We added G. Fleck Board Service, a recruiting service, to our Links+ page under our Boards and Officers heading. Their free subscription services will help keep you posted on director, CEO, CFO, and General Counsel movements. Continue Reading →
Author Archive | James McRitchie
Global Proxy Watch (GPW) is terrific publication by Stephen Davis and Aaron Bernstein aimed at the corporate governance industrial complex. I read every word of every issue. It only runs a couple of pages, but it is jammed packed with news that cannot be found elsewhere. Here’s one article that took up about 1/4 of the December 21, 2018 edition (not what is shown in image above). Continue Reading →
Thanks to Scott Hirst‘s articles and papers on the subject, I can borrow his catchy label for one of biggest current problems in corporate governance. Frozen charters are supermajority provisions that are impossible to repeal. He appears to attribute that to the 2012 change by the New York Stock Exchange (NYSE), which changed its policies to prohibit brokers from voting uninstructed shares on corporate governance proposals. I would lay a larger share of the blame on founders who wrote the frozen charters to forever retain a large degree of control. Regardless of who is to blame, frozen charters are a problem that needs fixed. Managers, boards, shareholders, Republicans and Democrats should all be able agree on a solution. Continue Reading →
Last week the Washington Post reported on Major League Baseball’s embarrassment and backtracking over its political contributions to Congressman Jason Lewis (R). According to the Post, Lewis had lamented the fact white Americans are not reproducing at the same rate as Latinos. He suggested abolishing slavery was an overreach by the federal government. He said female voters who care about abortion and same-sex marriage are “nonthinking.” The Congressman has a long history of racist and misogynistic remarks. Continue Reading →
A statement in support of the Paris Agreement and the Task Force on Climate-related Financial Disclosure (TCFD) was signed by 288 investors with more than USD $26 trillion in assets. Continue Reading →
I just registered and booked for Directors Forum 2019. San Diego is a great place to be in January. The 14th annual Forum promises to be the best yet. Will you join us this year? Check out the agenda. Photos from the 2018 event. Here are a couple of my posts from last year’s Forum. Continue Reading →
The Cisco Systems 2018 annual meeting is December 12th. To enhance long-term shareholder value, vote AGAINST directors Arway, Desroches, Grauer and Thiry, as well as pay and the auditor. Vote FOR shareholder proposals to split chair and CEO and to Deduct Impact of Stock Buybacks from Executive Pay. CorpGov.net is an independent source for information about shareholder rights by real Main Street Investors, not sock puppets. Continue Reading →
The Guidewire Software 2018 annual meeting is December 6th. Vote AGAINST ratifying the auditor and pay. Vote FOR our proposal to declassify the board to enhance long-term shareholder value. Continue Reading →
Support for corporate political disclosure sponsored by the Center for Political Accountability’s resolution jumped among the largest mutual funds in 2018. An analysis by Fund Votes found support moved to 53%, up from 45% in 2017. This 8% increase was the largest since CPA began tracking institutional investor votes on its resolution in 2008. Continue Reading →
Final comment letter to the SEC on Shareholder Proposals, re File Number 4-725, including 11 recommendations highlighted on bold. Thanks to several readers for their excellent suggestions for improvement. See prior post: SEC Proxy Process Video 11-15-2018
The following is a letter I sent to the SEC-IAC regarding their upcoming 12/13 Discussion Regarding Disclosures on ESG Topics. These recommendations overlap with my comments at the SEC Proxy Process Roundtable and re File Number 4-725. Some of the recommendations are slightly tangential to the Upcoming 12/13 Discussion Regarding Disclosures on ESG Topics. However, my hope is to at least plant seeds, since the Commission has to respond in writing to recommendations made by the SEC, whereas comments to the Commission can be ignored.
