Shareholders for Stakeholders: CEOs should safeguard, not silence, engaged investors



ImpactAlpha, Aug. 29 – The Business Roundtable’s statement from 181 CEOs committed to pay employees fairly, protect the environment and foster diversity and inclusion. They also committed to transparency and effective engagement with shareholders. The statement confirmed that the purpose of a corporation extends beyond simply generating profits for its shareholders.

And yet, the Roundtable and its members are part of a worrisome push to restrict shareholders’ ability to prompt effective engagement on these very same issues.

A subset of long-term shareholders concerned about the impact of corporate behavior on the environment and society have used shareholder proposals to spark productive engagements with public companies for years, including many of those signing on to the statement.

The Nathan Cummings Foundation, for instance, has filed more than 200 shareholder proposals on issues ranging from climate change to executive compensation to hate speech. In the process, we’ve secured commitments from dozens of companies to enhance transparency, better manage their environmental impacts and address important issues like the use of prison labor in their supply chains.

The vast majority of such shareholder proposals are non-binding, meaning companies can choose to ignore even winning proposals. Still, shareholder proposals are unquestionably effective. So much so that at companies like Amazon (where CEO Jeff Bezos signed the new statement of corporate purpose), employees have begun to file shareholder proposals to drive changes in their companies’ approaches to key environmental and social issues.

Corporate accountability is key to the success of ‘stakeholder capitalism’

In the press release accompanying its statement, the Business Roundtable asserts that corporations can play an essential role in improving society when CEOs are truly committed to meeting the needs of all stakeholders. But the ability of shareholder proposals to push companies to protect the environment, treat their workers more fairly and enhance diversity and inclusion has provoked a backlash from powerful executives and their trade associations, including the Roundtable.

In a Nov. 2018 letter arguing for restrictions to the shareholder proposal process, the Roundtable bemoaned the “continuous influx of proposals focused on general societal issues” and argued that shareholder proposals are often motivated by special interests with “no rational relationship to the creation of long-term shareholder value.”

They’re wrong on both counts.

There is strong evidence that paying attention to environmental, social and governance (ESG) issues benefits corporations’ bottom line. A recent meta-study of ESG and corporate financial performance from Deutsche Asset & Wealth Management and the University of Hamburg found that the business case for paying attention to ESG issues when investing is empirically well-founded and financially beneficial.

Polls repeatedly indicate that issues like climate change, worker pay, and racial and gender equity are not simply the province of politically motivated special interest groups but rather a significant concern for everyday Americans. NBC News and the Wall Street Journal found that roughly two-thirds of Americans support action to address climate change.

According to the New York Times, polls show that roughly two-thirds of Americans believe that men and women should be equal at work. Polls conducted by JUST Capital found that a majority of people think that CEOs of large companies have a responsibility to take a stand on important social issues. In short, most people in the United States agree with the Business Roundtable’s redefinition of the purpose of the corporation. People care about the environmental and social issues raised in shareholder proposals and they want corporations to do something about them.

That’s why it’s so concerning that the Business Roundtable and others have been pushing the Securities and Exchange Commission (SEC) to restrict shareholders’ ability to use this powerful tool.

They’ve already had an impact. Late last year, SEC Chairman Jay Clayton outlined his belief that the shareholder proposal process should be changed to ultimately make it more difficult for shareholders to engage corporations on key environmental and social issues.

With a political system awash in corporate money and a regulatory system too frequently headed by former lobbyists and industry insiders, it’s perhaps unsurprising that the SEC has succumbed to the wrongheaded arguments of trade associations like the Business Roundtable and the National Association of Manufacturers, but these changes must be stopped.

If they’re truly committed to the spirit of the new statement, the Business Roundtable and its members should drop their campaign to hamstring investors who want to ensure that the companies they own are treating workers and communities fairly and protecting the environment.

To fulfill the new pledge, CEOs and the Business Roundtable should be lobbying the SEC to safeguard shareholder voices, not silence them.

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