2013 MOST PRODUCTIVE YEAR ON RECORD FOR NYC PENSION FUNDS’ SHAREHOLDER ACTIVISM

  City Comptroller John C. Liu today announced that the $144 billion NYC Pension Funds achieved new levels of success in 2013 toward improving the environmental, social, and governance practices of the corporations in their investment portfolio.  The details of the 2013 proxy season are available in the NYC Pension Funds’ annual report.  The report also includes summary information on the Funds’ proxy voting.

 

“We have a duty to City workers and retirees to ensure our portfolio companies focus on creating sustainable shareowner value,” Comptroller Liu said. “Over the past year we helped strengthen employees’ workplace rights, shed light on employee diversity, and negotiated policies to help claw back pay from misbehaving executives.  The NYC Funds have a proud tradition of active ownership to protect and create long-term shareowner value, and we have worked to intensify these efforts over the past four years. 

 

Shareowner Proposals

The Comptroller’s Office negotiated agreements on 27 of the 55 shareholder proposals it submitted to corporations — a record rate of adoption for its requests.  Among the highlights of the agreements Comptroller Liu’s office achieved on behalf of the Funds:

 

•         Capital One (NYSE: COF), Citigroup (NYSE: C), Encore Capital (NASDAQ: ECPG), and Wells Fargo (NYSE: WFC) — and three pharmaceutical firms — Boston Scientific (NYSE: BSX), Johnson & Johnson (NYSE: JNJ), and Merck (NYSE: MRK) — enacted policies empowering the board to claw back pay from senior executives responsible for improper conduct or excessive risk taking.

 

•         Chesapeake Energy (NYSE: CHK) agreed to propose a bylaw amendment to grant shareowners access to the corporate proxy to nominate directors as part of a major overhaul of its board and governance. Since the Funds led a successful director “vote no” campaign in 2012, the company has reconstituted its board, named an independent chairman and hired a new CEO, and its share price has outperformed its peers.

 

•         Health insurer Wellpoint (NYSE: WLP) agreed to name an independent chairman upon the April 2013 retirement of its existing chair, and to maintain the position for at least two years.

 

•         EMC (NYSE: EMC), Gap (NYSE: GPS), NIKE (NYSE: NKE), Target (NYSE: TGT), and Texas Instruments (NASDAQ: TXN) agreed to promote greater transparency of their suppliers’ compliance with internationally recognized standards on workplace safety and human and worker rights by encouraging key suppliers to prepare sustainability reports using Global Reporting Initiative (GRI) protocols.

 

•         AIG (NYSE: AIG), Bank of NY Mellon (NYSE: BK), and U.S. Bancorp (NYSE: USB) agreed to disclose the breakdown of their workforce by race and gender for major job categories, including senior management.

 

•         Anadarko Petroleum (NYSE: APC), Domino’s Pizza (NYSE: DPZ), Philip Morris (NYSE: PM), and Ralph Lauren (NYSE: RL) expanded their EEO policies to prohibit discrimination based on gender identity.

 

•         Lowe’s Companies (NYSE: LOW) and WellCare Health Plans (NYSE: WCG) agreed to disclose all direct and indirect political spending.

 

•         Avalon Bay (NYSE: AVB), Kimco Realty (NYSE: KIM), and SL Green Realty (NYSE: SLG) agreed to prepare annual sustainability reports based on the GRI and specifically addressing greenhouse-gas emissions, water conservation, waste minimization and energy efficiency. All three are residential REITs with significant property holdings in New York City.

Director “Vote No” Inititiatives

Cablevision (NYSE: CV)

The Funds led a “vote no” campaign against five Cablevision directors, three of whom had failed to receive majority shareowner support in 2010 and 2012. In a letter to Cablevision shareowners and filed with the SEC, Comptroller Liu cited Cablevision’s fundamental lack of board accountability, poor performance, excessive executive pay, and pervasive conflicts of interest involving the Dolan family, which controls 73 percent of the voting power despite owning less than one quarter of the company.  The five directors were each opposed by at least 39 percent of votes cast, including two directors who failed to receive majority support.  The board reseated all five directors.

Hewlett-Packard (NYSE: HPQ)

The Funds opposed two Hewlett-Packard directors who failed to protect investors from a series of ill-advised acquisitions (Autonomy, EDS and Palm) and boardroom fiascos that destroyed tens of billions of dollars in shareowner value.  The Comptroller’s Office detailed the Funds’ concerns with the directors in a press release that was also filed with the SEC.  Shareowners subsequently cast 45 percent and 46 percent, respectively, against the directors’ election.  In a major victory for shareowners, both directors resigned two weeks later.

Wal-Mart (NYSE: WMT)

The Funds opposed nine Wal-Mart directors due to the board’s poor oversight of compliance, lack of independence and unresponsiveness to investor concerns, as detailed in a Comptroller’s Office press release filed with the SEC.  Four of the directors — including the Chairman, CEO, former CEO and audit committee chairman — received particularly high opposition votes: excluding the Walton family, which controls approximately 50 percent of the company’s shares, unaffiliated shareowners cast about 21 percent to 30 percent of their votes against their election.  It was the second consecutive year the four directors received strong opposition.  Since last year’s no confidence vote, which was driven by reports that executives attempted to cover up alleged bribery in Mexico, Wal-Mart’s board has become less independent, even as it has reportedly expanded its investigation into possible bribery to additional countries.

News From Comptroller John Liu

MAYOR’S BUDGET MATH DOESN’T ADD UP

 

“The Mayor’s math doesn’t add up. The facts are clear, not only will the next Administration not inherit a balanced budget but it will also be greeted on Day 1 with a fiscal mess of historic proportions – 300,000 employees working with expired contracts.