Continue Reading →
SEC Proxy Process Video: November 15, 2018
In the interest of documenting important events in corporate governance, I am here bookmarking the SEC Proxy Process Video from November 15, 2018, for future reference. Read transcript by downloading the following pdf: SEC TranscriptShareholderProposalsRoundtable. (full day)
Real Main Street Investors are NOT the members of a Coalition formed by the National Association of Manufacturers to buttress arguments made by the Business Roundtable and United States Chamber of Commerce. (see Main Street Investors: Battle Coming) In fact, real Main Street investors are an endangered species that may actually go away if the Coalition gets its way.
The Coalition appears to be getting traction with SEC Chairman Clayton who mentioned “Main Street Investors” 28 times in testimony to the House Committee on Financial Services. Or, perhaps he is referencing the real main street investors, not the Coalition?
The Coalition has budgeted millions of dollars on an information campaign based on paid for biased research. For example, one of their surveys found that 78% of ETF investors chose passive funds for stable, consistent returns, while only 11% select ETFs for how they influence worthy political or social causes.
However, most of the 78% investing primarily for money also may want both: earn money and have a positive influence. The survey was designed to exclude measuring the popularity of such motivations.
Real Main Street Investors Endangered
Who are the real Main Street Investors? According to Wikipedia, “Main Street” represents the interests of everyday people and small business owners, in contrast with “Wall Street.” Further, investors are those who “allocate capital with the expectation of a future financial return.”
By that definition, real Main Street investors are an endangered species. Half of American’s have no investments in equities, not even mutual funds. The top 1% holds more wealth than the bottom 95%… before the recent roll back of inheritances taxes. “Everyday people” in America do not invest in corporations. For most everyday people, their homes are their primary investments.
Studies find a direct correlation between income inequality and political polarization over the last 60 years. Unfortunately, it manifests itself daily in the erosion of norms around civility, truth telling, declining trust in our institutions and political dysfunction.
It is clear we need more real Main Street investors if we are to avoid plunging deeper into turmoil. One thing the Main Street Investors Coalition gets right is that real people have almost no ability to influence the decisions corporations make on their behalf.
We do need to change that. However, we cannot accomplish that by suppressing shareholder proposals and proxy advisors. Instead, we need to emphasize how real Main Street Investors can invest with our values, instead of despite our values.
Real Main Street Investors Need to be Involved in Corporate Governance
Contrary to Coalition pronouncements, there is no such thing as value-free economics or investing. When we abrogate our moral responsibilities, we tilt the rules away from citizens to entrenched insiders.
Common values must be created through open dialogue and elections, not by unaccountable individuals hidden behind dual-class corporate structures controlling our economy.
Although buying a mutual fund is investing, most mutual fund holders do not really identify with the companies mutual funds own. When I invest, I ask myself what the world needs and try to find public companies that fulfill that need.
Investing is just the start of a long-term relationship. Real Main Street investors should hope to hold forever and to suggest ways our companies can improve, either through shareholder proposals or in other communications with the company.
I recently read a wonderful little book, A Nation of Small Shareholders, about an NYSE campaign to get more Americans to feel like part of the capitalist system after WWII. It was a way to convince Americans that capitalism would offer them more benefits than communism. Since they felt like shareholders, they would also be more likely to favor lowering capital gains taxes. It was a nudge campaign before behavioral economics took hold. The NYSE knew what it wanted before they started and it was not fostering dialogue with real Main Street investors.
Today, America needs a campaign to make all Americans shareholders. It should emphasize the shareholder’s voice in shaping corporate impacts, as well at potential profits. The SEC should educate real Main Street investors about resources available to them in meeting their voting responsibilities as shareholders.
The New York City Comptroller recently joined a dozen other funds in announcing their votes in advance of annual meetings. Reviewing those disclosures is very helpful in making voting decisions. Proxy Insight compiles it all for a reasonable subscriber fee. We hope to get ProxyDemocracy back up and running as a free service. Meanwhile, you can always research them one-by-one through the Shareholder Action Handbook on CorpGov.net.
If the overwhelming majority of investors simply want to earn the highest return possible, regardless of impact, we are doomed as a society unless the Universe was meant to bend toward greed. I am convinced most real Main Street investors want to live in a civilized society on a salubrious planet.
