Entities that love to rhapsodize about the purity of the free market are often found to be aghast when markets deliver a response they don’t like. Here we have the Wall Street Journal displaying its bias with the slanted language in the headline for this story: “Shareholder Activists Drag Companies Into U.S. Culture Wars.” Let us point out the following:
It is not the activists who are “dragging” anyone into anything. You only need $2000 shares to submit a shareholder resolution. But to have a meaningful impact, the proposal has to get the support of non-activists, fiduciary institutional investors. We can see that as the anti-ESG proposals the Journal is shaking its head over as though it is just too tough are quite clear to investors, failing to gain even the minimal level of support to allow them to be submitted again next year.
What we have here is exactly the way markets are intended to work. Adam Smith would be proud to see that the people for whom capitalism is named — the providers of capital, are providing exactly the feedback that is the foundation necessary for addressing agency costs.
We expect companies to respond to consumer demand for the same reason, and increasingly they are, with products, packaging, supply chain, and operational shifts to reduce the impact on the environment. Car companies are shifting to e-vehicles. Airlines are moving toward more sustainable fuels. Home builders and consumer goods manufacturers are emphasizing the climate-friendliness of their products. And if they are not, they can expect to hear from investors.
We’ll keep saying this until someone from the anti-ESG side comes back with a substantiated rebuttal instead of the usual shrieking about “woke”-ism. IT IS NOT POLITICAL. IT IS INVESTING. The big difference is that ESG factors of risk and return relate to long-term investing, not the next quarter. And again, that is exactly the kind of market response that is the basis of capitalism. If corporate executives don’t like it, they can take the company private at a good price and see if their new owners are any more congenial when it comes to enabling short-term strategies and pay disconnected to performance. Spoiler alert: they are not.
More advocacy groups are using these resolutions to try to inject their voices into the corporate agenda, questioning companies’ adoption of policies that some view as being overly political. One group, for example, put forward a resolution requesting that Eli Lilly report on the risks of supporting abortion. Last year, the drugmaker expressed its opposition to Indiana’s near-comprehensive abortion ban.
Such proposals questioning companies’ stances on social and environmental issues have come in record numbers, surging to 74 for annual meetings held before May 31, up from 43 last year, according to data from ISS Corporate Solutions, a unit of proxy-advisory firm ISS.“The incredible dissension in the political arena is spilling over into the capital markets,” said Heidi Welsh, executive director of the Sustainable Investments Institute, a U.S.-based nonprofit that says it provides nonpartisan analysis of sustainability issues.
“Companies are getting dragged into partisan fights that they don’t want to be in, but they can’t avoid it anymore.” Companies are facing proposals from both sides of the political spectrum, dragging them into the increasingly fractious conversations over environmental, social and governance issues. In total, 682 shareholder proposals were filed for annual meetings being held through May 31, according to ISS CorporatShareholder Activists Drag Companies Into U.S. Culture Wars – WSJ