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September 10, 2018

How Progressive Politics is Creeping into the Corporate Boardroom

  Dallas Morning News

Doesn't it seem like everything has become political these days?

It used to be that politics was simply one area of life. We socialized with folks at work, church and community organizations without caring or even knowing what party they belonged to.

If I sound wistful for such times, I would, wouldn't I? After all, I'm a conservative. A core instinct of conservatives is that most of life should happen outside of politics. We want life to be about family, neighbors, jobs, churches and volunteer organizations. We want government to perform its basic functions, and if it does, it will largely stay out of our way so we can live our lives.

For the progressive left, on the other hand, politics is everything and everything is politics. Convinced of the moral superiority of their agenda, many progressives are determined to impose their preferences on others. When they can't get their way through the normal legislative process, they do an end-run around democracy and use other means.

This is why nothing today can escape politics — not church, not the university, and not even the neighborhood.

The strategy has expanded to corporate America, where activists are pressuring businesses to adopt progressive policies through organized shareholder activism. Companies with business lines often wholly unrelated are being asked to take action on issues like the rights of indigenous peoples, use of pesticides, deforestation, gender justice, clean energy and climate change. These resolutions are pushed by the proxy advisory "industry," which consists of only two companies: Institutional Shareholder Services and Glass Lewis & Co.

It was already a problem that proxy advisory services, with no financial stake in the outcome and no fiduciary duty to shareholders, were able to wield significant influence over the outcomes of corporate governance. Most investors are passive and tend to follow their recommendations without thought.

But then the 2010 Dodd-Frank law and several new Securities and Exchange Commission regulations increased the number of matters that require shareholder votes. This is why a Tesla shareholder controlling only 12 shares of stock was able to recently introduce a resolution to oust Elon Musk as chairman. I wonder if this contributed to Musk's recent ill-advised tweet about taking Tesla private.

Such nuisance resolutions cost companies valuable time and money. But much worse than nuisance resolutions, the proxy advisers have adopted many left-leaning policy objectives, and they are using their inappropriate level of influence to "drive major policies at most publicly traded companies," according to Timothy Doyle of the American Council for Capital Formation.

Of course, shareholders are entitled to weigh in on the governance of a company. But proxy advisers who should be representing the interests of ordinary shareholders and pensioners have been conscripted into the game of politics at the expense of shareholder value. This does a disservice to ordinary shareholders. At the very least, it is a distraction to management, but at worst, it risks reduced growth.

Individual investors want (and need) returns, not politics, from their stock investments. According to a recent poll by Spectrem Group, around three-quarters of pension plan members believe managers should focus on maximizing returns, while a small portion want managers to focus on social and political causes.

The good news is that Congress is aware of the problem and is considering the Corporate Governance Reform and Transparency Act of 2018, which has already passed the House and is being considered by the Senate. And the SEC announced it will hold a roundtable discussion on the issue, which is usually a first step toward a new rule-making or clarification of rules.

But the pushback has begun. In his influential New York Timescolumn, Andrew Ross Sorkin recently mischaracterized this effort as simply protecting "corporations that are unwilling and unprepared to adapt to a changing world." But Sorkin has this one wrong. The effort by ideological activists to politicize corporate governance cuts cleanly across the interests of ordinary shareholders, and they know it. According to a 2017 analysis by Broadridge and PricewaterhouseCoopers, the large institutional investors supported environmental and social board resolutions 54 percent of the time, while only 10 percent of shares held by individuals supported such resolutions.

If we want maximum economic growth and job creation, and workplaces free of political conflict, corporate management needs to be free to pursue maximum value for the good of their employees and shareholders, free of political manipulation. Let's start pushing politics out of every aspect of life, including the boardroom.

The above op-ed also appeared in the following publications:

The Missoulian, The Beatrice Daily Sun, The Herald & Review, The Merced Sun-StarHelena Independent Record, The Journal-Gazette & Times-CourierMadison.com, La Crosse Tribune, HeleneAir.comCable One, WisconsinNews, The Southern Business Journal, Magic Valley, and the Daily Journal online.  


 

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