Blog author: jcarter
by on Wednesday, September 12, 2012

For many nuns in the U.S. April is a busy month. Not only do they have the liturgical season of Easter but they have the proxy season of corporate governance.

The proxy season is the time when many companies hold their annual shareholder meetings. During these meeting any shareholders who own more than $2,000 in stock or 1% of the company can recommend the company take a specific course of action or institute a policy change for the betterment of the company. As the Manhattan Institute’s Center for Legal Policy reports, Catholic orders are among the most active of these shareholder activists.

As far as activism goes, shareholder activism is rather inert. To date shareholders have introduced only 1.43 proposals per company in the Fortune 200. The most active religious organization, the Sisters of Charity of St. Elizabeth, submitted a total of 21.

In their lengthy report, the Manhattan Institute (MI) admits that shareholder proposals are rarely submitted, rarely adopted, and submitted by a small group of activists. MI also notes that while the idea that “maximizing share price is the sole fiduciary duty of corporate managers” has been a “long-standing norm in the American securities” there has been push in the past two decades for the idea that “the duty of management ought to extend beyond shareholders and share value to the interests of a broader class of ‘stakeholders.’”

The reality is that management has always taken the “interests of a broader class of ‘stakeholders’” into account when making decisions. Stakeholders include employees, suppliers, the local community, politicians, and—most substantially—the managers themselves. Indeed, you’re more likely to hear about “corporate social responsibility” today than you are “maximizing shareholder wealth.”

Since managers work for the shareholders, there doesn’t seem to be anything wrong with investors in a corporation trying to encourage specific policies or levels of disclosure. If the management of Starbucks can decide what social causes they choose to support, why shouldn’t the people who actually own the company have a similar say?

The Sisters of Mercy should have the right to pressure the managers (who work for them) to do what they want, which is “actively promote changes in corporate practices to achieve social and economic justice, a sustainable Earth and the common good.” In order to get their way they have to convince other shareholders to go along with them—and so far they haven’t been all that successful. (Not surprisingly, the Sisters aren’t interested so much in advancing a Catholic position as they are principles that could be accepted by any secular liberal. That is why “availability of arms” concerns them but a company’s support of abortion would not.)

The only concern I have which such activism—particularly by religious groups—is when they are less than forthright about their motives. If you want Lockheed-Martin to beat their F-16s into plowshares, you should say so. Similarly, if you want to reap the rewards of investing in companies you’re members (e.g., fellow nuns, union members) would oppose while given the impression that you are “doing something to change the corporate culture,” you should be forthright about your actions being quixotic and ineffective.

As far as I can tell, though, the Sisters of Mercy are effectively walking that line. They may be “shareholder activists” but they aren’t too radical. For example, while they want Halliburton to “review its policies related to human rights” they are also happy to keep owning shares in the company. The conscience of these nuns may be liberal but when it comes to investing, they’re rather conservative.