Regulators should eliminate the rule that restricts pension funds from holding more than 30% of the voting equity in a corporation, suggests a C.D. Howe Institute study released on Wednesday.

Law professor Poonam Puri points out in In A Matter of Voice: The Case for Abolishing the 30% Rule for Pension Fund Investments, that pension fund managers have devised elaborate ways to effectively skirt the rule. She makes the case that it is time for regulators to enforce the rule or eliminate it entirely and give pension funds a voice commensurate with their equity stake.

Puri outlines three principle challenges to the 30% rule:

(1) The rule is only subject to superficial compliance as regulators have allowed companies to work around the rule, resulting in unnecessary complexity and increased transaction costs.
(2) As no other OECD jurisdiction has a similar rule, Canadian plans are at a disadvantage relative to foreign competitors when competing for a given investment.
(3) And there are governance problems that result from disaggregating ownership from control.

“A better method than quantitative restrictions is to rely on prudent person standards. This method allows managers to use their expertise and discretion in constructing their portfolios,” the report says.