Corporate Governance

Public Pension Plans, Labor Unions, and the Benefits of Shareholder Activism

By J. Robert Brown

Remember in the prior administration the complaints that surfaced because of shareholder activism by pension plans, particularly ones sponsored by unions?  We recall, in particular, the editorial written by  Justice Scalia's son (Eugene) criticizing union shareholder activism and calling on the Department of Labor to do something about it, a position that engendered a reply from this Blog. 

With that in mind, we note the study Institutional Monitoring Through Shareholder Litigation, by professors Cheng, Huang, Li and Lobo.  The study concludes that institutional lead plaintiffs produce better outcomes for shareholders, with fewer of their cases dismissed and the settlement amount higher.  In addition, however, they had this to say:  "we find our results are not driven solely by public pension fund lead plaintiffs; the impact on immediate litigation outcomes is also significant for union pension fund, mutual fund and other institutional lead plaintiffs." 

In short, when union pension plans become active in litigation and serve as lead plaintiffs, the outcome is better for shareholders.  This study doesn't validate shareholder activism in all spheres (that is mostly left to common sense) but does validate it in one of them.  As we noted back in the day, if there was any investigation that ought to be conducted it would be why more pension plans do not take an active role in the governance process. 

Full post as published by The Race to the Bottom on September 02, 2009 (boomark / email).