 

“Mayor Bloomberg’s final budget modification continues to conceal huge fiscal risks and rely on one-shots like selling City property and depleting the Retiree Health Benefit Trust. His budget may seem balanced on paper, but the fiscal reality points to multi-billion-dollar budget gaps on the fiscal horizon.”

 

Background:

 

There is a multi-billion dollar budgetary risk associated with the fact that all City unions are currently working under expired contracts. The Bloomberg Administration’s negotiating position with the unions does not include retroactive pay for any contract settlement. The current financial plan includes funding for a settlement of a five-year contract in which the first three years would have no increases followed by two years of 1.25% increases. The unions have all rejected this proposal. Any wage increases above and beyond the funding already in the financial plan would need to be funded through increased revenues or decreased services. 

An analysis by the Comptroller’s office has found that if all unions agreed to a minimal 1% increase a year over the five-year term of the contract, the City would need to fund $1.3 billion in retro pay.  If the wage increase were instead linked to inflation, this number could balloon to $3.1 billion. These numbers are on top of the potential $3.5 billion in retroactive wages that the United Federation of Teachers (UFT) and the Council of School Supervisors & Administrators (CSA) members are seeking.

 

 

NYC PENSION FUNDS CALL ON ADVERTISING GIANTS TO PROVE COMMITMENT TO EQUAL OPPORTUNITY

 

As Two Ad Firms Prepare for Mega-Merger, NYC Funds Ask Them to Disclose Their Employee Composition and Demonstrate Diversity

  City Comptroller John C. Liu today announced that he has called on the boards of two advertising firms, Omnicom (NYSE: OMC) and Publicis Groupe (PUB: FP), to disclose the makeup of their employees across a range of titles by gender and ethnicity before shareowners vote on their proposed merger. 

“These companies operate in an industry with an abysmal record of hiring and promoting women and minorities, particularly African Americans.  They claim they care about diversity and are making progress, but unless they disclose the actual makeup of their employees it’s impossible to know whether it’s just empty talk,” Comptroller Liu said.  “Studies have demonstrated that workplace diversity leads to innovation and innovation increases value.  We want these firms to prosper by hiring the best and brightest and we expect them to demonstrate that they pay more than lip service to equal opportunity employment.”

The advertising industry, like the financial services industry, has a history of wide and pervasive employment disparities, particularly among senior positions.  One 2009 study found that racial disparity is 38 percent worse in the advertising industry than in the overall U.S. labor market, and that the “discrimination divide” between advertising and other U.S. industries is more than twice as wide as it was 30 years ago. 

Omnicom and Publicis have both declined Comptroller Liu’s past requests that they disclose the composition of their workforce by race and gender.  The pending Omnicom-Publicis merger heightens the need for disclosure.  The merger will not only create an advertising behemoth; it will create the least transparent major ad firm in the world, by combining the two firms that have consistently refused to demonstrate their commitment to equal employment opportunities.

Despite the companies’ assurances that they have existing diversity programs, their refusal to provide employment data makes it impossible for shareowners to determine managements’ effectiveness in this important area.  Meanwhile, the other global ad giants, Interpublic (NYSE: IPG) and WPP Group (WPP: LN), have taken steps to disclose annual data on the diversity of their employees.

BACKGROUND

In Nov. 2011, on behalf of the NYC Funds, Comptroller Liu wrote several advertising firms — Omnicom, Publicis, Interpublic, and WPP — to ask they disclose employment data. 

When Comptroller Liu filed this request in the form of a shareholder proposal at Omnicom, the company tried and failed to exclude it from their 2012 annual meeting.  At that meeting, 33.8% of voting shares backed the NYC Funds’ proposal, which was the highest ever vote on such a proposal.  Despite broad shareowner support, Omnicom declined to provide employment disclosures even as its peers have done so.

Comptroller Liu and the NYC Funds have also engaged numerous financial services firms — Goldman Sachs (NYSE: GS), MetLife (NYSE: MET), AIG (NYSE: AIG), BNY Mellon (NYSE: BK), and US Bancorp (NYSE: USB) — all of which subsequently agreed to provide comprehensive employment disclosures. 

The NYC Pension Funds hold a combined 829,714 shares in Omnicom and Publicis with a market value of $61 million.

LIU STATEMENT ON WAL-MART BOARD VOTE

  City Comptroller John C. Liu stated the following in response to questions about the board of directors election at Wal-Mart:

“Outside shareholders delivered a stinging rebuke to Wal-Mart’s top leadership by casting more than 30% of our votes against the company’s chairman, CEO and former CEO.  The results are a vote of no confidence that sends a message to Wal-Mart’s entire board, which has ignored our concerns and failed to safeguard the company’s standards of ethical and legal compliance.  It’s up to the board now to restore investor confidence.  Directors need to increase their independence and initiate a truly independent investigation into reports that Wal-Mart executives covered-up widespread bribery in Mexico and hold accountable any executives involved.” 

Background:

Comptroller Liu and the NYC Pension Funds encouraged fellow shareowners to vote against five Wal-Mart directors.  Because the Walton family, directors, and officers control 50.12% of Wal-Mart outstanding shares it was understood that a majority vote against re-election of board members was mathematically impossible. 

In order to present an accurate assessment of the board election votes cast non-insiders, we have deducted the 1.7 billion shares owned by company officers and directors, which includes members of the Walton family. Based on the remaining outside shares voted, the five directors opposed by Comptroller Liu and the NYC Pension Funds received the following votes in opposition: Former CEO H. Lee Scott Jr. (38.4% against), Christopher Williams, Audit Committee Chair (32.8% against), Michael T. Duke, CEO (32.2% against), S. Robson Walton, Chairman (31.2% against), Arne Sorenson, Audit Committee Director (9.9% against).

 

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