17 Apr PUBLIC PENSION CORNER, #40: Getting to Growth through Shareholder Engagement
NEWS:
I. Department of Labor Promotes ESG Skeptic
The Department of Labor’s Employee Benefit Security Administration recently promoted Justin Danhof, the OG shareholder activist fighting the politicization of capital markets, to Policy Director. Danhof has battled ESG and other attempts to dilute shareholder rights at the National Center for Public Policy’s Free Enterprise Project, at Strive Asset Management, and, for the last year. at the Labor Department:
Previously, Danhof served as the head of corporate governance at Strive Asset Management, an investment firm that opposes what it calls “woke” policies and environmental, social and governance investing launched by former Republican presidential candidate — and current Ohio gubernatorial candidate — Vivek Ramaswamy.
In a speech before the Organization for Economic Co-operation and Development in September, Danhof compared ESG to Marxism.
“ESG, at its core, looks a lot like a Marxist march through corporate culture,” Danhof said. “What is the point of Marxism? The complete destruction of capitalism.”
II. ESG Shareholder Resolutions Crater
Proxy Impact – a left-leaning, pro-ESG shareholder engagement organization – has prepared a report noting a precipitous drop in pro-ESG shareholder proposals this proxy season:
Shareholders have filed 184 proposals promoting environmental, social and governance themes at U.S. companies so far this proxy season, a new study found, about half as many as last year, as Republicans in Washington work to shift corporate power from investors to managers. At a comparable point in last year’s springtime proxy season investors had filed 355 proposals, according to the report’s co-author Michael Passoff, CEO of Proxy Impact, opens new tab, an advocacy and proxy voting service for sustainable investors….
Support for environmental and social measures has fallen in recent years. Big investors say companies have already made significant reforms, while ESG-focused critics say executives simply abandoned their onetime diversity and climate ambitions.
The report will be published by shareholder group As You Sow and was co-authored by Amy Galland of Empower Venture Partners.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Getting to Growth through Shareholder Engagement”
This past week, the Institute of Economic Affairs (IEA), a right-leaning, free-market think tank based in the UK, published a report that was both demoralizing to Brits and indicative of the largely unacknowledged but growing gap between the United States and most of the rest of “the West.”
Although the entire 74-page report is packed with interesting data, the headline numbers – at least for the folks on social media – were 7 and 51. The first of these represents the spot that more than 3000 survey respondents believed the UK would occupy on a list of “wealthiest” American states. The second is the spot it would occupy in reality. In terms of per capita GDP, the UK now ranks below every single American state. Or as various wags put it on Twitter: the Brits are poorer than Mississippi! And Arkansas. And Wets Virginia.
According to the IEA, most UK residents are shocked and embarrassed by this and, consequently, express a profound desire to increase the country’s economic growth. Unfortunately, this desire is mitigated by the fact that they also tend to embrace political and economic sentiments that make changing public policy to accommodate growth an exceptionally dubious proposition. Consider the following, for example:
The biggest political obstacles to support for pro-growth measures are perceptions around fairness…. Voters distrust big business and significantly overestimate profits, holding the belief that economic growth benefits corporations at the expense of consumers.
Now, to be clear, I am not what you’d call a huge, unadulterated supporter of “big business.” This is especially true when business and government “work together” (i.e., collude) to set economic policies that benefit both of them at the expense of the broader public. That’s called corporatism, and it’s no good for anyone. Ideally, public policy would support “markets” rather than big business. But then, that’s an argument for another day.
The relevant point here is that the survey respondents had no idea that understanding and accepting corporations are the unavoidable solutions to slow economic growth. As long as people and their elected representatives see business and capital as the enemy, the UK will continue to struggle economically. The IEA report suggests an education campaign to bridge “this gap by emphasising the role of businesses in creating jobs, delivering prosperity, and boosting innovation….” That would undoubtedly be helpful, but it’s only the tip of the proverbial iceberg.
The bigger issue is that Britons don’t seem to understand that “corporations” aren’t independent, ethereal entities that exist in a separate, largely inaccessible economic realm. Rather, corporations are merely an amalgamation of their owners. And in the case of publicly traded corporations, those owners are the public itself, the shareholders.
Most statistical estimates place the percentage of American adults who own stock in publicly traded corporations at around 60-65%. By contrast, the estimates for the UK are between 21% and 26. This latter number is somewhat misleading, in that a great many more Britons own shares of corporations through pension plans but don’t know/realize it. Still, the broader point remains: roughly two-thirds of Americans think of corporations as “us,” in that they rightly see themselves as the beneficial owners of the companies, whereas three-quarters (or more) of Britons see corporations as “them,” external and often hostile entities.
As I noted in The Dictatorship of Woke Capital, one of the keys to turning the entire United States, and especially the Democratic Party, into advocates of economic growth was the stock-market revolution launched by the establishment of 401(k) retirement plans in the 1980s and ‘90s. Once Democratic voters and politicians recognized that the old labor-capital dichotomy was obsolete and nonsensical in the age of widespread access to capital markets, they embraced the growth motif wholeheartedly. To be sure, that realization facilitated some truly terrible ideas (ESG, for example), and it helped enable the “financialization” of the economy, which can be problematic in its own way. For the most part, however, it’s been quite beneficial.
To that end, perhaps the most important thing that the IEA and its allies can do to convince the UK to shift toward more growth-oriented public attitudes and policies would be to educate them on the realities of business ownership and capital markets. Granted, the UK, like most of Europe, has a much longer and more profound history of antipathy between labor and capital. Even so, this is no longer the era of violent miners’ strikes and open hostility between workers and management. The economic world has changed, and it’s not going to change back. As soon as members of the public realize this – and realize that they are likely already owners of corporate stock through their pension plans – the sooner they will be able and willing to pressure their government to back away from economic growth-killing public policies, including those that throttle the development of energy resources necessary for the economy to thrive.
Not coincidentally, this mission – to convince certain entities to embrace growth as a function of increasing shareholder value – is identical to the mission of this newsletter and of the State Financial Officers Foundation’s Public Fiduciary Network (which is a sponsor of this newsletter and where I am the scholar in residence). The last bastion of the labor-capital anachronism is the public sector, where union leaders often see themselves as the last bulwark against capitalist domination. As a result, they often act to thwart business and economic growth. In truth, of course, they are thwarting the comfortable retirements of their beneficiaries and boosting the tax burdens of residents of their jurisdictions. That is our battle to fight – to raise the awareness of the fallaciousness and deceptiveness of their politicized decisions. If we are successful, everyone, pension beneficiaries especially, will be better off.
The same goes for the UK (and the EU). If groups like the IEA succeed in raising awareness and changing attitudes at scale, then all Britons (and Europeans) will be better off as well.
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