The Pensions and Capital Stewardship Project at Harvard Law School offers educational programs, conferences and publications that help union and public pension fund trustees, officials and others grapple with issues of concern to them: problems of retirement security, including the rise of defined contribution plans, good corporate governance, and what decisions to make in the face of an increasingly complex and changing investment landscape, to name a few. Berman DeValerio recently became a sponsor of this important program. We invited its director, Larry Beeferman, to talk to the Securities Fraud Monitor about the project and some of the hot topics facing shareholders.
SECURITIES FRAUD MONITOR: Tell us about your program, its evolution and its mission.
LARRY BEEFERMAN: The Pensions and Capital Stewardship Project is part of the broader Labor and Worklife Program at the Harvard Law School, which is concerned with the world at work and its intersection with larger society. The Harvard Trade Union Program, the executive leadership program for emerging union leaders, which many of your public and Taft-Hartley union clients may be familiar with, comes under that umbrella.
The particular impetus for the project was recognition of two concerns. One was retirement security – through Social Security, retirement plans and other means – which is of utmost importance to working people. The other was “capital stewardship”: how the assets accumulated in retirement plans are managed so that promised benefits and expected retirement income are paid and investments are made consistent with fiduciary duty in ways that appropriately take into account workers’ interests.
SFM: How long has the project been in existence?
LB: We formally launched it about two and a half years ago, although I came on a year before that to assess the idea and develop a plan for the Project, which now includes an annual conference each spring, a trustee education program and a newsletter. We have also held meetings on special topics, such as challenges to public sector plans, the prospects for labor-friendly private equity investments, and collaboration among pension, labor, socially responsible and faith-based shareowners. We will begin publishing a series of research papers on key topics. We’re really looking at these issues in a systematic way. I don’t believe there’s a project quite like this at any other American university.
SFM: The shift from defined benefit to defined contribution plans has stoked fears that corporate governance responsibility is being put in the hands of big money management companies, which have been largely indifferent to the concerns of shareholder activists. Do you see this as a major issue?
LB: It is an issue of great concern – and a matter of fiduciary duty for trustees – that pension funds appropriately exercise valuable share ownership rights in companies they own, for example, votes on proxy issues or in the election of directors. The precise means for exercising those rights will differ depending on whether the plan is defined benefit or defined contribution and the investment vehicles they use, but the basic issues are the same.
SFM: Public funds range from those highly active in shareowner issues – proxy access and other areas of corporate governance – to those with more of a laissez-faire attitude. Is the same true for labor funds?
LB: Yes. But first of all, the labor world as it relates to pensions and capital stewardship has been evolving. Ten or 15 years ago, you probably would not have had the impetus for a Pensions and Capital Stewardship Project because there wasn’t the level of consciousness about the importance of problems with corporate governance and dubious corporate practices for workers as shareholders (through their pension funds) and as workers. It has been a very slow process of developing awareness of these and other issues, understanding the legitimacy of acting on those concerns and acting effectively. That, in turn, relates to whether there are the structures, processes and resources in place for funds (and trustees) to play an activist role. Realistically, unions and labor trustees have been a driving force in corporate governance reform and other matters to pension funds as investors. It certainly hasn’t come from the corporate pension plans or other major institutional investors, such as mutual funds.
SFM: Would you please elaborate?
LB: On the public fund side, both public official trustees and labor trustees have played leadership roles. And there have been important contributions on the Taft-Hartley side as well. But at the union level, there is still a pressing need to develop or strengthen capital stewardship strategies and encourage and support trustees in these initiatives. Trustees have the ultimate responsibility and are the ultimate decision makers. Trustees need to make sure that their funds have appropriate policies and effective practices relating, among other things, to matters of corporate governance, securities litigation and investment from both a financial risk-reward as well as collateral impact perspective. They need to be ready, willing and able to ask the right questions of fund officials, staff and a host of fund advisors; make policy decisions; and provide effective oversight over implementation. Our mandate includes providing trustees with tools and resources to play this role.
SFM: Is exercising shareholder rights a way of flexing muscle in the face of declining union membership?
LB: Actually, 2007 appears to have been the first year in some time that there was a slight membership increase in the overall percentage of workers in unions. The appropriate exercise of shareholder rights is a responsibility of trustees, a matter of fulfilling their fiduciary duty to plan participants. But the exercise of shareholder rights legitimately includes engagement on how corporations are governed and corporate behavior – such as their impact on the environment and their labor and human rights practices – that could be harmful to corporations’ long term sustainability as pension fund investments. Our Project is helping trustees to better understand their role in these terms and offers information and tools to enable them to act effectively.
SFM: Last year, you began working with NCPERS, the National Conference on Public Employee Retirement Systems.
LB: Part of our original mandate was to offer trustee education which is grounded in academic learning but which has practical relevance and application. NCPERS asked us to develop a program for experienced trustees. We held our first sessions this past summer, focusing on so-called targeted investment – its legitimacy, its import and its effectiveness. We also discussed lessons that trustees could learn from the very high profile troubles of the San Diego city retirement system. The sessions were so popular that we’re running a longer set of sessions this summer on corporate governance and investment in infrastructure.
SFM: The agenda for your April Capital Matters conference shows a wide range of topics. What are the key areas of interest for the labor folks and how have those changed?
LB: Well, retirement security is an ongoing concern. And it’s not a simple discussion. Our aim is to try to offer perspective and some novel ideas from both here and abroad that are important for both our public and Taft-Hartley participants. On the corporate governance side, we’re approaching the subject from a different angle this year. Most of the debate about corporate governance has quite legitimately been about how better governance might result in improved corporate performance in a financial sense, which is important to workers as beneficiaries of pension fund investments in those companies. But we also want to explore what impact those reforms or other changes might have on those who work for those companies. We will also be giving participants some insights into ongoing turmoil in capital markets and what it means for their funds and assessing efforts to make real estate investments that achieve market-based returns while achieving labor- and environment- friendly outcomes.
SFM: Have any issues surprised you?
LB: Let’s just say I have a healthier appreciation for what meaningful capital stewardship requires, including resources and support for active and effective trustees, a strong and focused commitment by individual unions, collaborations across unions here and abroad, alliances between and among pension funds and other institutional investors, policy and practice ideas and materials provided in part by scholars and researchers, etc.
SF: What’s your own background and how did you come to this position?
LB: I’m a lawyer, have always been concerned about social justice, and been especially concerned about labor issues, focusing on them when I was in law school. I’ve done a variety of work over the years, but I’ve always remained involved in issues that relate to workers, unions and social welfare. I’ve been especially interested in financial and investment issues. The opportunity to head up this project, which linked issues of labor, retirement security, social policy, finance and investment, was very attractive to me, given my background and areas of interest.
SFM: In a presidential election year, it’s tempting to talk about these issues in a political context.
LB: Serious challenges to retirement security should be addressed both in the presidential campaign and in congressional races. For starters, there must be federal action on Social Security. Some would argue – and I would agree – that Social Security’s problems can be addressed without wrenching change.
But people will need more than Social Security for financial security in retirement. Employment-based plans, especially defined benefits, have been critical for achieving such security. Federal tax, regulatory and other policies on this have had and will have enormous impact on employment-based plans, both in the private and public sectors. These are complex matters for discussion in a presidential campaign, but they really need to be on the agenda, and that’s one of the reasons we’re working to inform debate about them at our conference and through our publications, including our new newsletter.
For more on the Capital Stewardship Project, visit www.law.harvard.edu/programs/lwp/
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.