The Labor Department Is Tearing Down a Landmark of Investor Protection

Friday, September 11, 2020
By Kurt N. Schacht, Barron’s

Corporate governance and shareholder rights have seldom witnessed an assault on investor protection like the current federal government’s onslaught. Whether weakened rules on broker accountability, rules designed to eliminate shareholder proposals, or those taking direct aim at neutering proxy voting, the feds’ decisions are to the great detriment of Mr. and Mrs. 401(k).

The latest move is the Department of Labor’s new proposal to undo a major landmark of fiduciary duty for proxy voting. The so-called Avon Letter was written in 1988 and stemmed from a proposition raised by shareholder-rights warrior Robert Monks when he served at the DOL. The letter said that fiduciaries that oversee retirement plans regulated by the Employee Retirement Income Security Act, or Erisa, must treat proxy voting as another of the fund’s assets. They must do so with diligence and care when analyzing and voting proxies in the best interests of beneficiaries.

The Avon Letter still serves market integrity admirably. It has led to a much more consistent and accountable proxy voting process by fund managers. Because of the letter, the industry has moved away from treating proxy voting as an afterthought, having often failed to submit votes at all. Avon started the discipline for not just Erisa funds but also many public pension funds to pay attention, review the proxy issues, and submit votes that reflect the interests of investors, not just rubber-stamping management’s views. It was an important impetus for better governance and the exercise of shareholder rights.

Read the full story from Barron’s

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