Boards overseeing major stock holdings in ND pension funds could give shareholders more power
By: DALE WETZEL
Associated Press
07/05/09 11:20 AM EDT
BISMARCK, N.D. — When shareholders in seven companies recently rebuffed proposals to move their corporate homes to North Dakota, the state's own employee pension fund was among the stockholders that opposed making the switch.
State officials say that may change, as two boards that oversee major stock holdings in North Dakota pension and trust funds evaluate whether they should support a state law approved two years ago that gives shareholders more power over management.
North Dakota's pension funds own enough shares in some individual businesses to insist that their shareholders decide whether it would be in the company's interest to reincorporate in the state — and pay up to $80,000 annually in North Dakota franchise fees.
"This is an issue we're going to take a look at," Lt. Gov. Jack Dalrymple said.
Dalrymple is chairman of the state Investment Board, which oversees the investment of North Dakota's pension fund for state employees, its workers' compensation benefits fund for employees who are injured on the job, and an assortment of other funds, which are worth close to $4 billion.
The state Board of University and School Lands, of which Gov. John Hoeven is chairman, controls a separate group of trust funds, the largest of which benefits North Dakota's public schools.
Dalrymple and Steve Cochrane, director of the state Retirement and Investment Office, said the state traditionally has not taken an activist approach to its investments.
If a state fund owns a stake in a company when dissident shareholders attempt to force changes in management practices, the voting power of the state-owned shares are typically used to support management's position. The decisions are left to the asset management firms that the Investment Board hires to make day-to-day decisions.
"As shareholders, you're going with management, or you get out," Dalrymple said. "If you don't like what they're doing, you sell the stock. That's sort of the age-old theory, anyhow."
In recent months, shareholders in at least 18 companies — from troubled insurance giant American International Group Inc. to Exxon Mobil Corp., Staples Inc. and Lowe's Companies Inc. — have been asked to reincorporate in North Dakota, using a new state law that guarantees shareholders a broad assortment of rights.
Most of the companies are presently incorporated in Delaware, which is the corporate home of a majority of U.S. companies that sell ownership shares of stock to the public.
Only one company, American Railcar Industries Inc., of St. Charles, Mo., approved the change. American Railcar is controlled by billionaire New York investor Carl Icahn, a supporter of the North Dakota law.
The law requires companies that use it to allow shareholders to elect their boards of directors each year, and restricts management's ability to put up antitakeover barriers. It provides an annual shareholder advisory vote on the compensation for top executives,
North Dakota funds overseen by the Retirement and Investment Office have stakes in eight of the 18 companies at the time shareholders voted on whether to reincorporate, including 521 shares in American Railcar. Cochrane said North Dakota's shares in the remaining seven companies were not used to support the switch.
The trust funds supervised by the Board of University and School Lands do not own shares in any of the 18 individual companies, said Jeff Engleson, the state Land Department's investment director.
In percentage terms, North Dakota's investment office has tiny ownership stakes in all seven companies. Its largest stake is in Exxon Mobil Corp., with 212,833 shares. The remaining six are AIG Inc., the insurer (83,236 shares); Amgen Inc., a drug company (66,901); Sempra Energy, a California gas and electric utility (31,700); Lowe's Companies Inc., a building supply company (26,800); Pep Boys, an auto parts and repair chain (3,792); and Staples, an office supply business (1,400 shares).
Dalrymple said North Dakota's stakes in the companies are not large enough to sway a shareholder vote.
"Nevertheless, there's kind of an important little principle there, about believing that North Dakota is a shareholder-friendly state, and that it would be the best state in which to incorporate your company," he said.
