“Shareholders’ boardroom clout increases” touts the website at the Interfaith Council on Corporate Responsibility The linked article takes readers to an August 20 essay by Sara Murphy at The Motley Fool in which the author asserts: “New research out today from the Sustainable Investments Institute, or Si2, shows that investors are filing more environmentally and socially themed shareholder resolutions now than ever before, and those resolutions are getting more support during proxy voting than they ever have.”
Not so fast, Ms. Murphy. This week another story unfolded, courtesy of The Manhattan Institute Center for Legal Policy. MI’s third annual Proxy Monitor, authored by James R. Copland and Margaret M. O’Keefe, counters the ICCR and Murphy narrative significantly. It appears the ICCR folk were distracted after reading the reports first finding:
The number of shareholder proposals introduced is up. The average Fortune 250 company faced 1.26 shareholder proposals on its 2013 proxy statement, up slightly from 1.22 proposals per company in 2012. This trend also holds when considering the 104 proposals excluded from proxy ballots after companies received a letter from the Securities and Exchange Commission assuring them that the agency would take no action against the company due to the proposal’s procedural or substantive defects.
So distracted by the presumed good news, in fact, they neglected to read the subsequent findings:
Support for shareholder proposals is down. Only 7 percent of shareholder proposals received the backing of a majority of shareholders in 2013, down from 9 percent in 2012. A smaller percentage of shareholder proposals passed in 2013 than in any other year in the 2006–13 period. Among the 20 proposals receiving majority support, 13 involved just two issues: whether to elect all corporate directors annually and whether each director should be required to receive a majority of votes cast to be elected.
The overwhelming majority of shareholder proposals are sponsored by a small subset of shareholders. In both 2013 and the full 2006–13 period, only 1 percent of shareholder proposals were sponsored by institutional investors unaffiliated with organized labor or a social, religious, or public-policy purpose. A plurality of all proposals, 34 percent, were sponsored by labor-affiliated investors, primarily pension funds for private- or public-sector workers. Twenty-five percent were sponsored by social or policy investors, chiefly “social investing” funds and pension funds or other investment vehicles affiliated with religious institutions.
Consistent with the conclusion of the 2012 Proxy Monitor report and other empirical analyses conducted over the past three years, results from the 2013 proxy season suggest that the shareholder-proposal process may not be serving the ordinary investor’s interests. A small subset of investors continues to dominate this process, and the most active of those, labor-affiliated pension funds, could be motivated by political concerns. The evidence suggests that the shareholder-proposal process, as currently organized, may be facilitating a transfer of wealth from the average diversified investor to a subset of investors interested in goals other than share value—and inconsistent with efficiency, competition, and capital formation.
Knock me over with a feather! In other words, not only are ICCR and other religious investment groups working to their own financial detriment to further their “causes,” but they also are attempting to sabotage both the companies in which they invest as well as the majority of shareholders who only wish to recognize a financial return from a profitable business. A business remains profitable, that is, only as long as it’s unhindered by nonsensical and nuisance proxy resolutions.
The Proxy Monitor categorizes shareholders that “annually sponsor numerous essentially identical shareholder proposals across multiple companies” as “corporate gadflies.” I would extend this characterization to ICCR, As You Sow and others with purported theological or “social justice” foundations for their shareholder activities with one small – but significant and intentionally ironic – edit: “corporate Godflies.” Note that neither God nor theology enters into their shared activism, only their nominal spiritual authority as – albeit misguided – clergy and religious.
The lion’s share of these shareholder proxy resolutions are aimed at circumventing the U.S. Supreme Court’s Citizens United ruling regarding corporate spending on political campaigns. “These proposals have largely been pushed by social-investing funds, religious-affiliated investing funds, and labor-affiliated investing funds, which together accounted for 90 percent of all political-spending-related proposals in 2013,” write Copland and O’Keefe. “Nine political-spending-related proposals in 2013 were sponsored by Catholic religious orders … ”
The Proxy Monitor concludes: “In sum, the evidence suggests that the shareholder proposal process serves largely to empower shareholders with objectives unrelated to share value and quite possibly against the interests of the broader class of diversified holders of equity securities.” Perhaps it’s time for said “broader class” to petition the Securities and Exchange Commission for rules making it more difficult for this minority of shareholder Godflies and their gadfly co-conspirators to usurp the twin corporate goals of profitability and earning returns for the majority of investors.