Some corporations and lobbying organizations claim small shareholders (Chevedden, McRitchie/Young, and the Steiners) submit 40% of proposals, most fail and we are forcing companies to waste money. Actually, small shareholders are critical to democracy.
This is an old complaint. A 1947 hearing on proxy rules before a House Committee charged shareholder proposal rules would provide a “field day for crackpots.” [165 Com. & Fin. Chron. 273 (May 22, 1947)] A study of 286 shareholder proposals submitted between 1944 and 1951 found that 137, or 48% were submitted by the Gilbert brothers, the so-called crackpots of their day. In 1952, they owned from 5 to 324 shares in 118 companies. Continue Reading →
US SIF study documents environmental, social, and governance — ESG assets — under management surging. ESG assets now account for one in every four investment dollars. Demand for ESG asset focus is coming from real people.
In contrast, the Main Street Investors Coalition [funded by the National Association of Manufacturing (NAM)], insists on “maximizing performance ahead of pursuing social and political objectives.” If NAM gets its way, ESG assets will be cut to a trickle.
In a letter to the SEC ahead of an upcoming Staff Roundtable on the Proxy Process NAM writes,
Investment advisers should have policies and procedures in place that require the identification of a clear link to shareholder value creation before voting in favor of any proxy proposal, including those focused on ESG topics.
However, as you will read below, the public wants to move in a different direction. The public wants to invest in ESG assets – those geared toward not only making money but creating a better world.
The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends, found that sustainable, responsible and impact investing, SRI assets, now account for $12.0 trillion—or one in four dollars—of the $46.6 trillion in total assets under professional management in the United States. This represents a 38 percent increase over 2016.
The Trends Report—first compiled in 1995—is the most comprehensive study of sustainable and impact investing in the United States. From the first report when assets totaled just $639 billion to today, the sustainable and responsible investing industry has grown 18-fold and has matured and expanded across numerous asset classes.
The 2018 report identified $11.6 trillion in ESG incorporation assets under management at the outset of 2018 held by 496 institutional investors, 365 money managers and 1,145 community investing financial institutions. The largest percentage of money managers cited client demand as their top motivation for pursuing ESG incorporation, while the largest number of institutional investors cited fulfilling mission and pursuing social benefit as their top motivations.
In addition, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets filed or co-filed shareholder resolutions on ESG issues between 2016 and the first half of 2018.
Eliminating double counting for assets involved in both ESG incorporation and filing shareholder resolutions produces the net total of $12.0 trillion in SRI strategies at the start of 2018.
Money managers and institutions are utilizing ESG criteria and shareholder engagement to address a plethora of issues including climate change, diversity, human rights, weapons and political spending,
said Lisa Woll, US SIF Foundation CEO. Additionally, retail and high net worth individuals are increasingly utilizing this investment approach with $3 trillion in sustainable assets.
Ellen Dorsey, Executive Director of the Wallace Global Fund, a leading foundation endowment that has embraced sustainable investing and supported the Trends Report since 2010, noted,
We support this research as a critical tool to track crucial trends in the industry and benchmark our own goal of 100% mission alignment, as we promote an informed and engaged citizenry, help fight injustice and protect the diversity of nature.
According to Amy O’Brien, Global Head of Responsible Investing at Nuveen, the investment management division of TIAA:
What the US SIF Trends Report shows incontrovertibly, is that investors are truly beginning to understand the value of ESG considerations as an effective means of managing risk and improving investment performance. With an intensified focus on important issues such as climate change and corporate board gender diversity, we hope to see creative solutions that will help address these challenges, and in turn, drive shareholder value in the years ahead.
Top ESG Asset Criteria
The relative prominence of specific ESG criteria differed between money managers (firms that manage assets on behalf of others) and institutional asset owners (entities like pension funds, foundations and educational endowments that own and invest assets, often via money managers).
The report breaks out the top ESG issues by types of investment vehicles, including registered investment companies, such as mutual funds and exchange traded funds (ETFs), private equity and venture capital funds, community investing institutions and others.
