TIAA-CREF Decision Sets Precedent to Block BDS Motions – Legal Analysts
A decision by the Securities and Exchange Commission (SEC) to allow a major financial services group to keep Boycott, Divestment and Sanctions off the agenda at their shareholders’ meeting, created new precedent to counter BDS assaults on the financial community, legal analysts told The Algemeiner.
The SEC’s decision on Thursday was a relief for TIAA-CREF, officially Teachers Insurance and Annuity Association – College Retirement Equities Fund, which manages $520 billion on behalf of millions of teachers and other union members, many of them Jewish. The BDS motion demanded divestment from Israel as part of a new human rights policy it wanted shareholders to adopt. The SEC chose to ignore the first part of the argument, simply ruling that the BDS motion would interfere with the company’s ordinary business.
The BDS motion was filed by Jewish Voice of Peace in the names of 200 signed shareholders requesting to be heard at TIAA-CREF’s annual shareholder meeting in July and put their motion to a proxy vote.
TIAA-CREF said no.
A spokesman for TIAA-CREF explained the three pillars of its argument to the SEC: that it would be inappropriate for the financial services company to involve itself and its other shareholders in a complex political debate; that the BDS motion interfered with its operations, essentially micro-managing its management’s job of buying and selling securities; and that the company already had an internal operation system to asses human rights conditions in every country where it invests.
In its decision, the SEC was convinced by the final point: “There appears to be some basis for your view that the Fund may omit the proposal from the Fund’s proxy materials pursuant to Rule 14a-8(i)(10) under the Securities Exchange Act of 1934, which permits omission of a proposal that has been substantially implemented.”
In other words, any investment company in the same position, being asked questions about the “human rights” where it invests can inform the SEC that it has “substantially implemented” an internal process to make those judgements, and case closed.
In its brief, the investment firm reminded the SEC that the operational question has already been tested two years ago, when the same BDS group first attempted their maneuver:
“We respectfully submit that, with the 2011 No-Action Letter, the [SEC] Staff already has confirmed that a shareholder proposal along these lines may be excluded from CREF’s proxy materials because it deals with a matter relating to CREF’s ordinary business operations.”
Human rights lawyers lauded the “creativity” of the decision, but were disappointed that an even stronger case precedent was not set based on the law rather than a technical question.
“This is a creative solution for this type of case, but it sidesteps the real issue,” said Brooke Goldstein, human rights lawyer and director of The Lawfare Project, a non-profit legal think tank that exposes and combats lawfare, asymmetric warfare that covertly threatens democracy through the manipulation of laws.
“Yes, this was an easy way to end it; TIAA-CREF already has an internal system to judge human rights issues, end of story. But, in the motion, itself, BDS is asking shareholders and management of a US corporation to do something unlawful.”
In the BDS petition, they “request that the [TIAA-CREF] Board end investments in companies that, in the trustees’ judgment, substantially contribute to or enable egregious violations of human rights, including companies whose business supports Israel ‘s occupation.”
Goldstein says: “That is discriminatory targeting of a person, group or company because of national origin, in this case, people from Israel, which is simply illegal in New York state.”
New York state law defines boycotts as “unlawful discriminatory practice” and that any decision to “refuse to buy from, sell to or trade with, or otherwise discriminate against any person, because of the…creed…[or] national origin” was unlawful and even secondary actors can be liable, according to Nitsana Darshan-Leitner, director of Shurat HaDin – Israel Law Center, a vocal defender of Israel in the courts.
At the US federal level, the Tax Reform Act of 1976 makes it a federal violation to “participate in or cooperate with an international boycott.”
“BDS movements claim to be against discrimination, but that is exactly what they’re asking people to do here; it’s illegal, hypocritical and a disgrace,” attorney Goldstein said.
“What I don’t get is how can the BDS movement be taken seriously as they ignore real human rights violations across the rest of the world; why is this about Israel and not about Syria, or Sudan for that matter; there is the hypocrisy.”
In its brief, TIAA-CREF answered their human rights question by spelling out the regulations that inform its corporate policy, beginning with Sudan, and the US government’s Anti-Genocide Proposals:
“The Anti-Genocide Proposals are aimed principally at companies who, through their business dealings in Sudan or otherwise, are viewed as having substantially contributed to genocide and egregious human rights violations.”
“There exists a broad consensus that the activities targeted in the Anti-Genocide Proposals – genocide and egregious human rights violations in Sudan – are abhorrent, and deserving of universal condemnation.”
“In fact, the human rights violations in Sudan are so extreme that U.S. companies are prohibited from doing business in Sudan. Moreover, the U.S. Congress has passed a law — the Sudan Accountability and Divestment Act of 2007 — that is designed to make it easier for fiduciaries to divest from companies deemed to support human rights atrocities in Sudan.”
“In contrast, the Proposal here attempts to embroil CREF in a highly controversial geopolitical dispute of enormous complexity where — unlike the Anti-Genocide Proposals — there is no broad consensus. United States companies are permitted to engage in business dealings in Israel and the West Bank.”
“Indeed, the United States adopted laws designed to discourage and, in some circumstances, prohibit U.S. companies from furthering or supporting foreign boycotts of Israel.”
Sam Nunberg, director of the Middle East Forum’s Legal Project said, “This is a small victory for America in that our firms can go about their business, but it is a tremendous failure that more has not been done to end the BDS movement from twisting our system, ignoring our laws and lying to the good citizens of this country.”
As for future attempts to inspire Israeli boycotts by investment funds, a spokesman for the SEC said that its decision was based on the operational grounds and redundancy question, which could be applicable for any firm.
The primary responsibility of the SEC is to guaranty shareholders’ rights, including their ability to propose motions at an AGM, which is why the regulator investigated the claim. But the content of their request violated the company’s rights, which is why BDS lost.