The Trump administration has improved upon the famous adage that capitalists will sell communists the rope by which the latter would hang the former. Now the capitalists seem to be just giving the rope away.
The supposedly free-market-oriented commissioners at the U.S. Securities and Exchange Commission just announced an extension of last year’s policy giving corporate managements a Get-Out-Of-Jail-Free card on shareholder proposals. That policy effectively locks in anti-business gains made over the past couple of decades by left-wing activist shareholders.
For decades, left-wing activist shareholders have used shareholder proposals under SEC rules to hijack the resources and influence of publicly traded corporations. The scheme began under euphemisms such as “corporate social responsibility” and “socially responsible investing.” They were later rebranded as “environmental, social, and governance” (ESG) investing. ESG has successfully moved corporations, if not America, way to the left on issues like climate and diversity, equity, and inclusion (DEI).
The left’s efforts began in the 1980s when it found itself out of power in Washington after Ronald Reagan’s election, and those efforts have been incredibly successful. They produced a plethora of “woke” corporations used to advance left-wing policy on a national, if not global, level.
In the mid-2000s I co-founded a publicly traded mutual fund called the Free Enterprise Action Fund. It aimed at combating what the left-wing activists were doing. We filed shareholder proposals. We pressured corporate managements at annual meetings. We tried to educate the public and policymakers through the media.
Our mutual fund made great strides in a short time. Our opponents at Domini Social Investments observed in amazement, “What other $5 million investment fund is getting press? They don’t even have a ticker symbol.” We broke up a corporate-green group effort pushing for emissions limits called the U.S. Climate Action Partnership by pressuring CEOs to drop out. We got Goldman Sachs to penalize outgoing CEO and future Treasury Secretary Hank Paulson $100 million for using corporate assets on his personal green causes.
We were forced to close the fund when the housing bubble burst and the market crashed. Other conservative nonprofit groups, including the Free Enterprise Project I am with now, hung on. They continued using shareholder proposals to press management on its caving to left-wing activist shareholders.
The battle for the heart and soul of corporate America continues today through shareholder proposals and annual meetings. Ironically, it is now threatened by the SEC’s free-market commissioners. They take a dim view of all activist shareholders.
The SEC just announced that for a second straight year the Commission will take no action against corporations that inappropriately exclude shareholder proposals from the annual proxy process. Exclusion means a proposal will not appear in the annual proxy materials. Shareholders then lose the chance to know of it or to support or oppose it.
The left-wing activist shareholders are perfectly okay with this. They have already captured control of corporate managements and large institutional investors. Imagine the shareholder battle as a game of musical chairs. The Trump SEC has suddenly stopped the music. Free-market and conservative shareholder activists have no place to sit. They are out of the game.
I wasn’t always in favor of shareholder proposals. In 2008, my Free Enterprise Action Fund presented a proposal to end all shareholder proposals at the ExxonMobil annual meeting.
Our proposal would have allowed ExxonMobil to stop accepting shareholder proposals. That would have ended the activist circus the annual meeting had become. Thunderous applause from shareholders made it seem as if our proposal had carried the day. But management opposed it. Institutional investors, the bulk of the investor base, usually do what management wants.
Finally, 15 years or so later, after nearly losing control of the company to activist investors, ExxonMobil management clued in to the problem. It now threatens lawsuits against activist investors. ExxonMobil is about the only corporation that gets it. The others don’t. Or they have already been captured by the left, which has no inclination to face shareholder pressure from free-enterprise activist shareholders.
Nobel Prize-winning economist Milton Friedman famously wrote in 1970 that the social responsibility of a business is to increase its profits. It must simply stay within the rules of the game. Business is society’s wealth-generation machine. Businesses are not governments, charities, or activist groups. Shareholder proposals have turned out to be a necessary means of protecting that ideal.
I know the free-market SEC commissioners’ hearts are in the right place. But their situational awareness is woefully behind the times.
