10 Jul 2020 The Proxy Voting War Is One That The Right Needs to Engage In
Liberals used to abhor “big business,” railed against monopolistic markets, and complained about allegedly rigged votes. But now that big business regularly supports liberal causes and a monopolistic market has allowed the left to rig hundreds of votes, liberal loudmouths aren’t complaining. They’re crowing.
I refer not to votes for presidents or members of Congress but rather corporate proxy ballots.
For example, in early June, 53 percent of Chevron’s investors passed a resolution telling the company that it must direct its lobbying activities to meet the arbitrary goals of the Paris climate accord. Pushed by climate activists, the resolution will add an extra-governmental cost of doing business to Chevron’s budget.
Think about that for a second.
A majority of Chevron’s investors are demanding that the American energy company expend scarce resources to align its policies with an international agreement that the United States is smartly exiting. As the Heritage Foundation explains, America is rightly exiting the Paris climate accord because “it was a truly bad deal—bad for American taxpayers, [and] American energy companies.”
Yet Chevron’s investors seem to want to push the company right back into this crooked covenant. And they are doing so during a global pandemic that is seeing oil and gas revenues plummet.
Politico called this a “watershed moment for activists.”
How did liberal climate alarmists persuade a majority of Chevron investors to go along with this nonsense? They didn’t. At least, not really: the vote was effectively rigged.
First, you need to understand the landscape of shareholder activism.
Left-wing organizations, asset managers, unions, and pensions funds annually file about 95 percent of the environmental, social, and governance (ESG) shareholder proposals voted on at publicly traded companies’ meetings. Each year, these groups collectively file hundreds of resolutions that provide them with numerous opportunities to hector corporate leaders and bend them to their will.
Next, there’s a monopolistic marketplace of sorts that gives those shareholder proposals a megaphone.
Most Americans have likely never heard of proxy advisory services; but if you invest with a broker, your fund manager has. They’re probably even paying these groups for their advice—and taking it. It’s not much of a marketplace because just two firms—Institutional Shareholder Services (ISS) and Glass Lewis—control 97 percent of the market. And far from recommending votes that actually help investors, ISS and Glass Lewis walk the woke line by supporting all manner of extreme liberal proposals.
The result is that far-left resolutions like the one that passed at Chevron’s annual meeting are receiving record support. Morningstar reported that liberal “ESG-related shareholder resolutions [in 2019] were supported, on average, by 29% of investor shares voted. The previous record high was 25% in 2018.” As the leading filer of conservative shareholder resolutions, I can assure you that any proposal getting double-digit support gets the attention of a company’s management and its board.
While 2020 shareholder meetings are ongoing, the Financial Times recently reported that “[l]iberal-leaning investors and environmentalists have scored a record number of wins at U.S. companies’ annual general meetings this year.”
In addition to endorsing the left’s environmental initiatives, ISS and Glass Lewis regularly support left-leaning diversity initiatives. Succeeding in cramming race-based policies across academia—promoting students based on their skin color rather than merit, despite the clear harm that this causes to minorities—the left is now trying to do the same to American businesses.
The Financial Times noted that another proposal that received majority support this year was “at nursing home operator National Healthcare, with a proposal that demanded board diversity.” Of course, the left’s definition of board diversity applies only to race and gender.
At the Free Enterprise Project (FEP), we think that diversity is more than the sum of your gender and skin color. Diversity is not what people look like; it is who they are, what they believe, their ethos, and their actions. As cancel culture runs rampant, seeking to root conservative thought from public life, FEP hasadvanced initiatives calling on companies to consider viewpoint and ideological diversity when nominating board members. We also seek to protect employees from discrimination based on their personal political viewpoints.
Does ISS or Glass Lewis support diversity of thought and opinion? Nope. They uniformly recommend voting against all FEP diversity proposals. This liberal cabal wants to ensure that Google can fire the next James Damore and Facebook can fire the next Palmer Luckey for the thought-crime of holding conservative opinions.
The online mobs that demand cancellation of conservatives are at least transparent. ISS and Glass Lewis largely operate in the shadows as they steal votes.
