Former communications consultant for the oil and gas industry David Blackmon tries to defend the corporate funded, lobbyist led, climate change denying Main Street Investors Coalition with a column in Forbes that describes VEA Vice Chair Nell Minow as “Neil Minow” and misgenders her as “he.”*
The rest of the piece is equally sloppy, filled with misdirection about both MSIC and the arguments against it. It is always disappointing when those who purport to be the ultimate defenders of the free market (Forbes is “the capitalist’s tool”) forget themselves and try to kill the messenger, undermining the essential foundation of capitalism, accountability to the providers of capital.
Blackmon is simply wrong when he responds to Andrew Ross Sorkin‘s expose of MSIC as a fake front group promoted by slick K Street lobbyists by saying that Main Street Investors has never misrepresented itself. The name of the group is Main Street Investors Coalition and yet it has no connection to either Main Street or investors and the only coalition behind it is a group of corporate executives. Its materials use the term “we” to describe investors although not one group that actually advocates for investors has endorsed or affiliated with it. Contrary to Blackmon’s assertions, MSIC has not been clear about who it is and who it is funded by, which should give him pause about defending it. Yes, there may be commonality of interests — we all want corporations to create long-term value for investors — but sometimes there are agency costs and conflicts of interests and that is what shareholder rights are there to minimize. It is never, ever in the interest of shareholders to spend corporate money creating a group that advocates contrary to shareholder rights or to create a group that is so patently fake.
MSIC, as he notes, focuses not on the shareholders who file resolutions on topics like climate change but on proxy advisors and large institutional investors who retain their services. It is their affiliate group, the similarly misnamed anti-public pension fund American Council for Capital Formation, led by the same man who heads MSIC, that attacks the shareholders. It makes no sense as a matter of economics to attack proxy advisors, who produce reports no one is required to buy and advice no one is required to follow. Furthermore, when it comes to shareholder proposals on climate change, even a 100 percent vote in favor is not binding on the company. But let’s face it, this isn’t about proxy advisors. It isn’t about most shareholder proposals. It is really about two issues of increasing shareholder concern: climate change and CEO pay.
Blackmon should not assume that Sorkin’s omission of Joseph Kalt’s study in his column was endorsement of its methods or findings. As we have noted before, but need to remind Blackmon, self-reported, unverified numbers on the expenses of these proposals, whether defending against them or complying with them, are unreliable and likely to be inflated. And we also note that even with strong support for a few advisory resolutions, there is no evidence that financial institutions managing billions of dollars have all of a sudden turned into the Sierra Club. The 5050 Climate Project found 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. Climate-related proposals, which, we emphasize, are not binding on the company even with majority vote, were filed at just 62 companies this year out of the thousands of publicly traded corporations. And yet the prospect of these proposals is so terrifying to corporate CEOs they have to create a fake group to fight them. Maybe it’s just us, but that seems to indicate that their personal and financial interests may be contrary to long-term shareholder value and that they know they cannot win by responding on the merits.
We have also explained before that the study is fatally flawed (probably because it was funded by the National Association of Manufacturers), using an arbitrary measure of stock price on one day as definitive of shareholder value. We responded to this point earlier:
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.” It is not in investors’ interests to have the stock price inflated due to inadequate disclosure. If more information results in a more accurate stock price, that will help managers and directors make better decisions going forward.
Blackmon accuses us of arguing about this in our own self interest, so we will explain again that we are not proxy advisors and we do not assist institutional investors on proxy-related matters or on engagement relating to climate change. If he would like to make that argument he needs to (1) check his facts and (2) disclose his own potential bias as someone who works in the industry that seems unable to recognize the free market when it looks them in the face — or analyzes their proxy.
Blackmon concludes: “In the end, one’s point of view on this issue comes down to which boogeyman you trust the least: the corporate management teams who have the fiduciary responsibility to maximize value to the shareholders and the business groups that represent them, or the proxy advisory firms who crank out the cut ‘n past resolutions for broad distribution by ESG-focused institutional investors.”
We respond: Large institutional shareholders are also fiduciaries, and their economic interest is more directly tied to shareholder value than that of corporate executives, who often have misaligned incentives between pay and performance. There is no validity whatsoever to his charge about the analysis of proxy advisory firms or their clients on proxy resolutions by shareholders or management and no validity whatsoever for implying that large, sophisticated institutional investors vote in lock step according to the recommendations of proxy advisors, as shown above. Note that we use actual data to back up our points, while he uses folksy language like “bogeyman” and “cut ‘n paste.” We think that’s telling. Similarly, his defense of the study he cites is a claim that the author is “a leading economist” and the assertion that “This finding should come as no surprise to anyone familiar with the process.” What comes as no surprise to us, given our familiarity with the economic concept of incentives, is that an economist working for a company that is known for made-to-order “studies” produces one that conveniently finds what its sponsors would like it to say. We have raised substantive questions about the legitimacy of the findings, including the relevance of the benchmark and the validity of the self-reported, unaudited costs, as well as to the claims of institutional investors substituting “political” judgement for quantitative financial analysis or blindly following the recommendations of proxy advisors, which he does not make any effort to rebut or respond to.
If proxy advisors produced inferior products, no one would buy them. We note that a corporate-funded rival proxy advisory service (which actually had some very good products) failed. This is how markets work. ISS and Glass Lewis provide independent analysis and data that their customers find valuable and are not obligated to buy or follow — as opposed to the ratings agencies — if MSIC really cared about investors, how about going after them?
Corporate executives have all the space in the world to respond to shareholder resolutions, while shareholders have to abide by a strict word limit. It is only because they cannot persuade their investors on the merits that they resort to underhanded tactics like the fake MSIC with its slick, stock photo-studded tweets of ordinary people (there’s one in an apron, for goodness’ sake) instead of the CEOs who are actually behind it.
If corporations do not want feedback from shareholders, even as mild as an advisory resolution, they are welcome to go private. Either way, though, those whose capital is at risk will respond if they feel that the managers and directors are not adequate guardians of shareholder value. PWC reports that 78 percent of boards have not discussed the risks of climate change or the opportunities of creating products and services to mitigate it. Large, sophisticated fiduciary shareholders, on the other hand, are responding to the data and to their own commercial and economic interests by recognizing these risks and opportunities. Instead of creating fake groups to lobby Congress for more restrictive legislation on proxy advisors, corporate executives should listen to what the market is telling them.
NOTE: MSIC has not responded to our questions, published here and submitted to them via their website. We welcome a response from Blackmon on these questions as well.
We do agree with Blackmon that investors — both individuals and the institutions to whom they entrust their savings — want to maximize returns. When shareholders believe corporate executives are not doing so, fortunately capitalism provides a mechanism for correction. Blackmon and MSIC, which purports to represent the interests of investors, should recognize that interfering with the ability of shareholders to provide oversight is fatal to the integrity and credibility of the system of capitalism.
*UPDATE: It appears that Mr. Blackmon has removed the references to Ms. Minow and ValueEdge Advisors from his piece, though there is no note of correction, apology, or acknowledgement of the original errors. This does not help bolster his credibility.