26 Sep PUBLIC PENSION CORNER, #14
NEWS:
I. Texas AG Launches Investigation of Proxy Advisors
Texas Attorney General Ken Paxton announced last week that his office is investigating Glass Lewis and Institutional Shareholder Services (ISS), the two largest proxy advisory services, for potentially “misleading” investors by putting politics above pecuniary interests in its vote recommendations. The move by Paxton’s office comes as a Texas law forcing the two services to make recommendations based exclusively on financial information has been halted by a federal court ruling:
Glass Lewis and ISS collectively occupy more than 95% of the international market for proxy advisory services. The companies primarily provide services to shareholders and boards of large corporations to help them make investment decisions. The two giants routinely issue proxy voting recommendations in conflict with the best financial interests of their fiduciaries. For example, Glass Lewis and ISS instruct their proxies to generally vote for public companies making management decisions to implement DEI, gender-based hiring quotas, and aggressive climate activist policies. Neither Glass Lewis nor ISS seem to support their radical guidelines with any economic analysis, only a word salad of corporate lingo.
“Proxy firms like Glass Lewis and ISS too often sacrifice sound financial guidance to advance left-wing political goals, cheating not only investors but the American people as a whole,” said Attorney General Paxton. “Proxy advisors play a massive role in shaping corporate governance decisions in our country, affecting tens of billions of dollars. My office has zero tolerance for these woke corporations smuggling radical, liberal ideology into the companies they advise and into the entirety of America’s financial system.”
Attorney General Paxton has issued Civil Investigative Demands (“CIDs”) to the proxy advisor duopoly to determine if they violated Texas consumer protection laws, including those prohibiting nondisclosures of material facts.
II. New Report Concludes America is the Center of the Anti-ESG Effort
In a new report, GlobalData has concluded that the United States is the “epicenter” of the pushback against ESG. The report points to the legislative action taken by states – Red states – to fight ESG, determining that these legislative efforts have spawned a global movement:
GlobalData’s Anti-ESG Movement report, which explores efforts among varying actors to stifle environmental, social, and governance (ESG) investment and initiatives, states that the current rising tide of anti-ESG sentiment “started gaining traction in 2021, when the Texas state legislature passed a bill banning financial institutions from boycotting fossil fuel companies.”…
For businesses, maintaining environmentally and socially responsible policies generates political risk, it is suggested, while failing to implement such policies exposes them to legal, financial and potentially existential risk. The report contends that companies should develop strategies for responding to the anti-ESG movement and the legal intricacies that come with it.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Jerry Greenfield and the Purpose of an Ice Cream Corporation”
Last week, Austin Sarat, the William Nelson Cromwell professor of jurisprudence and political science at Amherst College, penned a column for The Guardian in which he concluded that “the era of corporate social and political responsibility is over.” And while one might be tempted to cheer this development alongside Professor Sarat, it’s important to note that he was not celebrating. Rather, he was lamenting. He was a big fan of Corporate Social Responsibility – which he calls “CSR” – and he’s sad to see it die.
For Sarat, the killer in this case is – who else? – Donald Trump. As he sees it, “as the Trump administration has ramped up its assault on democracy,” it has also ramped up its assault on the good and beneficent practice of using other people’s money to pursue narrow and divisive political predilections. Funny that. To Sarat, Trump’s treatment of business is eerily similar to Victor Orban’s. They are both what he calls “authoritarian capitalists.”
To be blunt, I have no opinion on Orban and his treatment of corporations – although I suspect his treatment is less authoritarian than the EU’s treatment of American companies (but that’s probably a story for another day). As for his claim that President Trump is riding roughshod over American corporations, forcing them to do what he says, that’s a bizarre – and revealing – claim.
Sarat hinges his claims about Trump and the death of CSR on recent developments at Ben & Jerry’s, everyone’s favorite overpriced “gourmet” ice cream company. As you may have heard, Jerry Greenfield, the “Jerry” in Ben & Jerry’s, resigned two weeks ago, stating that he could “no longer in good conscience” remain an employee of the company. He was being silenced, he claimed, and that was not fair. His resignation followed the removal, this past March, of the company’s CEO, Dave Stever, who was also silenced, according to a suit Ben & Jerry’s filed not long thereafter. That too was unfair. Sarat elaborates:
Ben & Jerry’s was founded in 1978 during the heyday of CSR, by Greenfield and Ben Cohen. It was upfront about the issues it cared about and the values it sought to promote. The list was long, but it included racial justice, refugee rights, climate, LGBTQ+ rights and democracy….
