Pearl River Among the many, many myths of capitalism, especially at this late stage, is that shareholders have any real say in the direction of the companies where they hold stock. Called shareholder democracy, it’s anything but. The deck has always been stacked for management and incumbent board members, particularly in the collection of votes obtained via proxies controlled by the big dogs for the biscuit cookers who would never have been able to attend a meeting. A thousand corporate reform campaigns have been proposed, but too often, on the progressive side of the fight, “winning” has been defined somewhere between narrowing the gap with the winners, and the rare times when we might have come close.
Now, according to Jeff Sommer’s column in the New York Times, the “Securities and Exchange Commission (SEC) estimates that indexed mutual funds and exchange-traded funds (ETFs) now own 30% of the shares in the US stock market, and the proportion may be approaching 50% when you included indexing strategies used by institutional investors.” That’s a mountain to climb, but maybe some small steps are being taken to at least give a louder voice to shareholders, even if calling democracy will continue to be a farce.
Biden’s SEC is proposing to make the proxy voting for these big boys easier to follow. Now, researchers, the public, and, oh, yeah, the actual shareholders might not know for fifteen months, eighteen months, or, frankly, ever, how these funds voted on issues they cared about. For researchers like Phil Mattera, our monthly columnist at Social Policy, who monitors a number of corporate “trackers,” this could be huge.
It turns out that some of the slightly smaller dogs, like the private equity outfit Engine 1, that managed to upend some of the board seats at Exxon, are creating separate funds to attract investments from more socially responsible shareholders that want their voices to be heard. They are working with an asset management platform called Betterment with a ticker tape handle VOTE to increase their appeal. A poll indicated that shareholders wanted them to continue to focus on climate change. Since many of these funds are indexed rather than relying on shrewd stock pickers, investors would not be losing any money by moving from one outfit to another usually, so they might be onto something.
British regulators are ahead of the SEC in pushing pension funds and big stick money managers to cede more control and information to people about voting. Even Black Rock has said in will offer more options next year.
The DOL has also pushed back against some of the Trump giveaways so that pension fund trustees can consider ESG issues within their fiduciary responsibility, including climate issues as well. The Wall Street Journal editorialists have been horrified that anything but raw profit might be allowed, which makes it easier to support the new regs, even if there is unlikely to be dramatic change.
Will this really create change? The cynic in me doubts that it will, but on the other hand, anything that makes current management and directors think twice about whether they can keep getting away with their irresponsible and greedy ways, is bound to be a better thing than what we have now.