The Council of Institutional Investors meets in Washington DC every spring, and as fascinating and timely as the presentations and panels are, what goes on behind the scenes is increasingly even more significant. VEA Vice Chair Nell Minow made presentations at two of these behind-the-scenes events, discussing buybacks with members of the CII board and discussing Majority Action’s new carbon-neutral initiative with investors and interest groups.
Highlights of the conference:
SEC Commissioner Hester Peirce politely thanked the CII members for their comments and recommendations on various issues like the universal proxy (she is still unpersuaded) and then cited “Seinfeld” to shift to the “airing of grievances,” which sounded suspiciously like the talking points of the fake dark money front group funded by CEOs, the Main Street Investors Coalition. “I’ve got a lot of problems with you people,” said the woman who goes to work every day at an organization self-described as “the investors’s advocate.” She told a room full of investors that they focus too much on “non-investment matters” but was unwilling and unable to come up with specific examples. She only referred to an “amorphous and shifting set of virtue markers,” which those who actually invest in the stock market might consider an “evolving recognition of risk factors.” She called the IOSCO statement on ESG “objectionable.” But she presented no data of any kind to support her implication that shareholder concerns about ESG are based on anything other than risk and return.
Without any specifics, the Commissioner complained that it cost too much to have SEC staff review no-action requests (a problem that could be resolved quite easily by approving more proposals). When she said she wanted Rule 14-a-8 to be reviewed “pretty fundamentally,” it was clear she did not mean to make the rules for shareholder proposals more user-friendly on the side of the proponents.
She expressed concern that additional disclosure requirements might be “hijacked for unintended purposes,” and in particular mentioned pushes to get more information about the background and qualifications of directors, urging more support for the privacy of director candidates.
Commissioner Peirce apparently does not think that investors are in the best position to determine materiality of disclosure items or the merits of (non-binding) shareholder proposals, an inconsistent and pretty remarkable position for someone who comes from the office of Senator Shelby and the Koch-funded Mercatus Center. Or perhaps it reveals that the self-described “market-oriented” policies it and Commissioner Peirce promote are less free-market than pro-entrenched management.
Two different panels covered executive compensation, always a popular topic. And when we say “different,” we mean different. One was labeled as “Pay Pioneers,” with two companies describing their innovations in pay. The policies they adopted, including stock options for all employees and paying executives in cash so they can buy stock, with required holding periods, were good ones, relatively speaking, but not especially innovative. At least John Trentacoste, of Farient Advisors, the compensation consultant who moderated the panel, had the candor to admit that the question he gets asked most often is “How do you sleep at night?”
A shareholder-perspective panel on pay was very critical of both the amount and the structure of executive pay plans. CII is currently circulating its draft revised policy on CEO pay to the members for comment. “Pay for performance has not worked,” said Simiso Nzima of CalPERS, a pointed rebuttal to the “innovations” of the previous day’s panel.
Tobias Reed, the Oregon State Treasurer, led off a discussion of “the S in ESG” with a lively, insightful presentation, but reminded us that “for every action there can be a knee jerk and disproportionate reaction.” One of the conference highlights was his discussion with Uber’s Tony West and Keir Gumbs about the steps the company is taking to recover from its highly publicized “S” problems. Another “S” related panel focused on #MeToo, with one of the Google employees who organized the walkout. She compared it to a wildfire, which needs a spark and fuel. A key demand was getting rid of mandatory arbitration/NDA system.
Elizabeth Greenwood, Commissioner of LACERS described their program requiring contractors to have written policies on sexual harassment and disclose any settlements. They are also cautious on efforts to get around ESG initiatives, like one company that “sold” its trucks to the drivers to get a better green score. “We are not interested in obtaining returns for our employees based on wage theft from other people.”