22 May PUBLIC PENSION CORNER, #44: The Virtue of Virtues
NEWS:
I. Texas (and three other states) Sue ISS
The attorney generals of Texas, Nebraska, Iowa, and West Virginia have filed suit against Institutional Shareholder Services (ISS) over its proxy recommendations and ESG policies:
Republican AGs in West Virginia, Iowa, Texas and Nebraska claim ISS violated state consumer protection laws by deceptively advertising its proxy voting recommendations as objective.
“Instead of providing its clients objective and impartial investment advice, as advertised, ISS has provided and continues to provide advice tainted by ISS’ own ESG ideological considerations untethered to its clients’ best financial interests and prepared in close coordination with ESG activists,” says the complaint by Nebraska AG Mike Hilgers….
The lawsuits claim ISS’s voting policies are driven by ESG investors, which include ISS’s owners. ISS said its “principal ultimate owner is Deutsche Boerse AG with the remainder ultimately owned by private equity firm General Atlantic.” The Nebraska suit says Deutsche Boerse in 2022 joined the Net Zero Financial Service Providers Alliance, a coalition of financial institutions committed to achieving global net zero greenhouse gas emissions by 2050.
II. Activist Investors Vote ESG vs. Big Tech
Activist investors – the usual suspects in the promotion of ESG – are currently questioning big tech companies’ ability to reconcile their plans for AI with their consumption of energy, especially that produced by hydrocarbons. And they are voting accordingly:
Activist investors are pushing technology companies to explain how they’re reconciling surging electricity demand for AI with their climate commitments. Shareholders at Amazon.com Inc. voted on a proposal asking the firm to disclose more information. Voting is open for shareholders at Meta Platforms Inc. and Alphabet Inc. and will conclude later this month and in early June at each company’s annual meeting….
The new effort shows that green shareholder activism, while quieter than in its heyday in the early 2020s, persists. The proposals were filed by the nonprofit As You Sow, along with Presbyterian Life & Witness, Mercy Investment Services and Trillium Asset Management….
All three companies recommended that shareholders vote against the proposals in their annual proxy statements, arguing that they already make relevant climate disclosures to shareholders. Meta and Alphabet declined to comment further. Amazon said support for the proposal was lower than that for a similar measure last year.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“The Virtue of Virtues”
Utah is, inarguably, among the most fiscally sound and responsible states in the country. The data here are clear and inarguable. Utah holds a AAA Government Credit Rating. In fact, it holds a “triple, Triple-A rating,” indicating that S&P, Moody’s, and Fitch all agree on the state’s creditworthiness. Utah ranks among the top states for taxpayer surplus, with a $14,400 per-taxpayer surplus, earning an “A” grade for financial strength from fiscal watchdog Truth in Accounting. It has a very strong economy and the second-highest median household income (adjusted for cost of living). It ranks 39th in federal funds reliance, which is to say that only 11 states use fewer federal dollars in their budgets.
More notably in the context of this publication, Utah’s state pensions are among the nation’s strongest and best-funded. Utah Retirement Systems (URS) is one of the best-run public pension funds in the country. URS “has a funded ratio of 94.4% as of late 2023, well above the national aggregate of 77.7% projected for 2025.”
In terms of prudence and responsibility – as well as growth and opportunity – it’s very hard to beat Utah and its institutions.
This past week, I spent considerable time with a handful of public fiduciaries – including two from Utah – at an event (sponsored by Prospr Aligned, which is also one of the sponsors of this newsletter) that was billed as “fiduciary training.” What was interesting about this “training” is that much of it was done by the fiduciaries themselves. Those of us on this side of the discussion – analysts, researchers, advocates, etc. – sometimes get overly used to telling others what it means to be a fiduciary and what it takes to resist the politicization of that role. It was nice – and edifying – therefore, to hear from actual fiduciaries about what they think is important, what they must do to perform their duties, what type of help they need from those of us on this side to engage responsibly.
Among the most frequently discussed matters this week, by both presenters and fiduciaries, was the difficulty in finding people who are willing and able to perform the duties required of a fiduciary. Several speakers noted that it takes courage. Those who would politicize pensions and capital markets more generally are usually quite wealthy, quite powerful, and quite well-connected. To stand up to them and to push back requires considerable grit. It also requires great dedication. The “parts” here are numerous and constantly moving. Keeping up with all of it is not easy. It requires public-spiritedness. Many of these “jobs” are volunteer, which means that instead of doing them, people could be doing literally anything else. It also requires independence and, of course, honesty.