The report also provides detail on the top ESG criteria by each of nine types of institutions: public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and healthcare plans, faith-based institutions, other nonprofits and family offices.
Asset managers: Climate change was the most important specific ESG issue considered by money managers in asset-weighted terms; the assets to which this criterion applies more than doubled from 2016 to 2018 to $3.0 trillion. Other top ESG categories included tobacco, conflict risk, human rights, and transparency/anti-corruption. Concern among money managers and their clients about civilian firearms was also on the rise.
Asset owners: For institutional asset owners, conflict risk was the top specific ESG criteria, up 8 percent from 2016 to $3.0 trillion followed by tobacco, carbon/climate change, board issues, and executive pay.
Investor Advocacy for ESG Issues
From 2016 through the first half of 2018, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets at the start of 2018 filed or co-filed shareholder resolutions on ESG issues. “Proxy access” was the leading issue raised in shareholder proposals, followed by disclosure and management of corporate political spending and lobbying.
The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2012-2015, only three shareholder proposals on environmental and social issues that were opposed by management received majority support, while 18 such proposals received majority support in 2016 through 2018.
In addition, the number of survey respondents that reported engaging in dialogue with companies on ESG issues increased notably since 2016.
Both the number and assets under management of registered investment companies incorporating ESG continued to grow at a strong pace. Assets in mutual funds reached $2.6 trillion, up 34 percent over 2016, and the number of ETFs more than doubled from 25 to 69.
ESG assets under management in 780 alternative investment vehicles, including private equity and venture capital funds, hedge funds, and real estate investment trusts (REITs) or other property funds, totaled $588 billion at the start of 2018. This is nearly triple the assets identified in 2016, and an 89 percent increase in the number of funds.
With assets of $185.4 billion, the community investing sector, which includes community development banks, credit unions, loan and venture funds, has experienced rapid growth over the last decade, nearly doubling in assets between 2014 and 2016, and growing more than 50 percent from 2016 to 2018.
The National Association of Manufacturing claims to have formed the Main Street Investors Coalition to ensure the individual investor’s interests are considered. Yet, money is pouring into ESG assets because more and more individuals are investing their values.
That letter from NAM to the SEC also asks that proxy proposal resubmission levels be raised from 3% of the vote in year one, 6% after two years and 10% after three to new thresholds of 6%, 15% and 30% respectively. Additionally, “NAM supports increasing the existing $2,000 threshold to a level that more appropriately reflects true ‘skin in the game’ for a shareholder sponsoring a proposal.” At least one bill in Congress aims at setting that level at 1% of the total value of the company
In summary, at a time when the public is clamoring for ESG assets and shareholder proposals to address ESG issues, NAM is calling on the SEC to:
- double or triple resubmission thresholds on proxy proposals,
- eliminate most proposals through high thresholds required for initial submissions,
- prohibit investor advisors from voting for shareholder proposal unless they have identified the proposal is clearly linked to “shareholder value creation.”
Can NAM stem the flood of ESG assets? The SEC was created to protect investors. NAM seems to be asking the SEC to protect corporate managers from investors.
For years, the “Chevedden group” (Chevedden, McRitchie/Young and Steiner) has focused almost exclusively on governance proposals. More democratic corporations are likely to listen to their shareholders on other issues as well. Democracies facilitate voice and the exchange of ideas. Fighting for environmental and social issues, while extremely important, felt like addressing symptoms, rather than root causes.
Chevedden group proposals seek to declassify boards, require majority votes to elect directors, allow proxy access, and allow shareholders to call special meetings. Since many large cap companies have now adopted such provisions, we are broadening our scope to also focus on other issues. Below are some preliminary results for 2018. Continue Reading →
Glass Lewis 2019 proxy advice updates address many issues. See 2019 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice.
