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 The statement by the fund officials marks the first time in which
some of the nation's biggest institutional investors have joined up
to urge companies to rethink their focus on immediate returns and
aim for long-term growth.
The four officials - New York City Comptroller Scott Stringer, New
York state Comptroller Thomas DiNapoli, Chicago Treasurer Kurt
Summers and California Controller Betty Yee - are fiduciaries to
pension funds with $860 billion in assets. Yee is on the boards of
both the California Public Employees’ Retirement System and the
California State Teachers’ Retirement System.
The statement singled out McDonald's and comes a day ahead of the
fast-food chain's annual shareholders meeting.
It said McDonald's is continuing an "aggressive" share buyback
program even as it begins an overhaul of its operations.
The drive by the four officials runs counter to calls for more
payouts from high-profile activist investors, including some that
recently disclosed stakes in McDonald's, which could set up a clash
over how the country's largest restaurant chain allocates capital.
The pension leaders, in the statement, said that companies'
productivity and wage growth had once matched and helped drive
prosperity.
"Today, however, 95 percent of corporate earnings are being
distributed to shareowners, prompting us to question whether
companies are adequately reinvesting for sustainable returns over
the long-term," they said. "If the pendulum swings too far in favor
of returning capital to shareowners, the future viability of the
companies in which we invest may be placed at risk."
The statement referred to "serious performance challenges" at
McDonald's.
McDonald's Chief Executive Steve Easterbrook, who took over the top
spot on March 1, earlier this month announced a turnaround strategy
that included returning up to $9 billion to investors through
dividends and share repurchases.
"McDonald's is in turnaround mode and that is a business decision
our leadership made in balance with other factors," company
spokeswoman Heidi Barker Sa Shekhem said on Wednesday.
Recent filings showed new shareholders in McDonald's include
activist investors Jana Partners LLC and Corvex Management LP, which
have pushed for share buybacks elsewhere. Neither would comment
about the restaurant chain.
DON'T OVERDO IT
McDonald's annual meeting on Thursday, at its headquarters in Oak
Brook, Illinois, is to include a shareholder vote on a measure known
as "proxy access" that would make it easier for small groups of
shareholders to run director candidates.
[to top of second column] |
McDonald's board opposes proxy access and said it could open the
door to what it called "special-interest" candidates.
In their statement, the four pension fund officials said proxy
access would help "hold boards accountable when they place
short-term interests ahead of long-term value creation."
Share buybacks have come under increasing scrutiny as academics and
politicians criticize them as potentially short-sighted and argue
that more profits should be used to shore up companies' long-term
growth and improve wages for employees.
Last year Laurence Fink, CEO of BlackRock Inc, the world's largest
asset manager, warned companies against overdoing dividends and
buybacks at the expense of future growth. In April, U.S. Senator
Tammy Baldwin, a Democrat of Wisconsin, asked securities regulators
to review buyback rules.
From 2003 to 2012 S&P 500 companies used 54 percent of their
earnings to buy back stock, or $2.4 trillion, with dividends
absorbing another 37 percent of earnings, according to a paper by
University of Massachusetts Lowell Professor William Lazonick
published in the Harvard Business Review late last year.
"That left very little for investments in productive capabilities or
higher incomes for employees," Lazonick wrote.
On the other side of the debate, a generation of activist investors
has had success pressing companies to step up buybacks and to
increase dividends, both meant to boost returns amid a soft economic
recovery.
Under pressure from billionaire activist investor Carl Icahn, for
example, Apple boosted its repurchase program in April to $140
billion from $90 billion last year. Icahn this week said he is again
pressing to increase that amount.
(Reporting by Ross Kerber in Boston and Lisa Baertlein in Los
Angeles; Editing by Leslie Adler)
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