Shareholder Activism by Public Pension Funds and the Rights of Dissenting Employees under the First Amendment

By Finseth, Eric John | Harvard Journal of Law & Public Policy, Winter 2011 | Go to article overview

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

INTRODUCTION

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. …

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