End of Week Notes

Investors call on NAM members to oppose its attacks on shareholders

You would think that a group calling itself the Main Street Investors Coalition would be, well, an actual coalition of everyday investors — consisting perhaps of people saving for retirement in a 401(k) plan — who have joined forces to counter the influence of powerful Wall Street investors and corporations.

Perhaps a group like this would prefer to see executive compensation lowered and more closely tied to long-term corporate performance. Perhaps they would like to see companies addressing the risks of climate change and treating workers better. Perhaps they would like see companies curtail their lobbying and political spending. Perhaps they would simply like to see investors and the corporations they own doing more to make global capitalism work better as a path to long-term value creation. Surveys show that large majorities of everyday investors think exactly along those lines.

But if you thought any of that, you would be wrong. Not just a little bit wrong. 100% wrong. The Main Street Investors Coalition is the exact opposite of all that. It does not consist of a single “Main Street investor.” In fact, it doesn’t even consist of investors at all, Main Street or otherwise. Its actual membership is either non-existent or secret, and there no sense in which it is any kind of “coalition” either. Some call it an astroturf (fake grass roots) organization, but it really doesn’t even deserve to be called an organization. It’s just a project that has arisen out of the K Street swamp, funded by the National Association of Manufacturers (NAM), which represents corporations, including many from the fossil-fuel industry, with the objective of discrediting shareholder engagement, particularly on climate change.

NAM has consistently opposed climate-related policy and regulations over the years, including U.S. participation in the Paris Agreement, in favor of an ad hoc market-driven approach. Here’s what NAM Vice President of Energy and Resources Policy Ross Eisenberg said in testifying before Congress last year:

We believe that we should be acting on climate. Period. Manufacturers are increasingly doing it across the board. Manufacturers are taking matters into their own hands because their investors are demanding it, their customers are demanding it, their employees are demanding it, and they are doing it. So we absolutely believe that we should be acting on climate change.

One might take that statement to mean that NAM believes investors should be able to engage with companies without corporate lobbyists trying to weaken their ability to do so. Period.

But weakening investors’ and other stakeholders’ ability to engage and offer shareholder resolutions is exactly the mission of its M̴a̴i̴n̴ ̴S̴t̴r̴e̴e̴t̴ ̴I̴n̴v̴e̴s̴t̴o̴r̴s̴ ̴C̴o̴a̴l̴i̴t̴i̴o̴n̴ K Street Lobby-to-Discredit-Investor-Engagement-and-Shareholder-Proposals Project.

This week, investors led by the California State Teachers’ Retirement System (CalSTRS) and Walden Asset Management called on the 45 companies sitting on the Executive Committee and Board of NAM to distance themselves from this astroturf project and its objectives.

Here’s Tim Smith, Walden Asset Management’s Director of ESG Shareholder Engagement:

The irony is that many companies on the NAM board are active business leaders on climate change. They understand the very real risk to our environment and have active forward-looking policies and programs on climate. Yet their dues to NAM are funding an aggressive attack against the very investors they meet with regularly to address climate change. We are appealing to these companies to clearly state their opposition to these positions taken by NAM and Main Street Investors Coalition. It is important to do so to protect their company reputations and integrity.

Here is the list of companies with leadership positions in NAM that are, in effect, supporting this project.

Bigger picture, NAM is struggling with the idea that what it, as a DC lobbying group, has long defined as political issues inappropriate for discussion between shareholders and companies are increasingly being seen by both as relevant to driving long-term shareholder value. And, in fact, the main reason why issues like climate change are being discussed between shareholders and companies is the failure of the political system to address them effectively. And that failure has been caused in large part by corporate lobby groups, like NAM, and corporate political spending.

In the old 20th Century privileged-position-of-business model, corporations could avoid the costs of climate change by paying lobby groups and political campaigns to oppose climate policy. But when government fails to address real problems, companies can’t always sidestep the costs. Now investors want to know what companies exposed to the effects of global warming are doing about it and how it may affect shareholder value.

For further reading on investor engagement and the changing role of the corporation, check out this excellent discussion just published in the Chicago Booth Review. Following from BlackRock CEO Larry Fink’s letter to CEOs earlier this year, it centers on whether the purpose of a corporation should be entirely to maximize shareholder value to the exclusion of any social objectives, and on whether a company engaging with social issues can help ensure its long-term growth. Moderated by Chicago Booth’s Robert H. Gertner, the panel included BlackRock cofounder Sue Wagner as well as Booth professors Luigi Zingales and Marianne Bertrand.

Happy Labor Day reading!