Corporations Do Not Want to Hear from Shareholders, So They Try to Prove Shareholder Proposals Don’t Help
Here’s a tip from a long-time Washington DC lawyer: the more folksy or patriotic the name of the group, the more likely that it is funded by people who are promoting exactly the opposite of what it is trying to pretend to be. And thus we have the Main Street Investors Coalition, which bills itself as “bring[ing] together groups and individuals who have an interest in amplifying the voice of America’s retail investor community.” They say:
[A]s the size and influence of these massive institutional holders has grown, so too has their power, influence and share of voice — drowning out the voices and interests of Main Street investors who, despite controlling the single largest pool of equity capital in the world, have almost no ability today to influence the decisions these funds make on their behalf, with their money.
Of course this completely overlooks the fact that institutional investors are fiduciaries representing everyday working people like teachers, firefighters, and employees of publicly traded companies. What the folksy-sounding, corporate-front Main Street Investors want to do is divide and conquer. They know they can no longer rely on the support of investors smart and focused enough to tell when corporate management has gone off the track and big enough to make their views meaningful. This faux populism about the “real” investor being mom and pop and their little basket of stocks ignores the fact that most working people invest through intermediaries like mutual funds because they perform better than individuals who do not have the time, resources, or expertise to buy and sell stocks.
Capitalism, which, after all, is named for the investors who provide capital, not the executives, is founded on the idea of accountability to ensure confidence that the capital they provide will be used honorably. But now that investors are pushing back on issues like excessive CEO pay, ineffective boards, and failure to consider climate risk — via shareholder proposals which are non-binding so that even a 100 percent vote in favor does not require the company to comply — corporate executives are trying to kill the messenger. So much for the invisible hand of the market they are always so excited about until it delivers a market response they do not like.
A further hint to “Main Street’s” funding and bias comes from their frequent tweets tagging the National Association of Manufacturers, one of the most powerful pro-corporate lobbying groups. The Main Street Investors Coalition is currently tweeting about a new academic study that purports to show that shareholder resolutions have an adverse impact on share price. And where do we find that study? On the website of the NAM, which paid for it. That subsidy alone should make anyone skeptical about its findings.
There are further flaws as well. One is the constant use of the term “political” to describe shareholder resolutions, that term specifically used to indicate that their purpose is counter to shareholder value. On the contrary. These proposals, filed by fiduciaries who represent large, sophisticated financial institutions acting on behalf of millions of small pension plan participants in most cases, are explicitly grounded in the promotion of long-term shareholder value. SEC rules strictly limit the subject matter of these non-binding shareholder proposals to matters directly relating to legitimate areas for investor feedback. Every one of the proposals is explicitly tied to investor concerns about long-term, sustainable growth. If corporate executives believe the proposals are not in the interest of shareholders they have as much space as they want in the corporate proxy to explain why. But it would have to be more soundly argued than this study to be credible.
Next are the highly suspect metrics used to purport to prove that these proposals do not help and can hurt shareholder value. The study looks at the reaction of companies’ stock prices to both increased disclosure of climate-change-related information and shareholder proposals calling for such
disclosure. In what way is that a relevant measure? There are innumerable factors that go into the pricing of stock on a given day, and no one is suggesting that the adoption of particular policies urged by shareholders will have the immediate positive stock price impact that, say, a generous tender offer would. These are complex, multi-layered issues and, more important, these are essentially permanent shareholders. They are not trying to time or manipulate the market. As corporate governance expert Beth Young points out, “The yardstick should not be whether a company’s stock price goes up upon disclosure of climate-related risk/opportunity disclosure; investors might see the disclosure and think that the company has more risk than previously understood, or decide that the risks are being poorly managed, in which case the right direction for the stock price is down.”
And then there is the study’s finding that these proposals can impose millions of dollars of cost onto the corporations. We reiterate that these proposals are not binding, so there is no obligation to spend any money at all. We do not see any benefits from complying included in these calculations. And we suspect that self-reported, unsubstantiated reports of costs may be inflated to a considerable degree.
Perhaps the next step should be a shareholder proposal to stop wasting money on fake public interest groups and poorly designed studies.