End of Week Notes

Morningstar acquires Fund Votes, and company responses to the Main St. Investors Coalition letter

At the end of September, Morningstar acquired Fund Votes Research Ltd, which, since 2007, has provided mutual fund and ETF proxy voting data on company resolutions and shareholder proposals, including environmental, social, and governance topics. Fund Votes’ founder, Jackie Cook, a longtime expert on proxy voting, has joined Morningstar and through her research and thought leadership will be helping investors better understand this information.

To say that I’m excited about this is an understatement. We want to shine a light on how funds fulfill their stewardship role as significant owners of nearly every public company. How funds vote their proxies is a big part of that, yet it’s hard for investors and non-investors alike to even find this information, much less make any sense of it. We want to change that. How funds vote their proxies matters.

It will take some time for us to make the Fund Votes data available across our platforms, but in the meantime, expect more research and commentary from us on the subject.

Responses to CalSTRS/Walden letter

Last month, 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 the National Association of Manufacturers (NAM) to distance themselves from the Main Street Investors Coalition project and its objectives. More on that here, but suffice it to say that Main Street Investors Coalition (MSIC) is a fake grass roots “astroturf” K Street front group financed by NAM with the objective of discrediting shareholder engagement and proposals.

I wondered how companies have been responding, so I contacted Walden Asset Management’s Tim Smith, who provided me with letters he had received from several firms, including Microsoft, Intel, ConocoPhillips, Cummins, Lockheed Martin, and Pfizer.

Of those, Microsoft and Intel specifically said they would distance themselves from NAM on this issue. According to an August 14, 2018 letter from Fred Humphries, Corporate Vice President, U.S. Government Affairs:

“I’ve written to the CEO of NAM Jay Timmons to share our long experience with the positive value of shareholder engagement and to encourage NAM to consider this perspective.”

From Intel:

“[W]e do understand your concerns with aspects of recent MSIC statements and the NAM sponsored report ‘Political, environmental, and social shareholder proposals: do they create or destroy value?’, including language that frames issues addressed by ESG-related shareholder proposals as ‘politically charged’ instead of within the context of how these issues can impact shareholder value. We intend to share our perspective on the value of constructive ongoing investor-company engagement.
“We will continue to take action to advance corporate responsibility practices, improved transparency and climate change strategies, and engage with our stockholders as a key part of Intel’s and our Board’s corporate governance commitment.”

Good for Microsoft and Intel.

The other responses were less supportive. ConocoPhillips’ letter noted that it does have issues with the current shareholder-resolution process, but added that this is not a “priority issue”, and noted that it doesn’t necessarily support every position taken by a trade association of which it is a member.

“ConocoPhillips recognizes the value of stockholder proposals, as well as the costs and burden of responding to formal stockholder resolutions. The Company wants to preserve stockholders’ access, but that does not imply that the current system for filing stockholder proposals could not be improved. While not currently a priority issue for the company, we are interested in an open dialogue on the topic, including ideas on criteria for reintroduction of stockholder resolutions which had previously been voted upon without passing.
“Our participation with a trade association does not imply that we are aligned on all issues; however, it does provide a seat at the table… . Our association membership should not be interpreted as a direct endorsement of the entire range of activities or positions undertaken by such trade associations.”

Cummins, Lockheed Martin, and Pfizer responded with general statements touting their shareholder engagement policies and activities, prompting this reply (to Pfizer) from Walden Asset Management:

“In our letter we raised a specific governance issue, specifically Pfizer’s role as a Board member of NAM. We also understand that Pfizer is a member of the Business Roundtable. Both organizations have chosen to lead aggressive attacks against shareholder rights and the ability to file resolutions.
“We are concerned that your dues and good reputation are being used in this campaign. We therefore appealed to Pfizer to state your own company position and agreement or disagreement with the NAM initiative. We are not asking Pfizer to disengage from the Buisness Roundtable or NAM, but to use your role as a responsible board member to address this issue and state that you do not believe these campaigns are in the best interests of companies that serve on their Board.
“We are aware that Pfizer has a long history of communication with trade associations, whether it be the U.S. Chamber of Commerce or ALEC. Thus, as our letter articulates, we are asking Pfizer to urge NAM to end their attacks on shareholder rights.”

So what to make of all this? First, that the silence from most companies speaks volumes— despite their stated support for shareholder engagement, they actually do support efforts to curtail shareholder rights. It’s easier to hide behind NAM than for individual companies to be on the front lines themselves. Second, that even if a company isn’t particularly supportive of the NAM position in this case, it’s reluctant to criticize because as business lobbyists* in Washington, NAM certainly could come in handy on any number of issues in the future. Hence, companies want to be members in good standing.

The third possibility is that a lot of member companies simply may not have been paying much attention to NAM’s attacks on shareholder rights. Groups like NAM operate with considerable autonomy from their membership, except during times when a major issue galvanizes the membership to demand action. At other times, a trade group may conjure up issues on its own that it believes its membership supports as part of an ongoing agenda that conveys to members that the group is actually doing the work that justifies its membership fees.

Great work by Walden Asset Management and CalSTRS in raising this issue with NAM members and pressing them to take action.

*I get the distinction between an actual lobbyist specifically hired by a corporation to pursue its unique interests in Washington and “trade associations”, which are pressure groups that advocate more generally, but all are part of the swamp.