Shareholder Activism: Capitalism was awakened from within
Conservatives are rightly angry with “lively capitalism,” angry at the way large American corporations are increasingly burdening sociopolitical issues – invariably in favor of the progressive left. Certainly, many companies are under pressure to do this.
Sometimes this pressure is open and public. Indeed, it can make national news. But sometimes it is less so. Many Americans are likely unaware of the coordinated campaigns by shareholder activists – shareholders in a company interested in anything other than financial gain – to drive their political priorities through proposals from environmental, social, and corporate governance (ESG) shareholders into the same Include boardrooms of the company.
In his most recent and current bookThe Dictatorship of Awakened Capital: How Political Correctness Conquered Big BusinessStephen R. Soukup calls the shareholders’ proposals “the corporate activist’s primary tool” – and for good reason. Provided that they meet certain requirements, each shareholder can submit proposals to management, which other shareholders can vote on at the company’s annual meeting. These are usually written in the form of a request or recommendation. Large institutional investors (index funds, public pensions, etc.) have oversized voting rights and many rely on third-party advisory services for recommendations on how to vote.
Activists who want to influence powerful corporations to adopt their socio-political priorities buy shares in corporations only to submit proposals that further those priorities. The important thing is that the goal is not always to win a majority election. Proposals that fail but still receive significant or increased support signal momentum around a particular ESG issue and put pressure on management. Sometimes a company chooses to pre-negotiate a proposal to prevent such coordination.
The 2021 proxy preview
The 2021 proxy season – the period when many companies hold their annual meetings – is well underway, and nowhere is the level of ESG shareholder activism more evident than in the Proxy Preview 2021 report (available at PoliticoHere). Considering The Bible For Socially Progressive Foundations, Religious Groups, Pension Funds, And Tax Exempt Organizations, it lists hundreds of ESG proposals submitted for this year’s proxy season. The status of the proposals will be up-to-date from mid-February.
The report also provides a useful overview of the people and organizations most involved in ESG progressive shareholder activism. Dozens of proponents – nonprofits, trade unions, asset managers, and others – submitted proposals, many of which were in turn coordinated or otherwise supported by additional groups. The report highlights the American Federation of State, County & Municipal Employees (a union) and four not-for-profit organizations – the Interfaith Center for Corporate Responsibility, Ceres, the Center for Political Accountability, and the Investor Environmental Health Network (a clean manufacturing program) Action) – for a specific confirmation.
A group that created Proxy Preview 2021 was also the report’s most prolific supporter: a 501 (c) (3) nonprofit called As You Sow. It is probably the most famous charitable shareholder activist in the country. According to a tracker on his website, by mid-April he had filed 76 ESG resolutions with 65 publicly traded companies for 2021.
You Sow’s 2020 annual report reported revenues of $ 11.8 million, approximately 96 percent of which came from “foundations and sponsorship” sources. As a 501 (c) (3) non-profit organization, As You Sow is not required to publicly disclose its donors. However, some major donors in recent years include the Wallace Global Fund, the Stephen M. Silberstein Foundation, the Roddenberry Foundation, and the Park Foundation and the Battery Foundation.
The Proxy Preview report breaks the proposals down into each of the three ESG categories as well as numerous sub-categories. These provide a full explanation of the vision of awakened capitalism for American corporation. Only two of the 92 pages of the report are devoted to 23 “conservative” proposals – an example of how ideologically one-sided the world of ESG shareholder activism is. Most of the conservative proposals came from the National Center for Policy Research and its free enterprise project, led by Justin Danhof, a prominent national expert on the subject.
While readers are encouraged to read the report for themselves, a brief selection of suggestions gives a fair idea of what America’s public corporations have expected from ESG shareholders this year.
Dozens of proposals have been tabled on climate change – the predominant environmental problem – and the report finds that, under 501 (c) (3), the nonprofit Ceres “coordinates almost all of these proposals”. At least 18 companies – including CarMax, United Parcel Service (UPS) and Domino’s Pizza – received proposals to receive a report on how each company plans to “reduce its contribution to climate change and align its business” with the Paris Agreement. Large energy producers such as Chevron, Phillips 66 and ConocoPhillips were approached by proposals to reduce greenhouse gas emissions.
The “biggest new development on climate change,” according to the report, is a campaign called “Say on Climate,” an initiative supported by the Billionaire Foundation run by UK hedge fund manager Chris Hohn’s Children’s Investment Fund Foundation. It advocates that companies issue net zero emissions transition plans and then subject those plans to an annual shareholder review. It is an international campaign and the US effort is led by As You Sow, which plans to submit hundreds of resolutions to public corporations unless they “voluntarily take the initiative”.
Social proposals cover a wide variety of different topics, but those related to race and diversity are perhaps the clearest topic of 2021. The proxy preview suggests that the Black Lives Matter movement led to it Diversity Proposals to Double by 2020 The city’s public pension funds are focused on getting companies to publicly disclose employee diversity data while others go further and “require evidence of effective diversity and inclusion programs.”
The Service Employees International Union (SEIU) and Change to Win (of which the SEIU is a member) submitted proposals for a “racial justice test” to eight major financial institutions, and similar proposals were made to other companies. NorthStar Asset Management made a proposal to PayPal that examined, among other things, whether the company promotes a “cultural hierarchy through perceived pressure to use” white “names. . . [or] Adopt “white-centered” standards for physical appearance. “
The Nathan Cummings Foundation – a $ 450 million private foundation – focused on police assistance. In particular, she made a proposal to Target Corporation on the grounds that the company’s support for local police “could adversely affect shareholder value.” According to the foundation, the mere fact that “Target continues its partnerships with law enforcement,” including “charitable donations to police foundations across the country,” “provides both legitimacy and funding for practices that can exacerbate racial inequality”.
Corporate governance proposals
Diversity also plays a role in corporate governance proposals. Around 30 resolutions typically ask companies to either adopt a diversity policy for their board of directors or to prepare a report outlining how they will increase board diversity. While having a diverse board of directors can be beneficial for a company, these proposals critically appear to restrict the definition of “diversity” to gender and racial / ethnic categories only. This rules out the myriad other measures of human diversity (age, personal or professional background, life experience, political ideology, etc.) that are likely to give board composition a more real value than superficial traits like skin color alone.
Finally, and in a look at the ultimate goal of American capitalism as envisioned by ESG activists, a whole class of proposals, backed by a nonprofit called Shareholder Commons, try companies like BlackRock, Caterpillar, Alphabet ( Google) and Amazon to legally have to reformulate themselves as nonprofits. This would allow them to prioritize the interests of other “stakeholders” over the interests of their own shareholders, “even if it means giving up the entire financial return on an individual company”. This is bright capitalism at its logical end: shareholders putting forward proposals against these shareholders’ own financial interests.
The conservative way forward
Recent polls by Scott Rasmussen suggest that the majority of Americans are against companies taking positions on political issues. Frustrated that many do so, some conservatives have called for the company to boycott or otherwise attempt to punish the company’s products or services by withdrawing. While the frustration is understandable – and vocal dissatisfied customers can certainly be effective – such isolated actions can be quite counterproductive in the long run.
Instead, as Danhof and others have prominently argued, conservatives should prioritize working directly with corporations that have inappropriately and unnecessarily intruded into politics. Shareholder votes are one way that this can be done. The one-sided ideological breakdown of the proxy preview’s catalog of proposals – with the conservatives making up 5 percent of the total – suggests that the progressive left has certainly embraced this approach. If the recent and varied outbursts of lively capitalism are signs, this strategy is paying off.
Robert Stilson is a research specialist at the Capital Research Center.