Shareholder Activism by Public Pension Funds and the Rights of Dissenting Employees under the First Amendment
Finseth, Eric John, Harvard Journal of Law & Public Policy
INTRODUCTION I. THE BACKDROP: A BRIEF HISTORY OF THE RECENT AND ONGOING REVOLUTION IN CORPORATE GOVERNANCE A. The Shift in Control to Independent Directors B. Shareholder Influence over Board Composition and Conduct 1. Shareholder Control Rights Within the Corporation 2. The Initial Push for Shareholder Proxy Access 3. "Just-Vote-No" Campaigns 4. The Rise of the Majority Voting Standard 5. The Elimination of Broker Discretionary Voting in Director Elections 6. The Dodd-Frank Act and Further Anticipated Changes to the Governance Landscape i 7. Adoption of Shareholder Proxy Access II. THE PHILOSOPHICAL FOUNDATION OF THE GOVERNANCE REFORM MOVEMENT A. The Philosophy Behind the Assertion of Shareholder Power B. Application of that Philosophy to the Context of Public Pension Funds 1. The Trust Fund Objection 2. The Collective Efficiency Objection III. DOES THE FIRST AMENDMENT REQUIRE OPT-OUT RIGHTS? A. Opting Out of Agency Shop Service Fees B. Does the Use of Property by the State for Ideological Purposes Constitute a Form of Tax Immune to First Amendment Challenge? 1. United States v. Lee 2. Keller v. State Bar of California 3. Application in the Context of Public Pension Funds C. Does the Government Speech Doctrine Foreclose First Amendment Challenges to the Political and Ideological Activities of Public Pension Funds? 1. Johanns v. Livestock Marketing Association 2. Do the Political and Ideological Activities of a Public Pension Fund Constitute Speech by the Government? a. The California State Bar is a Private Rather Than Governmental Body b. The Court's Basis for Concluding that Speech by the Beef Board is Governmental c. The Degree of Government Control Over Speech by CalPERS More Closely Resembles the Case of the California State Bar 3. Using an Independent Instrumentality Test Helps to Delineate the Border Line Between Government and Non-Government Speech D. The Requirement of State Action 1. In the Context of Public Pension Funds 2. In the Context of Union Pension Funds in the Private Sector a. The RLA, NLRA Distinction b. Split Among the Circuits E. Are the Corporate Governance Activities of Public Pension Funds Commercial, Are They Political or Ideological, or Are They Both? 1. The Treatment of Solely Commercial Speech 2. Speech Can Easily Be Political or Ideological in Addition to Being Commercial in Nature 3. As Applied to Public Pension Fund Activities a. The Broad Social Movement b. Environmental Matters c. Diversity d. Animal Welfare e. Fund Objectives in Action F. The Reaction to Citizens United and the Link Between Corporate Governance and Other Policy Objectives CONCLUSION
We are in the midst of a sea change in the corporate governance landscape. Over the past decade, activist shareholders, public pension funds prominent among them, have effected a tangible shift in the balance of power between institutional shareholders and incumbent boards of directors of U.S. public companies. This drive toward greater shareholder influence will have consequences throughout American commercial and political life.
The drive for greater shareholder power has been fueled by the rise of mutual funds and pension funds as major holders of U. …