Corporate Wokeness Explained

Leftist Activism Occupies Shareholder Interests

Do you remember, back at the beginning of the COVID-19 lockdowns, when every company which had somehow obtained your email address was sending detailed emails about how we are protecting your health in the pandemic? And then when, just a few months later, the same companies started sending emails with subject lines like “Why We Believe Black Lives Matter” or”How We Are Promoting Diversity?”

If it seemed odd to you that companies that want your money are suddenly becoming so keenly interested in social issues, then you should read Robert Stilson’s post over at The American Conservative entitled “Shareholder Activism: Woke Capitalism from the Inside.” Stilson explains the 2021 politics of shareholder activism. “Many Americans,” he writes, “are likely unaware of the coordinated campaigns by shareholder activists—equity owners in a corporation interested in something other than financial gain—to insert their political priorities into those same corporate boardrooms through environmental, social, and corporate governance (ESG) shareholder proposals.”

A little background here. If you own stock in a company, you’re a shareholder and thus entitled (with certain minimum requirements) to both participate in annual shareholder meetings and to file shareholder proposals for vote. Roughly 70% of publicly traded corporate shares in the U.S. are owned by institutions—think mutual funds, index funds, hedge funds, pensions, foundations, holding companies, etc.—while only 30% are individually owned. Institutional investors also have much higher voter participation. They cast 91% of their shareholder votes, while individuals cast only 29%.

What Stilson explains is that many such institutions rely on third-party guidance (“proxy advisory services”) to research, translate, advise, and even cast their shareholder votes. Two of these groups, Institutional Shareholder Services (ISS) and Glass Lewis, both left-leaning, make up 97% of the proxy advisory market. How does this play out?

Well, the 2021 “proxy season” (when shareholder meetings are held and “proxy” votes are cast) is underway, and the 2021 Proxy Preview neatly details hundreds of ESG proposals under typically liberal headings: climate change, animal welfare, diversity, etc. Of all the proposals made this year, Stilson says, only 5% are conservative. The remaining 95% are devoted to traditionally left-wing interpretations of social and environmental issues. These include, for example, several devoted to forcing companies to align their activities with the Paris Climate Agreement. Some proposals focus on forcing companies to “publicly disclose employee diversity data,” while others seek “racial equity audits.” The $450 million Nathan Cummings Foundation submitted a proposal questioning Target’s support of local law enforcement. According to the Foundation, “the mere fact that ‘Target continues its partnerships with law enforcement,’ including ‘charitable giving to police foundations across the country,’ provides ‘both legitimacy and funding for practices that can exacerbate racial inequity.’”

It is increasingly unclear if such recommendations have anything to do with actual shareholder interest—the one goal that publicly traded corporations are legally required to seek above all others. The proxy services themselves hold a tight grip over the market, and are notoriously secretive about their practices. According to a review conducted by the Rock Center for Corporate Governance, “Research shows that proxy advisory firms are influential over the voting decisions of institutional investors and the governance choices of corporations. However, there is little empirical evidence to suggest that their voting recommendations lead to improved future value for shareholders.” [emphasis added]

It gets worse. A closer look at the regulatory U.S. Securities and Exchange Commission (SEC) suggests the game is even more rigged. The one conservative-leaning proxy voting service, the Free Enterprise Project (of the National Center for Public Policy Research), argues in its 2021 Investor Value Voter Guide that the SEC is becoming increasingly left-wing, actively blocking conservative shareholder recommendations from ever seeing a vote.

The Proxy Preview itself gives evidence to these claims. In a small section on page 10 under the subheading “Conservatives,” the Preview states,

“The field of proposals from politically conservative groups, chief among them the National Center for Public Policy Research (NCPPR), has always focused heavily on social policy, . . . It also has proposed several charitable contributions proposals. It is not clear that any will go to votes given pending SEC challenges that have worked already this year.”

In the meantime, corporations themselves are bending over backwards to beat such shareholder activists to the punch at their own game. The more they’re able to preempt votes, the more control they retain. The mammoth PricewaterhouseCoopers has published several reports dedicated to handling and even avoiding shareholder activism.

Stilson closes by advising “conservatives should prioritize engaging directly with companies that have drifted inappropriately and unnecessarily into politics.”

The left has taken over the corporate-wokeness game; the right seems content for the time to pretend it isn’t happening. This, Stilson says, must change. The Rock Center recommends taking a much closer and harder look at proxy advisory firms, to see if their recommendations have historically benefitted shareholders. And given the seeming collusion between left-leaning institutions and the SEC, it seems a revamp at the SEC is also necessary.

Certainly Stilson’s recommendation of conservative involvement is the first place to start. Inaction so far has proved calamitous.