Yesterday, UCLA Law School Professor Stephen Bainbridge noted the publication of a recent study that reaches some devastating conclusions for public pension funds. The study by Professor Tracie Woidtke at the University of Tennessee found that “public pension funds’ ownership is associated with lower firm value”. To make matters even worse, Professor Woidtke found:
Social-issue shareholder-proposal activism appears to be negatively related to firm value. In this paper, the negative relationship between public pension fund ownership and firm value is significant for firms targeted by public pension funds engaging in social-issue activism—across two different firm samples—in 2008–13, when the two large funds focused on social-issue activism, CalSTRS and the NYSCR, were engaged in shareholder-proposal activism.
The boards of CalPERS and CalSTRS each have “fiduciary responsibility for investment of moneys and administration of the system”. Cal. Const. Art. XVI, § 17. The board members are further obligated to “discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system.” Cal. Const. Art. XVI, § 17(b). Professor Woidtke’s findings raise the question of whether the pursuit of social-issue shareholder proposals is consistent with these constitutional obligations.