I have reproduced much of the summary of changes below, leaving off the section discussing clarifying amendments. One that stands out for our small group of so-called ‘gadflies’ addresses our concern that several boards hijacked shareholder proposals this past season by seeking ratification of existing policies and the exclusion of a shareholder proposal though a no-action request. In an email, John Chevedden noted the following: Continue Reading →
Listing standards change sought by the Council of Institutional Investors (CII). CII filed petitions with the New York Stock Exchange (NYSE) and the NASDAQ, asking both to limit listings of companies with dual-class share structures. They have taken the right approach to address a growing problem. I hope it ends a worldwide race to the bottom for listing standards. Alternatively, adoption of the suggested listing standards could reestablish that US based companies are more democratic and accountable than counterparts based elsewhere. Continue Reading →
CSR investments may someday drive investments at CalPERS. That possibility is many years off but may a get start at the California State Retirees (CSR) Delegate Assembly, held October 22-23 in Sacramento. CSR is smaller than many of the unions representing currently employed public employees in California but our members vote. Continue Reading →
The November 15 SEC Roundtable on the Proxy Process will include me on the SEC Shareholder Proposal Panel. Public announcement with instructions for submitting comments. I will only have a few minutes at the Roundtable. What should I emphasize? Where should I stay in DC?
Take Action: Readers of CorpGov.net know far more than I do. Please email your suggestions and supporting evidence. Without your help, I will ramble off topic to connected tangents, difficult to explain in a few seconds. This post is sure to be an example. Continue Reading →
Salesforce CRM Adopts Special Meetings provision for shareholders with 15 Percent Shares.
I am just circling back and can now ensure myself and readers that our 50.5% win on our 2017 proposal was implemented. See exhibit 3.1 and 3.2 of 8-K filing. We also expect to see action on our 2018 proposal to end supermajority provisions, which won over 80% of the vote in 2018. Continue Reading →
SB 826 requires specified California-based public corporations to include women directors on their board. Sidley Austin LLP put out a bulletin on the topic. To ensure it receives widespread circulation, I am reproducing its main text below, with one minor change to break up an absurdly long sentence. Continue Reading →
David Webber was interviewed by Doug Chia recently. I previously reviewed Webber’s book elsewhere, Working-Class Shareholder: Review Essay, which included links to several interviews. However, Doug Chia’s interview of David Weber is exceptionally good, worth viewing. Douglas (Doug) Chia is executive director of the Governance Center for The Conference Board. Continue Reading →
Protect the Voice of Shareholders is the name of a new website created by Institutional Shareholders Services (ISS) and the Council of Institutional Investors (CII). The educational website supports the current system, where institutional investors pay for and receive independent research and voting recommendations from proxy advisory firms for the public corporations in which they are owners. Continue Reading →
2018 CPA-Zicklin Index shows gradual improvement. Public corporations embracing disclosure and accountability of their political spending hold fast despite countervailing pressures from Washington. Continue Reading →
The battle over Main Street Investors could determine the future of the American economy for decades to come. According to Cydney Posner of Cooley PubCo, on one side are those who believe investors must focus on maximizing financial return and management knows best. On the other side are those who want to broaden the focus of investors to include environmental, social and governance (ESG) issues, with everyone participating in the debate. Continue Reading →
The Securities and Exchange Commission announced today that Elon Musk, CEO and Chairman of Silicon Valley-based Tesla, Inc., has agreed to settle the securities fraud charge brought by the SEC against him last week. Musk has done with his tweets what shareholders have been unable to do. This year a proposal to require an independent board chairman won only 16% of the votes. See Tesla 2018 Proxy Decisions Crucial. Maybe we will now get traction on other issues as well. Continue Reading →
The reputations of Marcie Frost and CalPERS are under a cloud, given the circumstances of her hiring, alleged evidence and news reports. See Continue Reading →
The seventh annual IRRCi deadline for submissions draws near. The Investor Responsibility Research Center Institute (IRRCi) is accepting submissions for its seventh annual competition for research that examines the interaction between the real economy and investment theory. Continue Reading →
Judicial Independence: Conflicts of Interest was the primary focus of last week’s first Rock Center / SVDX program of the academic year. It was titled Condos on Lanai, Private Planes, and Electric Cars: Judicial Views of Purported Conflicts Among Silicon Valley Director. Continue Reading →