When "losing" is actually winning
Two years of obstruction and
tactical maneuvering weren't enough to keep a large coalition of shareholders,
led by Rhode Island General Treasurer Seth Magaziner, from taking Navient
Corp., the nation's largest student loan servicer, to task over its role in the
growing national student debt crisis today at the company's annual meeting.
This is the first time
shareholders have had the opportunity to vote on Treasurer Magaziner's
proposal, which would require the company to provide shareholders with an
analysis of risks and potential governance failures related to the student loan
crisis.
Navient successfully petitioned
the Securities and Exchange Commission (SEC) to block the proposal in 2017.
This year, however, the SEC did not grant Navient's request to prevent a
shareholder vote and its shareholders sent a strong message, with nearly half
of all votes cast supporting the proposal
It is highly unusual for more
than a small percentage of investors to vote against management in a
shareholder proposal of this type. Preliminary results show 43 percent voted in
favor of Magaziner's proposal.
EDITOR’S NOTE: I had direct experience in several corporate proxy fights that sought to force companies to adopt more ethical
practices. It's rare to get more than 10% of the vote, never mind 43%. Most corporate stocks are owned by mutual
funds, investment firms and insurance companies who generally DO NOT include social justice as a priority. So
congratulations, Seth, on a great result. Incidentally, if you draw 10% or more “yes” votes in a proxy fight, that usually causes
companies to fire executives and change behavior. – Will Collette
Student loan debt is the
second-largest source of household debt in the United States, second only to
mortgage debt. The New York Federal Reserve estimates that 44 million borrowers
owe $1.5 trillion in student loan debt, an increase of over 30 percent in just
five years. At the same time, more than 1 million Navient customers have
defaulted on their student loans.
Representatives from Treasurer
Magaziner's office were joined at today's meeting by representatives of the
AFL-CIO and the President of the American Federation of Teachers (AFT), Randi
Weingarten.
"Navient epitomizes all
that is wrong about the student loan servicing industry-its predatory nature
that fleeces rather than helps students," said Weingarten. "Instead
of working to fix this national student debt crisis, Navient profits off it,
while spending millions on lobbyists to remove even the slightest check on its
activities. It overcharged our servicemen and servicewomen and allegedly tells
its call-center staff to push forbearance-a temporary stop on or reduction in
student loan payments-against borrowers' best interests.
"I hope that by asking
tough questions on behalf of shareholders and student borrowers, the Navient
board may understand they can't hide, and then will begin to act in a prudent
and responsible manner," continued Weingarten.
The AFT represents 1.7 million
members, many of whom own shares in Navient through their pension funds,
including teachers in Rhode Island, whose retirement system filed the proposal.
"Navient can't have it both
ways. It profits off the student loan crisis through government contracts, but
when mild questions are asked of its strategy to manage risk, it tries to
prevent public scrutiny. There is a role for student loan servicers, but only
if they align their strategy with the long-term interests of shareholders and
borrowers, not the whims of Wall Street. RIFTHP is committed to doing
everything it can to reduce the onerous burden of student debt, and seeking
transparency from loan servicers is an important component of that
advocacy," said Rhode Island Federation of Teachers and Health Professionals
President Frank Flynn, who is an AFT vice president.
Treasurer Magaziner and co-filer
AFL-CIO are asking Navient to publish its governance measures to monitor and
manage risks arising from the growing student loan debt crisis, and whether
this category of risk is considered in senior executive compensation.
"Navient is the largest
servicer of federal student loans and as such is more exposed to the risks of
the student debt crisis than any other company. The working people whose
pensions are invested in Navient deserve to know how the company will protect
that investment in the face of this growing risk," said Sarah Lewis,
Senior Lead Researcher for the AFL-CIO.
Navient is currently facing
lawsuits from the Consumer Finance Protection Bureau, Washington State,
Illinois and Pennsylvania, alleging that it harmed student loan borrowers. The
Company is also facing a class action lawsuit from investors alleging that it
made false and/or misleading statements and engaged in deceptive practices to
facilitate the origination of subprime student loans.