In short, being a fiduciary – public, private, whatever – requires virtue.
And that brings us back to Utah.
Over the past decade, a handful of stories, articles, and analyses have been written attempting to explain Utah and its unique position in modern America. While many states do well to enable their citizens to live the best lives they can, Utah stands out among the fifty. It has, in many ways, been the best able to maintain access to the American Dream. Megan McCardle – now at The Washington Post and then at Bloomberg – penned what is likely the best-known such article not quite a decade ago. She put it this way:
There’s no getting around it: For a girl raised on the Upper West Side of Manhattan, Salt Lake City is a very weird place. I went to Utah precisely because it’s weird. More specifically, because economic data suggest that modest Salt Lake City, population 192,672, does something that the rest of us seem to be struggling with: It helps people move upward from poverty. I went to Utah in search of the American Dream.
Columnists don’t talk as much as they used to about the American Dream. They’re more likely to talk about things like income mobility, income inequality, the Gini coefficient — sanitary, clinical terms. These are easier to quantify than a dream, but also less satisfying. We want money, yes, but we hunger even more deeply for something else: for possibility. It matters to Americans that someone born poor can retire rich. That possibility increasingly seems slimmer and slimmer in most of the nation, but in Utah, it’s still achievable….
[T]hings look a lot better in Salt Lake City, which economists Raj Chetty, Nathaniel Hendren, Patrick Kline and Emmanuel Saez identified as having the highest rates of absolute upward mobility in the nation. So I went to Utah to discover its secrets and assess whether they could be exported.
McCardle famously concluded that a big part of Utah’s success – upward mobility, low homelessness, functional government, efficient bureaucracy, effective and prolific aid for the needy – is at least partially driven by the church in Utah, the Church of Latter-Day Saints (i.e., the Mormons). The Church, she argued, is more than just a non-state provider of social services that enables government to focus on governance (although it is that). It is also a source of stability, civic honor, and self-respect. It functions to provide the people of Utah purpose and meaning, which are often lacking in the rest of the country.
I would argue that it is also particularly successful in the transmission and practice of virtue from generation to generation, meaning that it inculcates its members not just with ideas and “values” but with the desire to put them all into practical action. It is important to remember along these lines, that Aristotle advocated a virtuous life specifically as the means to pursue man’s proper end (telos), the good life (eudaimonia). And while the Mormon Church also pursues the ultimate, spiritual telos, how else would one define what Megan McCardle found in Utah, if not the “pursuit of the good life”?
“Virtue,” clearly, explains Utah and its success. But it also explains the rest of the fiduciaries in this country (and around the world) who resist the politicization of pensions and markets, and work all day, every day to protect that with which they’ve been entrusted on their clients’ behalf. It explains you, gentle reader, and your desire to do what is right and just for your beneficiaries.
Over the last century, a handful of the West’s greatest minds have addressed the need for a rebirth of virtue in our society – C.S. Lewis, Alastair MacIntyre, Andrew Abela, to name just a few. They recognize what the Mormon Church has also recognized, that when it comes to doing what is right, practice makes (almost) perfect.
In my upcoming book, The Dictatorship of Big Capital, I argue that this rebirth of virtue, coupled with the original American spirit of independence, is the only thing that can save the country and the markets from the radical concentration of political power and investment capital. On the flight home from the Prospr event this week, I rewrote the final paragraph in the first half of the book to reflect more accurately what I had learned:
[I]t is important to remember that the attention paid to virtue by Spinoza and passed down by him (through various pathways) to the American Founders is the ultimate response to the social, political, and financial pathologies enabled by the concentration of capital. Spinoza’s social contract did not rest on shared religious belief. Rather, it rested on the practice of individual virtues — prudence, temperance, fidelity, and most especially courage — by sensible and publicly spirited men capable of restraining their passions and recognizing Tocqueville’s self-interest “rightly understood.” In this broader tradition, capital is the means by which prudent and industrious men and women participate in the commercial society. It is not an instrument of moral instruction, and nor, for that matter, are those who command it moral authorities. In this tradition, they are meant to be stewards: nothing more, but also nothing less. This is a critical distinction. As the great American story played out over the 20th century, the concentration of power and capital produced the consolidation of wealth and even the consolidation of permissible thought. But it went even further, producing a claim to moral authority, the belief that the holders of consolidated capital have not only the right but the duty to direct the conscience of the nation. Spinoza, Smith, Ferguson, and the American Founders, to name just a few, would all have rejected such a contemptuous and obnoxious presumption. Virtue, they understood, is properly the purview of individuals, not institutions.
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