New report from Auditor Fitzpatrick finds most of the state's largest public retirement systems lack sufficient policies to ensure shareholder return is the top priority

A new report released today by Missouri State Auditor Scott Fitzpatrick details how most of the state's largest public pension systems have failed to put policies in place to ensure corporate voting decisions prioritize shareholder return. The report examined the proxy voting policies of the state's eight largest public retirement systems, which manage more than $85.2 billion, and found most of the systems need to provide more guidance on how they want proxy votes cast, and that all of the systems need to improve their review of proxy votes to make sure they comply with their policies. The lack of guidelines and review resulted in proxy votes for these systems being cast in an inconsistent manner. A review of seven Environmental, Social, and Governance (ESG)-related proxy votes during the audit period noted five instances in which proxy votes for a system were made both for and against the same proposal, effectively canceling out the vote of pension members.

"For the hundreds of thousands of public employees here in Missouri who are counting on their pensions to be there in retirement, it is incredibly important that our retirement systems manage these funds in a way that will prioritize maximizing their returns, not advancing ESG initiatives," said Auditor Fitzpatrick. "Unfortunately we see proxy voting policies for many of these systems that lack specific guidance and oversight to ensure fiduciary duty is the top priority for their investment managers. When systems allow their asset managers to vote on both sides of an issue or prioritize advancing social and political causes above maximizing shareholder returns, they are squandering their members' votes, and that is unacceptable. Going forward these systems need to improve their policies and do a better job of monitoring the proxy votes that are made to make absolutely certain they prioritize shareholder return."

Because the eight systems reviewed by the State Auditor's Office have more than $15.2 billion invested in managed accounts, they own voting shares of various companies via external investment managers. These shares are voted on by the investment managers via proxy votes pursuant to agreements between the retirement system and the investment manager or other proxy voting service.

The audit found only two of the eight systems reviewed (Missouri State Employees' Retirement System and Public School and Education Employee Retirement Systems of Missouri) have proxy voting policies that addressed how certain issues should be voted. The other systems reviewed have policies with general language stating proxy votes should be in the best interest of the system and its participants, but no specific guidelines on how votes should be cast. Only one of the eight systems (MOSERS) requires a proxy voting advisor and specifies the factors the proxy voting advisor must consider.

The report also details how all of the systems need to improve how they monitor proxy votes. None of the systems reviewed have policies in place to require a review of the proxy votes cast on behalf of the system. Additionally, five of the eight systems do not perform a regular review of proxy voting reports to ensure compliance with their policies. The report notes that even though the systems had general policies in place to require the vote to be in the best financial interest of the system, the lack of specific guidance resulted in different managers reaching opposing conclusions about which vote complied with policy.

The report recommends that all public retirement systems consider improving proxy policies by including more specific guidance on how the system wants proxy votes cast, similar to the policies used by MOSERS and PSRS/PEERS. The report also recommends all systems put policies in place to obtain and review proxy voting reports to make certain they are in compliance with applicable proxy voting policies.

The audit reviewed the proxy voting policies of MOSERS, PSRS/PEERS, County Employees' Retirement Fund (CERF), Kansas City Public School Retirement System (KC PSRS), Local Government Employees Retirement System (LAGERS), Missouri Department of Transportation and Missouri Highway Patrol Employees' Retirement System (MPERS), Public School Retirement System of the City of St. Louis (PSRSSTL), and University of Missouri System Retirement (UM RET). Because Auditor Fitzpatrick served on the MOSERS Board of Trustees as State Treasurer during the audit period, he recused himself from all portions of the audit dealing with MOSERS.

The full report is available here.