"Fiduciary Duty, Shareholder Value, and Anti-Apartheid Activism among US Public Pension Funds"

In the mid-1980s, US pension funds, university endowments, and other institutional investors began a major campaign to sell off stocks issued by US corporations that did business in Apartheid South Africa. These investors, led in part by the California Public Employee Retirement System (CalPERS), sought to use divestment to pressure American companies, and in turn pressure the South African regime. Once institutional investors sold their shares, however, they sacrificed their control as owners (not to mention the profits that came from owning blue-chip American firms), leaving the companies in the hands of shareholders less sympathetic to the anti-Apartheid position. Following this logic, the New York State Employee Retirement System (NYSERS), among the largest public pension systems in the country, pursued a different approach. Under the management of Republican Comptroller Edward V. Regan, NYSERS sought to use corporate governance, rather than divestment, to pressure American corporations to exit South Africa. Regan’s activist approach reflected a major break. When public pension systems began investing in corporate stock in the 1960s, they foreswore any corporate governance role in private businesses. In contrast, Regan aggressively pursued shareholder resolutions that would directly shape corporate strategy. As this paper will argue, Regan’s position reflected the solidification of specific conceptions of fiduciary duty and shareholder value among public pension trustees, conceptions which obligated public fund managers to exercise the control that followed from ownership. Indeed, Regan’s campaign prioritized corporate ownership for ownerships’ sake, seeking above all to maximize investment returns to New York retirees. It thus narrowly restricted corporate politics to the domain of corporate owners and sought to delegitimize activism by non-owners, a conception of political scope in the age of shareholder value that continued to resonate with divestment debates in the present.