Public Retirement Proxy Voting

States rely on the fiduciaries of their public retirement funds to make decisions that will
maximize their returns and keep their funds strong. Strong funds are important not only to plan
beneficiaries, but also to the taxpayers who could be called on to supplement deficient funds. Yet
in recent years, instead of focusing solely on maximizing returns, some of these funds have used
their proxy voting influence to push political and social agendas. Proxy voting must be guided by
pecuniary interests.

Summary: AN ACT relating to proxy voting and engagement activities of public retirement systems. 1

SECTION 1. Definitions

  1. “Company” means a publicly traded, for-profit corporation, limited liability company,
    partnership, or other business entity.
  2. “Company proposal” means any proposal made by a company to its shareholders that is included in the company’s proxy statement, including but not limited to director nominations
    or elections, or any proposal relating to director nominations or elections, executive compensation, corporate transactions, corporate structure, auditor selection, or company
    policy on any subject.
  3. “Default recommendation or policy” means a system, set of rules, principles, or guidelines designed to assist with voting decisions on any company proposals or proxy proposals.
  4. “Pecuniary factor” means a factor that a prudent person in a like capacity would reasonably
    believe has a material effect or impact on the financial risk or return on an investment, based
    on an appropriate investment horizon consistent with a retirement system’s investment
    objectives and funding policy. The term excludes “nonpecuniary factors,” which is any factor
    or consideration that is collateral to or not reasonably likely to affect or impact the financial
    risk and return of the investment and include, but are not limited to, the promotion,
    furtherance, or achievement of environmental, social, or political goals, objectives, or
    outcomes.
  5. “Proxy advisor” means a person who, for compensation, provides a proxy advisory service to shareholders of a company or to other persons with authority to vote on behalf of shareholders of a company.
  6. “Proxy advisory service” means any of the following services that are provided in connection
    with or in relation to a company:
    1. advice or a recommendation on how to vote on a proxy proposal or company proposal;
    2. proxy statement research and analysis regarding a proxy proposal or company proposal;
    3. a rating or research regarding corporate governance at one or more companies; or
    4. development of proxy voting recommendations or policies, including establishing default
      recommendations or policies.
  7. “Proxy proposal” means any proposal made by a shareholder of a company that is included
    in the company’s proxy statement, including but not limited to a proposal relating to any of
    the subjects that could be covered by a company proposal.
  8. “Shareholder” includes a shareholder, unitholder, limited partner, or other equity owner of a
    company.

Section 2. Public Retirement Proxy Voting Requirements

  1. (A) The [governing body of a public retirement system] shall vote on company proposals and proxy proposals in a manner that is:
    1. in keeping with its fiduciary duties;
    2. solely based on pecuniary factors; and
    3. for the sole purpose of maximizing shareholder value over an appropriate investment horizon.
  2. Any engagement between the [governing body of a public retirement system] and a company regarding the exercise of shareholder votes or the introduction of a proxy proposal must be based solely on pecuniary factors and for the sole purpose of maximizing shareholder value, except that the [governing body of a public retirement system] may engage with a company to express opposition to a company proposal or proxy proposal that does not have a pecuniary impact.
  3. To the extent that it is economically practicable, the [governing body of a public retirement system] must retain the authority to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of a system. The [governing body of a public retirement system] may retain a proxy advisor to assist the [governing body of a public retirement system] in exercising shareholder proxy rights, but only if the proxy advisor has a practice of following, and commits in writing to follow, proxy guidelines that are consistent with the requirements of subsection (A) of this section for each of its proxy advisory services.
  4. The [governing body of a public retirement system] shall produce an annual report tabulating and describing all of the shareholder votes cast by the board or the board’s fiduciaries. 2 For each shareholder vote cast during a calendar year, the report required by this subsection shall contain a vote caption, the board’s or the fiduciary’s vote, the recommendation of company management, and, if applicable, the proxy advisor or other service provider’s recommendation. The board shall publish the report required by this subsection on the board’s website no later than March 1 of the calendar year following the calendar year addressed in the report.

1 This model is largely based on language from S.C. Code § 9-16-30(G) and W. Va. Code § 12-6-11a.
2 This subsection is based on W. Va. Code Ann. § 12-6-11a.