Some progressives have criticized CSR, describing it as a charade and a public relations tactic that left the profit motive intact and did not require substantial changes in the way companies did business. But Ben & Jerry’s did more than brand itself as interested in social justice and political equality.
As its 2024 lawsuit made clear, Ben & Jerry’s has wanted to take political stands even if it meant that it would lose some customers.
That last line there is the kicker. Ben and Jerry (and presumably Dave Stever) thought their political preoccupations were more important than the performance of their company. They were all too happy to sacrifice the latter in support of the former. The only problem with that, of course, is that it’s not their company. Not anymore. It may have their names on it, and they may have worked there right up until a couple of weeks ago, but they sold it to Unilever in 2000 for almost a third-of-a-billion dollars. Ben and Jerry made a choice, in other words, to get rich and, in return, to shut the hell up. That they regret the second half of that bargain is both unsurprising and unimportant. If they wanted to have the right to sacrifice their company’s performance in pursuit of political jawboning, they certainly could have – but not after they willingly took more than $326 million (more than $610 million in today’s dollars) in other people’s money. At that point, it was “their company” in name only, making their politics a liability rather than a prerogative.
Both Ben and Jerry insist that Unilever promised them that they would be able to continue to prattle on about politics as long and as loudly as they wanted to, but that’s not how it works. That’s not how any of this works.
Sarat goes on to cite the Business Roundtable and its infamous 2019 Statement on the Purpose of a Corporation as proof that Ben and Jerry are being railroaded, that CSR is a real thing, and should be treated as such. What he fails to mention, however, is that that statement was a disaster from the beginning, that it damaged the BRT’s reputation immeasurably, and that it is itself proof positive of the political capture of American business. More to the point, in political and financial terms, 2019 was eons ago. The business ethos that dominated then is no longer relevant, and everyone knows it – save, perhaps, Jerry Greenfield and Austin Sarat.
Just after the BRT’s statement redefining the purpose of a corporation, which ushered in the new er of “stakeholderism,” I made the following prediction:
The simple truth of the matter is that the constant, ongoing, and presumably never-ending access that major corporations have to exceptionally cheap capital makes pleasing everyone at all times seem plausible and, moreover, perfectly sensible. If we can continue to keep our balance sheets looking stellar – through manipulation and access to easy money – then we can keep shareholders happy, we can keep management happy, we can keep employees happy, we can keep elected officials happy, and we can engage in a little politicking on the side because…why not? Who is going to complain?
The problem here is that eventually, something has to give. Eventually, the Fed will have to acknowledge that it has strayed far from its mission and – guess what! – inflation is suddenly a serious issue. Or eventually, investors will figure out that a company’s profit-margin growth does not equate to increases in sales or productivity and is being accomplished using dirt-cheap money invested elsewhere. Or eventually, it will become clear that stock buybacks enabled by cheap money will keep shareholders and management happy but do not constitute a long-term corporate strategy. Eventually, something has to give. And when it gives, some, maybe all, stakeholders will suffer. And it will no longer be “easy” to please everyone. And yet some managers, at some companies, will continue to try, even as it becomes harder and harder to do. And this will lead, inevitably, to even bigger issues and a bigger “something” giving.
Well….guess what? Some things gave.
Unilever decided that what it had to “give” was Jerry Greenfield and his political pursuits. Other companies made other decisions – as did investors, asset managers, and almost everyone else involved in the capital markets. Those who have not yet decided what to give – the EU, for example – are learning that the “bigger something” is likely to be their long-term economic and corporate viability.
None of this is Donald Trump’s fault. And nor was it Joe Biden’s fault. Or any other politician. This is simply reality. This is how the world works. A corporation’s primary social responsibility is to stay in business, to provide goods or services for its customers, jobs for its employees, and a return on their investment for its owners/shareholders.
If Ben and Jerry wanted to use their ice cream to score political points, all they had to do was turn Unilever’s offer down. But they didn’t. And now their Corporate Social Responsibility is to bite their tongues or to use some of their own money – of which they now have a great deal – to support their political ends.
