We recently wrote to the U.S. Department of Labor regarding the rights of shareholders and their ability to proxy vote. You can read what was sent below:
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Attention: Proxy Voting and Shareholder Rights NPRM
Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N-5655
U.S. Department of Labor
200 Constitution Avenue NW
Washington, DC 20210
Dear Members,
Riverwater Partners LLC is an independent, employee-owned, registered investment advisory firm based in Milwaukee, Wisconsin, serving families, nonprofits, and institutions. As fiduciaries and active stewards, we represent the interests of our clients, which include superior financial returns and positive societal impact. It is our belief, and evidence shows, that companies that incorporate a sustainability lens into long-term corporate strategy offer all stakeholders, including our clients, the opportunity to achieve superior financial and social outcomes due to reduced risk and increased opportunity. We define sustainability as including environmental, social, and governance (ESG) factors. Our process incorporates Due Diligence, Engagement, and Collaboration with thought leaders to inform our practice. Engagement includes proxy voting.
We are writing to express our strong opposition to the Department of Labor’s proposed rule, “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” (RIN 1210-AB91) (the “Proposal”). The Proposed Rule would impose significant analytical and documentation burdens on fiduciaries of benefit plans governed by the Employee Retirement Income Security Act (“ERISA”) as they exercise their proxy voting right, one of the most visible and verifiable ways in which investors can practice responsible ownership. A key element of this right is to allow shareholders the opportunity to raise issues before a crisis that erodes shareholder value arises.
The Department’s longstanding position is that the fiduciary act of managing plan assets includes the management of voting rights (as well as other shareholder rights) appurtenant to shares of stock, and that fiduciaries must carry out their duties relating to the exercise of such rights prudently and solely for the economic benefit of plan participants and beneficiaries. However, the proposed rule’s “permitted practices” for ERISA plans to always vote with management or to refrain from voting may conflict with these fiduciary duties. Always voting with corporate management may violate the duty of loyalty and abstaining from proxy voting in some or all cases may violate the duty of prudence.