Investors, now you know. Go take back your franchise.
But how do investors begin to take back the franchise?
First, conservative-minded investors need to engage in proxy voting with the same vigor in which they vote for political candidates. After all, politics is downstream from culture—which is upstream from business.
According to one major study, retail shareholders (i.e., individual investors) hold 26 percent of all outstanding corporate shares. Yet they vote only 32 percent of those shares. Meanwhile, institutional investors vote at a rate of 80 percent. This wide gulf means that large asset managers, such as BlackRock, have even greater influence.
What does BlackRock, the largest asset manager in the world, do with its outsize sway? Under the direction of its far-left CEO, Larry Fink, BlackRock votes in favor of activist shareholder proposals such as the onedemanding that Chevron align itself with the Paris climate accord. Remember that this proposal received just 53 percent of the vote. If all of Chevron’s retail investors who want the company to succeed actually voted, the resolution would surely have failed.
Too many Americans simply throw their proxy ballots into the trash. Perhaps they don’t realize the power of their franchise. After all, their inaction could have a personal cost.
BlackRock has approximately $7 trillion in assets under management. If Chevron’s stock price goes down because it expands its scarce resources to appease liberal climate activists, BlackRock will be just fine. Can all of Chevron’s retail investors, many of whom would presumably like to retire someday, say the same? It benefits all these smaller investors, conservative and liberal alike, if Chevron’s stock price goes up. So, go vote!
What else can be done to unrig the proxy vote? At FEP, we have developed a resource to educate and inform investors about the importance of proxy voting and about which individual proposals would do the most fiscal and cultural harm. In our “Investor Value Voter Guide: 2020,” we lay out the worst resolutions coming out of left-wing outfits. From proposals designed to defund pro-business organizations such as the American Legislative Exchange Council, to proposals calling for corporate promotion of abortion, to proposals demanding that companies abandon their fiduciary obligation to their shareholders in favor of amorphous stakeholders, we detail the political motives behind these resolutions and the reasons to reject them. If more conservative investors would study our guide and our regular email updates, Chevron would not be in its current predicament.
But sadly, our guide is not enough to fully unrig the proxy vote. Legislative action is also necessary.
The proxy advisory racket, specifically within ISS, needs drastic reform. And that reform should come from Congress.
ISS has many internal conflicts of interest that lawmakers would never accept in other industries. ISS recommends proxy votes to investment managers. But it also offers consulting services to corporations on how to better comply with vague ESG goals. To take it one step further, ISS also rates companies based on its owntwisted ESG scale. As noted by the American Council for Capital Formation, ISS and others have “drawn increased scrutiny for the conflicts of interest inherent in rating and providing voting recommendations concerning public companies while simultaneously offering consulting services to those same companies, including how they can improve their ratings and voting recommendations.”
In essence, ISS can push a company on any given ESG initiative by recommending a “yes” vote for a left-wing shareholder resolution. Then it can sell that company consulting services on how it should comply with said resolution. And if a company fails to comply, it has a rating system set up to impugn the reputation of that company. This type of corporate shakedown should make even Jesse Jackson blush. Congress should not permit ISS to house all these conflicting operations under one roof.
There is precedent for breaking up this racket. America’s major accounting firms once operated in a similar fashion. They not only audited corporations, but they also had consultancy divisions to help businesses fix whatever problems the accountancy team may have discovered—for a fee, of course. However, as noted in theFinancial Times, “[a]fter the 2001 collapse of Enron, tighter U.S. rules on selling other services to audit clients led KPMG, Deloitte, EY and PwC to sell or spin off their consultancy arms.”
Congress can, and should, take similar action to blunt ISS and its serpentine scheme.
The answers to fixing the rigged proxy vote are simple, and they are right in front of us. The left views the proxy ballot as a battlefield in the culture wars. The right, at its peril, ignores it altogether. All the right needs to do is approximate the left’s army to start winning proxy ballot votes. Otherwise, conservatives can abandon all hope and give the businesses over to the left, just as we have done with college campuses.
I, for one, will keep fighting.