ESG | June 15, 2023

Active ownership, an overlooked path to collective liberation

Ivy Jack

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Guest Author

Ivy Jack

As we approach Juneteeth while celebrating LGBTQIA+ this month, we should think about how active ownership of publicly traded stocks is imperative for building an economic system that is equitable.

The emphasis here is on “active”—actively voting proxies, actively engaging with corporations, actively partnering with advocacy groups, and actively sponsoring and co-sponsoring progressive shareholder resolutions.

Investors who claim positive impact through security selection and ownership (or exclusion) are missing a range of opportunities to create change in powerful and wealthy companies that influence and sometimes control the lives of so many people.

Within many impact investing circles, there is a belief that private investments have greater and deeper positive impact than investments in publicly traded stocks. The unfortunate part of this narrative is that foundations, endowments, and other “change agents” may narrow the lens of their responsibility when it comes to addressing some of the most pressing challenges of our time, including wealth and income inequality.

According to Policy Link, more than 100 million Americans are economically insecure, and Black Americans are overrepresented among this population. Publicly traded corporations employ about one-third of the workforce, and therefore it is critical that investors seeking positive impact consider the possibilities associated with public equity, especially since dollars invested in public equity are typically multiples of private investments.

Wage equity

For example, one of the most obvious sources of wealth and income inequality is executive compensation relative to compensation for other employees. Over the past decade, As You Sow, a non-profit focused on shareholder advocacy, has consistently pointed out how public equity investors have failed to hold corporations accountable for exorbitant increases in executive pay.

In fact, As You Sow often comments that fund managers have been asleep at the wheel. Between 1978 and 2020, CEO compensation skyrocketed 1,460%, handily outpacing the S&P stock market growth of 1,063%. Over the same period, a typical worker’s compensation grew a paltry and, dare we say shameful, 18.1%. To dispel arguments that extremely high pay corresponds to extremely excellent performance, As You Sow in its annual report, The 100 Most Overpaid CEOs, makes a strong and compelling case that this is categorically untrue.

Meanwhile, when the Institute of Policy Studies examined 300 U.S. corporations with the lowest median pay, they discovered that the median worker pay at 106 of the 300 firms did not keep pace with inflation. This level of wage injustice is disturbing, especially given the backdrop of the pandemic and the degree to which racial inequity was publicly highlighted.

During the pandemic, Black workers faced record numbers of job losses, while black-owned businesses suffered disproportionately compared to white-owned businesses. We also know that black workers, who have historically been denied accumulated advantages provided to white workers, receive $0.73 for every dollar a white worker earns.

Knowing that the majority of CEOs are white, male, and over six feet tall, what message are we sending about racial equity if we remain silent while our portfolios are passively managed to maintain the status quo? 

Active engagement

Shareholders can play a significant role in addressing wage injustice (which exacerbates income and wealth inequality) by actively exercising their rights and power. They can vote against executive pay packages, and they should be vocal in expressing the reasons for their dissatisfaction and their suggestions for equity and fairness. In 2021, approximately 20 executive compensation packages failed to win shareholder approval, and, according to Rosanna Weaver of As You Sow, opposition to pay packages remains high.

Socially responsible investment managers have also been out front in calling attention to this issue. Trillium Asset Management votes against pay arrangements when “the company CEO to worker pay ratio exceeds 50:1”, while NorthStar Asset Management approves executive compensation packages only if equity, stock options, bonuses, and benefits packages for all nonexecutive employees are equivalent to those of executive officers. 

In the overall context of impact investing, it is curious and disappointing to see institutions and high net worth individuals championing transformational change through individual private investments while failing to take action with other parts of their investment portfolios.

Everyday people, especially those on the margins of society, are forced to contend with a financial system that operates to advance the wealthy few at the expense of the less privileged many, and many of them are in the employ of public corporations. 

Juneteeth is celebrated as the day enslaved people realized they were free from bondage, despite the fact that the emancipation proclamation had been signed earlier. The majority of these people and others are still fighting to survive in a system they are forced to contend with on a daily basis. Why aren’t we invested in the sort of change that could lead to collective liberation? 

Ivy Jack is a senior advisor to the Gender Diverse Investing Collective.

This piece is an excerpt from Confluence Philanthropy’s Racial Equity Investing Paper due to be released this fall. A group of 14 Confluence members are co-authoring the publication to better equip investment decision-makers with a framework for considering investments that would advance racial equity outcomes. Please contact [email protected] for more information.