Despite a recent rise in corporate shareholder actions by conservative investors, the campaign to arm-twist corporations on political and social topics is still overwhelmingly the domain of left-wing activists, often with the support of government agencies like the Securities and Exchange Commission (SEC), according to a new study by Consumers’ Research.
The report by the nonprofit organization found that 1,063 left-leaning shareholder proposals were put before the SEC under Rule 14a-8 between 2018 and 2022, versus 87 conservative proposals.
“That is a rate of just over 12 liberal-aligned proposals to every one conservative-aligned shareholder proposal,” the report states.
The SEC’s Rule 14a-8 determines which shareholder proposals can go to a vote.
“Liberal-aligned political activists are dominating shareholder proposal submissions … conservatives are all but sitting out of the shareholder proposal process,” the study concluded.
These findings contradict recent media reports that warn of the rise of “anti-woke” shareholders attempting to politicize America’s companies.
“We were able to file a few more proposals in past years,” Scott Shepard, director of the Free Enterprise Project, told The Epoch Times. “But the overwhelming majority come from partisan-left ESG outfits, and there’s a huge constellation of them that have worked together for decades.”
The Free Enterprise Project is a conservative organization that says it files shareholder resolutions and lawsuits to “push corporations to respect their fiduciary obligations and to stay out of political and social engineering.”
According to Mr. Shepard, about 90 percent of social and environmental proposals are still coming from the left, down from about 95 percent several years ago.
The environmental, social, and governance (ESG) movement was spawned in 2004 by a United Nations initiative to get private companies on board with the UN’s 17 Sustainable Development Goals. These goals include fighting poverty, hunger, war, inequality, and global warming.
Since then, an entire industry has emerged—including ESG fund managers, credit rating agencies, accountants, consultants, nongovernmental organizations (NGOs), and government regulators—to pressure companies into shunning oil, gas, and coal; advocating racial and gender equity; and taking on other political campaigns, such as gun control, abortion, and transgender issues.
ESG Pressure Campaign Succeeds
The campaign has largely succeeded in aligning corporate executives with ESG goals.A 2023 report by Ernst and Young, a global consultancy that offers ESG advisory services, states that “sustainability has become a strategic imperative for companies as they position themselves for the future,” and details “how sustainability and ESG went from a trend to mission critical.”
In addition, the ESG industry is supported by billions of dollars. Financial funds that back the ESG movement surpassed $30 billion as of January, Bloomberg Intelligence reports, and are projected to surpass $40 billion by 2030.
An October 2023 report by investment bank Morgan Stanley stated that “sustainability is reshaping investing: Assets under management (AUM) for sustainable equity and fixed-income funds reached a record 7.9 percent of global total AUM in the first half of 2023.”
The world’s largest fund managers—including the “Big Three” of BlackRock, State Street, and Vanguard—also also engaging in the ESG movement and throwing their weight behind ESG initiatives. As are some of America’s largest state retirement funds, including CalPRS, CalSTRS, and New York state and city pension funds.
When acting in concert, these institutions and others aligned with them, can easily control shareholder votes.
A December 2022 study by Lucian A. Bebchuk of Harvard Law School and Scott Hirst of Boston University stated that “as of the end of 2021, the Big Three collectively held a median stake of 21.9 percent in S&P 500 companies, which represented a proportion of 24.9 percent of the votes cast at the annual meetings of those companies.”
In addition to the fund managers, there is also the proxy agent duopoly of Institutional Shareholder Services (ISS) and Glass Lewis. Proxy agents advise asset managers and public pension funds how to vote their shares on any given issue, and sometimes vote on their behalf.
Together, ISS and Glass Lewis are estimated to control 90 percent of the shareholder advisory market. These two firms, together with the Big Three, are often referred to as the Big Five players when it comes to corporate voting, and conservatives claim they have a track record of leaning left.
ISS and Glass Lewis have refuted charges of bias.
On June 13, Gary Retelny, ISS president and CEO, stated: “My firm ... has over recent months been subject to a growing chorus of partisan attacks meant to malign our work and brand us as ‘woke activists’ and ‘social engineers’ pushing an ESG agenda.”
He continued, “ISS is not an activist or advocacy organization. Rather, we are an impartial, federally regulated service provider to institutional investors who direct and control their own proxy voting decisions.”
The Consumers’ Research report also argues that the SEC, which oversees shareholder voting under the Securities Exchange Act of 1934, has shown a bias in favor of left-wing proposals.
Rule 14a-8 of the Act sets the criteria for bringing proposals to a shareholder vote, and also provides criteria for corporate management to reject proposals, with the SEC acting as umpire in deciding which proposals managers may reject.
In 2021, the SEC issued its Staff Legal Bulletin (SLB) 14L, which curtailed management’s ability to reject shareholder resolutions, particularly in the realm of social justice issues. SLB 14L stated that “staff will no longer focus on determining the nexus between a policy issue and the company, but will instead focus on the social policy significance of the issue that is the subject of the shareholder proposal.”
According to the National Conference on Public Employee Retirement Systems, “following SLB 14L’s implementation, companies obtained fewer shareholder proposal exclusions and the number of proposals, especially regarding ESG, rose from 186 in 2021 to 340 in 2023.”
The underlying principle behind Rule 14a-8 is to balance the rights of shareholders to have a voice in how the company they own is run with protections that the process is not abused for personal gain or to distract management with tangential issues.
A 2023 report by Shaun Mathew, a partner at law firm Kirkland & Ellis, however, said that the shift in the SEC’s approach has had a negative impact.
“Suddenly years of staff guidance and precedent could no longer be relied upon, which resulted in increased costs for companies to evaluate and prepare no-action requests, only to have them denied,” Mr. Matthew stated.
No-action requests are an appeal by corporate management to the SEC to allow them to exclude a proposal from going to a shareholder vote. This process, Mr. Matthew states, typically costs corporations $100,000 or more for each proposal, which is a cost ultimately borne by shareholders.
Based on its audit of no-action requests in 2023, the report found that the SEC granted management’s request to reject 64 percent of conservative proposals, while allowing management to block 54 percent of progressive proposals.
Will Hild, CEO of Consumers’ Research, believes that the SEC’s liberal bias goes beyond what the numbers suggest.
“Even the overall bounce rates of these proposals between conservative and liberal doesn’t really tell the full story of how bad it’s gotten, because almost all the conservative proposals we looked at were focused on getting the company to focus on value for shareholders,” Mr. Hild told The Epoch Times.
By contrast, many of the pro-ESG proposals got rejected by the SEC because they violated the law, leaving the agency no discretion to allow them, he said.
“Some of the stuff that the left consistently proposes, the SEC kicks out because it would be a crime for the company to do the thing that’s being proposed,” he said. “It really speaks to a lack of credibility as being a fair arbiter for shareholders.”
“The portrayal of us as political is absurd,” Mr. Shepard said. “Our whole purpose is to get corporations back to neutral and out of political and social issues that don’t have anything to do with a business purpose, and that it’s a violation of fiduciary duty to get involved in.”
But while some elements of the ESG agenda have put companies at risk of legal action, employee lawsuits, and consumer boycotts, its advocates cite studies that they claim show their policies benefit shareholders.
The Epoch Times contacted the SEC to comment for this article, but did not receive a response.
