Document Type

Article

Publication Title

Vanderbilt Law Review En Banc

Publication Date

1-2008

ISSN

0042-2533

Page Number

1

Keywords

pension funds, shareholder activism, class actions

Disciplines

Law | Securities Law

Abstract

The world of shareholder activism has expanded dramatically over the past twenty years so that it now contains a broad set of actors carrying on a wide range of activities. At one end of the spectrum, hedge fund activist shareholders have taken large investment positions in targeted companies and spent significant amounts of money lobbying aggressively for a host of structural changes at these corporations. At a more intermediate level of activism are the labor union pension funds. The union funds have been active, making innovative uses of the federal securities laws to get shareholder proposals on corporate ballots and trying out a host of other techniques aimed at improving corporate governance systems at public companies. Union funds are willing to spend some money on corporate governance initiatives, but, unlike hedge funds, do not generally accumulate large percentage stock positions in targeted firms. At the low end on the activist scale are the public pension funds. Once touted as the potential champion for investors, public pension funds today are largely just supporting players, frequently falling in behind the activist hedge funds and labor union pension funds. Public pension funds rarely step forward with their own initiatives except for low cost activism efforts, such as "withhold the vote" campaigns. Only in securities fraud class actions have public pension funds taken the lead, apparently responding to a Congressional invitation to act as lead plaintiffs in these cases.

In an important paper recently appearing in the Vanderbilt Law Review, Professors Stephen Choi and Jill Fisch generate survey evidence from public pension fund respondents that documents the low cost activism practiced by public pension funds. The results of their survey show, among other things, that public pension funds do a limited amount of non-litigation oriented activism mostly centered on supporting other types of activist investors. For example, these funds follow advice from their proxy voting advisors in withhold the vote campaigns or similar low cost voting initiatives. Furthermore, larger public funds demonstrate higher levels of non-litigation forms of activism than smaller sized public funds. However, the survey responses show that many public funds act as lead plaintiffs in securities fraud class actions and that the level of participation in litigation-oriented activism does not appear to vary by fund size.

These are important and very interesting results that shed light on a number of key issues but also raise a number of important questions about shareholder activism and the SEC's regulatory approach to it. For that reason, it is important to examine critically the survey evidence provided as well as the authors' interpretation of their results.

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