In the debate on access, there are many who simply do not want to see shareholders have any right to elect directors to the board.  They are content with a system whereby almost all nominees come from the board, allowing existing directors to vet all prospective candidates.

We saw an example of this with the Chairman's attempt to justify non-access and the continued use of the federal proxy rules to effectively deny shareholders their state law right to nominate directors.  He emphasized the risk that nefarious "offshore hedge funds" might use access to engage in asset stripping transactions.  We noted the analytical flaws in reasoning but also pointed out that, despite the use of the term hedge fund, the Chairman was really complaining about investors who disagreed with management over the business direction of the company.  Said another way, the Chairman didn't like the idea of using access (difficult though it would have been) to promote the interests of shareholders who disagreed with management over the strategy of the company.

Today in the WSJ, Eugene Scalia (son of Supreme Court Justice Antonin Scalia and a partner at Gibson, Dunn & Crutcher) largely does the same thing.  He doesn't like shareholder activists either but can't really say that.  As a result, he singles out one category of investors, union pension plans.  But his reasoning is really an attack on all activist shareholders.    

In the editorial, Scalia highlighted a letter from the DoL calling on pension funds to "take into account the cost" before engaging in efforts to "monitor or influence the management of corporations."  He then specifically notes that unions are talking about challenging the SEC's non-access decision.  He concludes that "[p]roxy access would advance a cherished union goal of increased leverage over corporate directors, but it is hard to see why retirement funds should bankroll that quest." 

We have several comments on this.  First, he is wrong to conclude that access is unrelated to the value of the company.  The entire debate in this area is about electing directors more focused on the best interests of shareholders.  Directors who know that they might be removed from office by shareholders have a greater incentive to do what shareholders want.  Right now the only meaningful way a director can be removed is when the nominating committee of the board decides not to renominate.  This means that renomination depends not upon promoting the interests of shareholders but upon maintaining good relations with management. 

Second, he picks on union retirement plans.  But of course other pension plans are very involved in the governance process and using shareholder proposals to alter the behavior of management.  He doesn't explain why he reserves his ire for unions.  Of course, he no doubt has a particular dislike for unions (they did, after all,contribute to his failure to get Senate confirmation to be solicitor in the DoL).  But his analysis is transferable to all pension plans.  He is essentially taking the position that pension plans should not be actively involved in monitoring management.  Pension plans, in other words, should be seen and not heard.

In the end, Scalia asks entirely the wrong question.  Pension plans have fiduciary obligations under ERISA on behalf of their plan beneficiaries.  It is not hard to understand why this duty would compel pension plans "to monitor and to influence" management.  What Scalia ought to be asking if he is truly concerned about fiduciary obligations is why more  pension plans do not following the path of unions and fight even harder for shareholder access.   In other words, there is a role for the DoL here but it is the examination of pension plans that still take a largely passive approach to managerial oversight.  How can that be in the best interests of beneficiaries? 

Justice Antonin Scalia in Stoneridge throws out his cherished views on the importance of the language of the statute to reach a result oriented decision designed to limit the rights of investors.  Eugene Scalia, no doubt a fan of less regulation, calls on the DoL to exercise greater regulatory oversight of union pension funds in an effort to limit the right of activist shareholders to oversee and monitor management.  Like father, like son.