How To Vote The Shares Of A Social Wealth Fund

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Norges Bank / Flickr

I had a piece in the New York Times last week about how we could use a social wealth fund to cut down on wealth and income inequality.

Here’s how it could work. The federal government would create and run a new investment fund, and issue every adult citizen one share of ownership. The fund would gradually come to own a substantial and diverse portfolio of stocks, bonds and real estate. The investment return that the fund generates would be paid out to each citizen in the form of a universal basic dividend, and the shares would be nontransferable to preserve the institution’s egalitarian purpose.

This proposal raises an important question that I do not address in the piece: how will the social wealth fund vote its shares? If the social wealth fund owns the stock of a bunch of companies, that entitles it to vote on things like board members and shareholder resolutions. And so you have to figure out how that voting will be done.

From what I have seen in my research on this topic, there are three ways to handle the voting.

First, you can choose not to vote at all. This is how Dean Baker and Tony Atkinson answer this question: the social wealth fund should own non-voting shares. This means the fund will collect all of the capital income that its ownership delivers, but will not exert any control. This idea seems odd to me because it implicitly endorses the view that the very rich people who own most of the stocks should be left to exclusively control our corporations. It is fair enough to have worries about how the social wealth fund will vote its shares, but surely you should also have worries about how very rich people already vote their shares.

Second, you can have the managers of the wealth fund establish clear voting guidelines that its subordinates then implement on a vote-by-vote basis. This is how Norway does it. They have clearly articulated views on corporate governance, sustainability, and ethical business practices and exercise their voting rights in accordance with those views. This includes voting down excessive CEO pay packages and potentially divesting from fossil fuel extraction in the near future. Insofar as the social wealth fund’s management is appointed by a democratically-elected government, this strikes me as a very reasonable way to exercise the social wealth fund’s ownership.

Third, you can allow the citizen-shareholders to determine how the shares are voted. Recall from above the plan is to issue one share of ownership in the social wealth fund to every adult citizen. Thus, you could allow those citizen-shareholders to indicate their preferences for all the shareholder votes, e.g. on the fund’s website. Then, the social wealth fund would cast its votes accordingly. So, for instance, if 30 percent of the citizen-shareholders favored a particular shareholder resolution at a particular company while 70 percent opposed it, the social wealth fund would vote 30 percent of its shares for the resolution and 70 percent against.

Insofar as most people would not want to cast tens of thousands of votes every year, you could also, under this approach, allow citizen-shareholders to delegate their vote to some other entity. Lynn Stout and and Sergio Gramitto have recently proposed this idea. So, for instance, if I am really into environmental issues, I might delegate my vote to the Sierra Club. If I am really into labor issues, I might delegate my vote to the AFL-CIO. Under this scheme, many entities would arise to try to persuade citizen-shareholders to give them their vote.