More Corp-splaining and Denial on ESG/SDG

Sean Di Somma, who has been commenting on my critiques of the fake, industry-funded front group Main Street Investor Coalition (hint: they are not from Main Street and they don’t have any investors representatives on their board), now is endorsing their agenda by complaining about ESG regulation and proxy advisors.

So-called “environmental, social, and governance” (ESG) has become to be so widely accepted (and generally unquestioned) that Blackrock CEO Larry Fink recently declared shareholder activism to be an integral part of the company’s fiduciary duty towards its clients. But are these shareholder resolutions really the “all gain, no cost” strategy that activist investors sell them as? For money managers, yes; for mom and pop investors, recent research suggests otherwise.

Another hint: those who use the term “virtue signaling” are really trying to find some way to make integrity and benefiting the community somehow look phony or bad. I’ve never seen anyone use that term who wasn’t completely out of legitimate arguments on the merits. But that is what Di Somma, whose former firm provides services to corporate executives, is left with here.

He makes two points, and we’re sure it’s not a coincidence that they are the same two discredited points made by Main Street Investors Coalition. First, that voting in favor of non-binding shareholder resolutions on ESG issues is somehow “political” and not based on a legitimate, quantitative analysis of the issue, and second, that proxy advisors are conflicted and should be regulated.

We addressed those issues in detail here. We reiterate that

Approximately half of top asset managers opposed more than 50 percent of key climate-related proposals in 2017, and several top managers voted against more than 85 percent of key climate proposals. Eight of the top ten asset managers failed to support key climate votes more than 50 percent of the time. At the very least, this shows that the institutions MSIC is so shrill about are reviewing the proposals carefully and making distinctions between those they do and do not want to support. And that means that the votes are not in any way “political.”

We also point out that proxy advisory firms sell reports no one is obligated to buy and recommendations no one is obligated to follow. These firms expanded greatly in the hostile takeover era and the Enron era and the financial meltdown era and the excessive CEO pay era because they provide a vital service sophisticated financial institutions find worth the fees: independent analysis of the items on a proxy, both those put there by management and those put there by other shareholders. The proposals Di Somma and Main Street Investors are clutching their pearls over appear at a tiny fraction of companies and get substantial votes at only a fraction of those.

What we have here is corporate executives who know that their sophisticated large investors are on to them and cannot be misled about the realities of sustainable strategy and pay that is not linked to performance. And so instead of presenting their points of view in an honest and forthright manner, they hide behind a phony K Street creation led by a guy who couldn’t get a security clearance to work in the White House and is a former energy company lobbyist and anti-climate change advocate. None of which, of course, qualifies him as an advocate for shareholders, whether on Main Street or anywhere else.

We note that these claims are made by people who represent and are or have been paid by corporate executives. Main Street Investors Coalition is not a membership organization and there are no investor advocates associated with it. This is corp-splaining, your basic “investors are too dumb to understand what they want” argument, condescending to both large institutional investors and the retail investors who select them. That is because no matter what they try to call themselves, this is advocacy from, by, and on behalf of corporate executives, who, like the amusement park manager in Scooby-Doo, would get away with it if not for those pesky kids, the actual investors who are far better able to understand these issues than Di Somma and his friends at Main Street/K Street would like them to be.

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