said that its prior release in 2008 may have been misunderstood to discourage some fiduciaries from voting on proxies or in areas that have been recognized as important to long-term shareholder value. The DOL also expressed concern that the 2008 release may have been out of step with important investment management trends.

Shareholder advocates said the DOL’s latest bulletin doesn’t substantively change fiduciaries’ duties.

`Welcome Clarification.'

The guidance is “a welcome clarification,” Ken Bertsch, executive director at the Council of Institutional Investors, told Bloomberg BNA. Bertsch said that among other ambiguities, the 2008 guidance could be read as requiring fiduciaries to undertake a cost-benefit analysis for each vote.

DOL clarified in the bulletin that it didn’t intend to imply such an analysis is required in most cases.

“The new bulletin also cites favorably the trend toward increased shareholder engagement, including on such issues as climate risk, and endorses this as a positive development from the standpoint of management of fiduciary duties,” Bertsch said.

The latest guidance restates the basic principle that has been expressed in all the prior guidance on this topic—that a fiduciary may consider social, policy or other collateral goals when making investment decisions for a plan and exercising the plan’s rights as long as the return to the plan doesn’t suffer, Lennine Occhino, a partner in Mayer Brown LLP’s Chicago office, told Bloomberg BNA.

“The prior guidance cautioned fiduciaries not to expend plan resources pursuing collateral objectives unless justified by an economic benefit to the plan,” said Occhino, who is the global coordinating leader of Mayer Brown’s Fund Formation & Investment Management group. “The new guidance softens the prior guidance by acknowledging that the voting of proxies does not normally entail a significant expense to the plan, and referencing a number of surveys that suggest that corporate activism can economically benefit shareholders.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

For More Information

The interpretive bulletin is available at

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