More Slippery Fallacies from the Hypocritical WSJ Editorial Board: Proxy Voting Edition

The Wall Street Journal’s editorial board is often described as “ultra-right.” If only that were true. Instead, they are “ultra-CEO entrenching.” While they claim to support robust free markets, when it comes time for actual market tests, they always cry out for protection from big, scary providers of capital, even the massive financial institutions they otherwise obsequiously praise.

Their recent editorial is titled The Securities and Politics Commission. They clutch their pearls over what they call a newly “woke” SEC. What is particularly outrageous about this is that apparently without a blush they have gone in a matter of months from begging the SEC to protect them from shareholder oversight with draconian, market-thwarting Trump-era rules cutting back on shareholder oversight and access to the sole source of independent research on corporate governance to a gigantic pendulum swing saying that we should let shareholders decide what kind of information about climate risk is material.

How do they get there? They lie about it. They write:

If shareholders believe a company’s policies on climate, racial politics or other ESG (environmental, social and governance) issues are important, they can pass a proxy resolution mandating more disclosure. Yet most such resolutions fail, garnering 27% shareholder support on average in 2019.

With regard to the first sentence, there is no such thing as a proxy resolution mandating more disclosure and the WSJ knows that. Proxy resolutions are advisory only. Even a 100 percent vote is not mandatory. With regard to the second sentence, their statistic is materially misleading for two reasons. First, thanks to the new Trump rules pushed through with massive disinformation campaigns and lobbying efforts from the fossil fuel companies, it is vastly more difficult now for investors to file or get independent analysis on climate resolutions than it was a year ago. Second, the actual statistics are that six times as many climate resolutions resulted in majority votes in 2020 than in 2019. Greenbiz noted:

Investors filed at least 140 climate-related shareholder proposals at U.S. companies during the 2020 proxy season, which wrapped up this summer. And compared to previous years, the success of those proposals, ranging from calls for major oil and electric power companies to disclose lobbying activities to requests for improved governance on climate change, shows that investors view the climate crisis with growing urgency — and that companies increasingly agree that they need to act.

In one notable success, 53 percent of shareholders at Chevron Corp. voted this summer for a resolution that would push the oil firm to ensure its lobbying activities around climate issues align with the Paris Agreement. This marks the first time a climate proposal won a majority of the company’s shareholder votes. And following years of dialogue with investors and shareholder proposals, Southern Company — one of the largest electricity producers in the United States — pledged at its annual meeting in May to set a goal to achieve net-zero greenhouse (GHG) emissions by 2050.

Ceres, a sustainability nonprofit organization, carefully tracked those 140 climate-related shareholder proposals as they were considered at annual general meetings of shareholders. Six proposals won majority votes in favor compared to only one that garnered a majority of shareholder approval in 2019. Moreover, the 140 proposals averaged an approval vote of 30.7 percent, up significantly from the average approval vote of 26.3 percent in 2019.

As with the bogus claims about ESG investing in the SEC and DOL rule makings last year, The WSJ fails to come up with a single example of a “non-pecuniary” investment decision made by institutional investors, because there aren’t any. If either regulatory body finds such a decision, they have not only the authority but the obligation to bring an enforcement action. None has been undertaken.

What has made the US capital markets the envy of the world for nearly a century is the transparency that has been the foundation of the regulatory system. It recognizes that we cannot rely on corporate insiders to tell investors what they need to make informed decisions about investment risk. Corporate leaders fight transparency, because they always forget that they are the primary beneficiaries of robust and honest disclosure for internal decision-making and for the market responses that are the source of capitalism’s vitality. But investors know how important climate risk is, from regulatory risk (note that the Journal’s primary objection is to exactly the two areas most affected by the Biden administration’s two major government-wide initiatives) to supply chain risk to the risks from changes in weather patterns to consumer backlash. That is why investors will keep asking for it, and, when even majority support for resolutions does not provide what they need, why the SEC will have to step in.

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