Political Partisanship and Public Pension Funds

Does political affiliation impact how funds vote?

Does political affiliation matter in corporate governance? There’s a fair bit of evidence that it does. The latest data point is a new article, "Value over Values: Evidence from State Pension Funds" by Dhruv Aggarwal, Lubomir Litov, and Shivaram Rajgopal.

They examine how political and financial considerations influence the voting behavior of U.S. public pension funds on executive compensation issues, using new data made available by a 2022 Securities and Exchange Commission (SEC) rule requiring annual disclosure by mutual funds and other registered investment companies of votes on say-on-pay (SOP) proposals, among other things. (Broadly, the so-called N-PX filings how the fund voted on proxy proposals for companies in which they own shares. The required disclosures include votes on matters such as director elections, executive compensation, mergers and acquisitions, and shareholder proposals.)

The authors find significant partisan differences in voting behavior: Democratic-controlled pension funds are more likely to vote against management on executive compensation proposals, whereas Republican-controlled funds—especially those from states with anti-ESG (Environmental, Social, and Governance) legislation—tie their voting decisions more closely to corporate financial performance.