NEW YORK — Casting shareholder votes on corporate issues wasn't very important several years ago when Greta Marshall was a manager of the pension fund stock portfolio for Deere & Co., the farm equipment maker. She let her secretary do it.
Things have changed in the last few years. Marshall is now investment director for one of the biggest institutional shareholders in the country, the California Public Employees Retirement System, whose board carefully debates proxy votes on corporate issues before any are cast.
At Deere, the matter is no longer left to secretaries but rather to an in-house committee of executives. For proxy votes, once considered so mundane that many professionals did not even bother to cast them (few individual stockholders cast them even today), are no longer limited to ratifying slates of directors already handpicked by management and approving traditional contracts with outside auditing firms.
Now they are just as likely to involve sweeping takeover defenses with tangible effects on the rights and portfolio values of stockholders such as pension funds.
The proliferation of corporate restructurings on proxy ballots has underscored the conflicts faced by institutional investors as never before. In interviews, dozens of institutional money managers acknowledged feeling some pressure to support takeover defenses that could seriously dilute their rights as shareholders or diminish the value of their stock holdings. While some of the pressure is self-imposed, as money managers react to the presumed consequences of voting otherwise, some comes directly from corporate executives and board members. None would cite specific cases.
Institutional investors are often tied to major corporations with relationships outside the simple one of stockholder. Insurance companies sell corporations policies. Banks seek lucrative lending relationships. And outside investment advisers seek to add new clients and to keep old ones.
"You own shares in a company that's also a client who pays you a fee," says Robert Kirby, head of Los Angeles-based Capital Group, an independent investment adviser. "That's as basic a conflict as you can get."
Where pension funds are managed by a corporation's own employees, those employees often must vote on takeover defenses that their own superiors consider indispensable.
"In the private sector, executives get pressure from their counterparts at other companies, and it is explicit," says Marshall. "The subtle pressures come from the fact that you're employed by people who express a definite preference for the management point of view. There are only so many stands you can take that are diametrically opposed to management and have much of a career left."
Independent money managers, who compete ferociously for the job of "running money" for corporate and public pension funds, also must keep a low profile on corporate-interest votes, lest they displease existing or potential clients.
Managers of state and municipal pension plans are exempt from the corporate pressures that squeeze private fund managers. But some say political conflicts can be even worse.
New Jersey's investment director, Roland Machold, supervisor of a $12-billion state retirement plan, recalls how his vote was courted while Curtiss-Wright Corp., a New Jersey company in which the state fund had about a 2% holding, was trying to fend off a takeover by Kennecott Copper. (The battle lasted from 1977 to 1981.)
"Curtiss-Wright contacted every politician in the state," he says. "We got called by the governor's office. The Curtiss-Wright chairman called me. . . . But we had done a complete financial analysis, and we supported Kennecott."
The role of institutional investment managers in proxy votes is of key significance today because institutional money dominates the stock market.
More than 50% of the stock of corporations listed on the New York Stock Exchange is owned by the insurance companies, banks and pension funds that make up the institutional universe.
As professional investors, institutions are more likely than other stockholders to have the resources to cast an informed vote.
At the same time, no longer can a typical institution resort to the traditional way that stockholders express discontent with a company: the "Wall Street rule" of voting with one's feet by simply dumping the company's stock. Many institutional holdings are so large that their blocks in any given company cannot be easily sold without depressing the stock price.
"Instead, institutions have got to think whether they should vote for or against" managements, says W. Gordon Binns, manager of the $25-billion pension fund of General Motors.
Investor-relations specialists say evidence of corporate executives applying direct pressure to obtain favorable institutional votes is hard to come by. As Ida Tarbell wrote in 1904 of Rockefeller's Standard Oil Trust: "You could argue its existence from its effects, but you could never prove it."