Americans Must Not Vote!

That’s what the Bush Labor Department suggests in a recent bulletin published in the Federal Register this month.

On October 17, 2008, the U.S. Department of Labor issued and Interpretive Bulletin Relating to Exercise of Shareholder Rights for pension funds regulated by ERISA, the federal pension law. The crux of the ruling was that U.S. pension funds subject to ERISA may no longer vote their proxies if they want to avoid the risk of investigation and possible prosecution by the federal government.

In its closing paragraphs, the Department of Labor staff made it very clear:

Plan fiduciaries risk violating the exclusive purpose rule [of ERISA] when they exercise their fiduciary authority in an attempt to further legislative, regulatory or public policy issues through the proxy process. In such cases, the Department would expect fiduciaries to be able to demonstrate in enforcement actions their compliance with the requirements of section 404(a)(1)(A) and (B). The mere fact that plans are shareholders in the corporations in which they invest does not itself provide a rationale for a fiduciary to spend plan assets to pursue, support, or oppose such proxy proposals.

Federal Register, Interpretive Bulletin Relating to Exercise of Shareholder Rights, October 17, 2008

The chilling effect here is obvious. Avoid voting your ballots at public company meetings or face possible liability and prosecution.

For readers unfamiliar with the proxy voting process, a little background is in order.

Proxy Voting is a Right of Ownership

Like citizenship and its attached right, voting, stock ownership extends a right of proxy voting to shareholders. If you have ever held shares in a public company, you have received a pink and white ballot in the mail along with a proxy statement and a pretty annual report. While most shareholders give the papers a quick once over and throw the whole thing away, institutional shareholders, including pension funds, take their voting responsibilities very seriously.

For more than 20 years, pension funds have lead the way among shareholders in using the power of the proxy ballot to hold corporations and the directors and executives accountable. In today’s financial crisis, it is shareholders who will be demanding that corporate executives stand up and be accountable for their crimes, rein in gross overcompensation and vote out directors who allowed corporate misdeeds to occur. This regulation change reverses the Labor Department’s 1994 position that shareholders had a duty to vote their proxies in companies held in their portfolios.

Save Executives, Deny Voting Rights

While it is likely that the Obama administration will immediately reverse this partisan attack on voting rights, it is useful to view this small attack on voting rights in the larger picture: Democracy undermines the Bush agenda of supporting corrupt businesses to the exclusion of ordinary Americans.

The chilling effect from this Interpretative Bulletin will force pension funds to rethink their voting of proxies and will also dampen all but the most courageous fund trustees from challenging management of companies using the shareholder proposal process.

• Demanding the company executives pay back their ill-gotten salaries when a company goes into the toilet – Not allowed.
• Raising the red flag when outside auditors get massive consulting contracts in addition to their auditing work – No can do.
• Force companies to expense their stock options – Sorry, that’s a no no.
• Force executives to be paid for their real performance – Gone.

While common sense suggests that this move by the Department of Labor is a cheap trick in the last days of the Bush Administration to appease the U.S. Chamber of Commerce (a strong proponent for this rule change) and big business, there is a real risk that it will remain in effect if John McCain were to win this election.

The lesson here? Vote now, you may never get the chance to do so again.

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