Lucian Bebchuk has given more thought to the issues surrounding the Big Three Index Funds than other researchers. He and Scott Hirst recently provide a “comprehensive theoretical, empirical, and policy analysis of index fund stewardship.” Reference also Strine: Big 4 Responsible to “Forced Capitalists,” as well as The Untenable Case for Keeping Investors in the Dark by Bebchuk, et al. as we examine further strategies to make large investors work more effectively for those who use their services. Continue Reading →
Tag Archives | National Association of Manufacturers
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.
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 →
NAM Board Targeted
Investors led by Walden Asset Management, New York Common and the California State Teachers’ Retirement System (CalSTRS) called on 45 companies sitting on the Executive Committee and Board of the National Association of Manufacturers (NAM) to end the trade association’s attacks on shareholders.
The investors’ letter asks the companies to distance themselves from NAM’s recent attempts to discredit shareholder engagement, particularly on climate change. These efforts have been undertaken primarily through NAM’s membership in the Main Street Investors Coalition (MSIC) and through a report NAM funded and distributed that wrongly asserts that shareholder resolutions diminish company value. MSIC represents no investors. In my opinion, it is a front group for corporate managers attempting to generate fake news, stirring public opinion against investor rights.
Quotables on NAM
“The irony is that many companies on the NAM board are active business leaders on climate change,” said Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management.
They understand the very real risk to our environment and have active forward-looking policies and programs on climate. Yet their dues to NAM are funding an aggressive attack against the very investors they meet with regularly to address climate change. We are appealing to these companies to clearly state their opposition to these positions taken by NAM and Main Street Investors Coalition. It is important to do so to protect their company reputations and integrity.
“Environmental risk consideration is part of the evolution of investing. Whether a retail or institutional investor, assessing the risks of investments is a standard practice,” said CalSTRS Portfolio Manager in Corporate Governance Aeisha Mastagni.
NAM appears out of touch with its own constituents. Over the last decade more than 75 percent of the environmental-related proposals CalSTRS filed were withdrawn because the companies were willing to negotiate a mutually agreeable outcome.
The Letter’s Key Paragraph
The MSIC perpetuates the myth that incorporating environmental, social and governance (“ESG”) factors inherently conflicts with protecting and advancing shareholder value. However, the 1,200 members of the United Nations-backed Principles for Responsible Investment – including Fidelity, BlackRock, Vanguard and State Street – with over $70 trillion in assets under management, have committed to consider ESG issues in the investment decision-making process since these factors may affect shareholder value. There is ample evidence that incorporating ESG issues into investment decisions is part of responsible management as a fiduciary. Moreover, hundreds of global companies demonstrate leadership and transparency on sustainability issues. These companies’ action are not guided by “political and social interests” but by what is good for their investors and stakeholders over the long term.
NAM is a trade organization that represents and advocates for manufacturers across industrial sectors. Many NAM members are taking active steps on climate issues as a result of shareholder engagement. Nevertheless, NAM has established significant ties to MSIC, which purports to speak for investors, but which instead appears to be engaged in an attempt to undermine shareholders’ rights by denouncing ESG-related shareholder proposals and by suggesting shareholders’ concerns are politically motivated.
Why NAM is Attacking Shareholders Now
The investor letter noted that, “The emergence of MSIC and the release of this report come at a time when investor support for shareholder proposals is growing” because the “business case behind them is clear and convincing.” The signatories requested that the companies explain their views on MSIC’s public attempts to discredit investor engagement and shareholder proposals.
Over 80 institutional investors, including state and city pension funds, investor trade associations, investment firms and mutual funds, foundations and religious investors added their organization’s names in support of the letter.
Investors are actively engaging companies in their portfolios as concerns over climate risk grow. Most recently, investors representing approximately $30 trillion urged some 150 companies to reduce their greenhouse gas emissions, disclose their assessment of climate risks, and explain what actions they plan in response to climate risk.
Investors like BlackRock, Vanguard and State Street have made it clear that they want the companies in which they own shares to address climate risk.
“It is extremely bad timing for NAM and by implication the members of its board to be attacking investors addressing climate change at a moment when we desperately need to work together,” said Smith.
Since I am older than most of my readers, I offer the following historical perspective. The investor letter sent to the Executive Committee and Board NAM is correct in assuming that shareholder rights are under attack because their proposals are winning. The current fight on climate change and social issues reminds me of an older one on proxy access. In 1977 the SEC held a number of hearings to address corporate scandals. At that time, the Business Roundtable (BRT) recommended amendments to Rule 14a-8 that would allow access proposals, noting such amendments
… would do no more than allow the establishment of machinery to enable shareholders to exercise rights acknowledged to exist under state law.
The right to pursue proxy access at any given company was uncontroversial. In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies.
One company argued that placing a minimum threshold on access would discriminate “in favor of large stockholders and to the detriment of small stockholders,” violating equal treatment principles. CalPERS participated in the movement, submitting a proposal in 1988 but withdrawing it when Texaco agreed to include their nominee.
Early attempts to win proxy access through shareowner resolutions met with the same fate as most resolutions in those days – they failed. But the tides of change turned. A 1987 proposal by Lewis Gilbert to allow shareowners to ratify the choice of auditors won a majority vote at Chock Full of O’Nuts Corporation and in 1988 Richard Foley’s proposal to redeem a poison pill won a majority vote at the Santa Fe Southern Pacific Corporation.
In 1990, without public discussion or a rule change, the SEC began issuing a series of no-action letters on proxy access proposals. The SEC’s about-face was prompted by fear that “private ordering,” through shareowner proposals was about to begin in earnest. It took more than 20 years of struggle to win back the right to file proxy access proposals.
Let’s hope the current attack on shareholder rights by NAM and the fake Main Street Investors Coalition does not set investor rights back by another 20 years.
The deceptive title of a recent op-ed in the Wall Street Journal would not keep politics out of the boardroom. Instead, the recommendations would deny shareholders the right to request boards disclose those politics, in addition to denying many other long-standing rights. Read the op-ed and weep that such trash gets published in the Journal.
This is my response to the 7/18/2018 op-ed “Keep Politics Out of the Boardroom” by Phil Gramm and Mike Solon. I waited before publishing this, in case WSJ chose to publish my rebuttal. They did not. Continue Reading →