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April 02, 2002
Survey Holds Money Managers Accountable
    by William Baue

A recent AFL-CIO survey may prod money managers to examine their proxy voting on labor issues, but some in the social investment community note that the interests of organized labor and social investors sometimes diverge.

The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) recently released its 2001 Key Votes Survey. The report tracked how 167 money managers voted on shareowner resolutions involving labor issues in the 2001 proxy season. The survey, introduced in 1997, is intended to nudge money managers to consider resolutions more seriously and not rubber stamp management recommendations. While social investors have long recognized the impact of such non-financial issues as labor standards on a company's financial performance, mainstream investors and money managers now have a heightened interest in such issues in the wake of Enron.

In the 2001 proxy season, the AFL-CIO identified 32 proposals that involved labor issues, and made recommendations on how to vote these proxies in ways that support labor. After the proxy season, the AFL-CIO contacted firms that manage Taft-Hartley and other related public pension funds to find out if they voted in accordance with the AFL-CIO Proxy Voting Guidelines. The Key Votes Survey represents the AFL-CIO's scorecard on firms in terms of their labor-friendliness.

"It is a very important stimulus to prod mainstream money managers to look at the implications of their proxy voting, since most of them have been voting blindly for management," said Timothy Smith, chair of the Social Investment Forum and senior vice president at Walden Asset Management. "It's a very interesting strategy, and the AFL-CIO has been very effective in getting some money managers who don't pay attention to these issues at all to move off the dime."

Unsurprisingly, socially responsible investment (SRI) firms scored high on the survey. For example, the Calvert Group scored 100 percent on the survey, voting in accordance with AFL-CIO recommendations at all six of the companies in which its portfolios held stock.

"Being part of the SRI community, we are more in line than out of line with the AFL-CIO's guidelines," said Calvert Research Analyst Shirley Peoples.

Priorities espoused by social investors, such as limiting the power and pay of top executives, often coincide with priorities advanced in the AFL-CIO Proxy Voting Guidelines. However, some in the social investment industry believe the AFL-CIO avoids controversial issues for political reasons. One key leader in the social investment leader, who asked to remain anonymous, said the AFL-CIO needs to be more vocal about social and environmental shareowner resolutions.

"The AFL-CIO Key Votes Survey is painfully shy on evaluating votes on social and environmental issues," said the leader. "It is heavily dominated by governance issues, but it is unbalanced, and therefore it is a challenge to the AFL-CIO to recognize that proxy voting should be encouraged on a full range of issues from social and environmental to corporate governance issues."

The AFL-CIO has often put a priority on job creation and job protection over environmental preservation. A case in point is drilling for oil in the Arctic National Wildlife Refuge in Alaska. The AFL-CIO has called for drilling "with safeguards to protect the environment." The majority of social investors support a ban on such drilling.

The 2002 proxy season includes several resolutions calling for oil companies to report on plans to drill in the Arctic National Wildlife Refuge. It will be interesting to see if the next Key Votes Survey includes this resolution, and if so, what vote the AFL-CIO recommended.


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