This week, we have some new developments in the conservative/Trump Admin effort to control and/or undermine shareholder power.

First, we have these new releases from the Department of Labor.

Now, I previously posted about how ERISA regulation could be used to undermine shareholder voting; these new releases come at the problem from a different angle.  They hypothesize that any proxy advisor serving an ERISA-regulated plan is necessarily an ERISA fiduciary – and, as I understand it, that would potentially include proxy advisors who serve mutual funds that are included in a 401(k) menu.  Notably, proxy advisors’ pivots to offering “research only” products won’t save them; the releases explain even providing research might render a proxy advisor an ERISA fiduciary.

The releases also suggest that the funds themselves included in a 401(k) menu – and the investment advisers that serve them, i.e., BlackRock and its stewardship team – are ERISA fiduciaries.  

All of this would dramatically expand the regulatory ambit of ERISA, and though the administration says the implication is that these entities should only act to maximize plan wealth, what they mean is that (1) any measures pertaining to social responsibility will be treated as presumptively unrelated to plan wealth, and (2) all of these entities could be subject to much more onerous disclosure and recordkeeping requirements, in ways that may inhibit their ability to vote freely. 

Now, to be fair, a lot of funds within retirement plans are already ERISA fiduciaries: as Natalya Shnitser points out, collective investment trusts (CITs) included in defined contribution plans are considered ERISA fiduciaries, even if mutual funds are not, and BlackRock et al. seem to be managing just fine sponsoring CITs that are included in ERISA plans.  Still, though, I view this as kind of a first step toward imposing a more onerous regulatory scheme – after Trump I struck out with its first attempt– and unless mutual fund sponsors are willing to split votes between those that represent proportional shares of funds included in ERISA plans and proportional non-ERISA shares, fund managers are likely to simply vote as regulators prefer for all mutual fund assets. 

Notice the further implications here: in some ways, this is about Trump admin bugaboos like diversity and climate change, but in others, the Trump Admin and state regulators are pretty explicit about stamping out all challenges to management (see below on Indiana’s law). And if regulators have the freedom to decide (on a theory of what counts as wealth maximization) which boards can be challenged by shareholders and which cannot, that leaves corporate management awfully … dependent … on the state to maintain their positions, with all the implications that follow.

I’ll also note – again, see comment on Indiana’s law, below – the releases argue that there is no ERISA preemption for state regulation that focuses on wealth maximization.  That matters because Glass Lewis is currently arguing that Texas’s law, purporting to regulate ESG advice or really any recommendations to vote against management, is preempted by ERISA. 

Second, Mike Levin and I did a podcast about pending proposals at the state level to regulate proxy advisors, mostly involving this model act by the conservative anti-ESG organization “consumers defense.”

Well, Indiana has gone ahead and adopted one of these proposals, and ISS filed a lawsuit to challenge it. The key features of these laws, as Mike and I talked about, are: (1) they try to avoid the First Amendment problems that plagued earlier laws (like Texas’s) by regulating any advice against management rather than ESG advice specifically, and (2) in at least some cases, including Indiana’s, they purport to regulate any proxy advice given to any client about any company regardless of where either the client or the company is located.  So, predictably, ISS is challenging Indiana’s law on First Amendment grounds – regulation of speech against management is still regulation of speech – and dormant Commerce Clause grounds. 

Third, I previously posted about how the SEC was limiting proxy exempt solicitations, thereby cutting off an important avenue of shareholder communication.  Mike and I also talked about that on a podcast.

Well, the Interfaith Center on Corporate Responsibility is fighting back, as well as it can, by offering to privately host the communications that the SEC has now banned.  I don’t know if this can really replace EDGAR – where institutional investors subscribe for updates – but it’s something, anyway.

And another thing. New Shareholder Primacy podcast is up!  Me and Mike Levin talk about how proxy voting works, using Starbucks as an example.  Here at Apple; here at Spotify; and here at YouTube.