Shareholder Activism Through the Gell-Mann Lens

Shareholder Activism Through the Gell-Mann Lens

Nearly two decades ago, Michael Crichton, the late author of some of the most successful books and screenplays of the last half-century, identified a condition called “Gell-Mann Amnesia,” which he described as follows:

Media carries with it a credibility that is totally undeserved. You have all experienced this, in what I call the Murray Gell-Mann Amnesia effect. (I refer to it by this name because I once discussed it with Murray Gell-Mann, and by dropping a famous name I imply greater importance to myself, and to the effect, than it would otherwise have.)

Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.

In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know.

I mention this today specifically because last week, I happened upon one of those articles where I could see that the “journalists had absolutely no understanding of either the facts or the issues.”  It was a piece from the front page of The Wall Street Journal addressing the pushback against ESG.  And it was abominable:

A new kind of shareholder activism is rattling companies: “anti-woke” agitators….

The activists frame the push as getting politics out of business—and suggest getting used to it….

Advocates for more progressive environmental, social and corporate-governance shareholder proposals call the newcomers politically motivated and cite research suggesting more established ESG measures improve long-term financial outcomes at companies….

[A]nti-ESG proposal growth outpaced that of other categories tracked by ISS.

Anti-ESG supporters haven’t won over voting investors, however: Most anti-ESG proposals received support from less than 2% of shares voted, and none have passed—among the worst showing of the categories tracked by ISS.

Pardon my French, but what fresh hell is this?

The factual mistakes in this piece are legion and begin even before the article itself does, in the headline: “Anti-Woke’ Shareholders Are Going After Corporate Boards.”  As I have noted before, a small part of this confusion is my fault for titling my book The Dictatorship of Woke Capital.  A larger, though still quite small, part of the blame falls on my friend-quantaince Vivek Ramaswamy, whose book on the subject is called Woke, Inc.  The rest of the responsibility here is that of the reporters and editors at the paper.  If they had any “understanding of the facts or the issues” involved in this story, they’d know good and well that this is NOT about “woke” and that the activist investors in question are hardly “anti-woke.”

In truth, this is all about the breach of fiduciary duties by corporate executives and their allies in the ESG movement.  Stop me if you’ve heard this before, but by injecting overtly political sentiments and strategies into capital markets, these executives and asset managers effectively undermine the rights of the owners of corporations (i.e. shareholders).  This is both a violation of their responsibilities as agents of the owners AND an infringement on the rights of the people (i.e. voters) to self-determination.

The activists in question – and, in his case, Scott Shepard, the Director of the Free Enterprise Project, is quoted prominently – are not trying to stop the “woke-ification” of capital markets.  They’re trying to stop the politicization of capital markets.  It just so happens (although NOT coincidentally) that those trying to politicize markets are almost entirely on the fringe political Left.

As I have argued elsewhere (in conjunction with Russ Greene), if the Right were to adopt ESG tactics to advance a purely political agenda, that too would constitute an abuse of capital markets and a breach of fiduciary duties.  I would expect guys like Scott Shepard to push back against that as well.

Speaking of Scott Shepard, the Journal’s intrepid reporters refer to him and the Free Enterprise Project as “newcomers” to the shareholder activism space.  I’m not sure what definition of “newcomer” they used, but I do know that Scott makes an appearance in The Dictatorship, which was written four years ago this summer.  I also know that the guy who hired Scott and who was his predecessor as the Director of the Free Enterprise Project is Justin Danhof, whose leadership on this matter for years prior to 2020 is what inspired me to take up this subject and to write the book in the first place.  Finally, I know that Justin – who is now the Head of Corporate Governance at Strive Asset Management – worked (first as an intern, then as an employee, and eventually as the boss) at FEP from 2008 to 2022, when he passed the baton to Scott.  If I do the math correctly, that’s…a long time.  “Newcomers” my foot.

The reporters go on to note that the “anti-woke” shareholder proposals don’t get much support in proxy votes, which, they imply, indicates that the entire effort is merely a nuisance.  While it would be nice if those proposals received greater support, that’s not the point – and it never has been.  The point, rather, is to ENGAGE with corporate leaders, using whatever leverage is available.  The big boys – the Big Three and other large asset managers – use the fact that they control tens of trillions of dollars in assets as leverage.  The not-so-big boys – like FEP – use the process itself as leverage, knowing that corporations don’t like their political activism exposed and don’t like to have these “embarrassing” proposals on their proxy statements in the first place.  When a guy like Scott Shepard – or the inimitable Jerry Bowyer, to name just one other – has a proposal on the proxy statement, he gets to read that proposal at the shareholder meeting, gets to watch the company’s CEO squirm as he tries to explain his political foolishness, and often generates headlines for his trouble.  Corporate leaders hate that, which is exactly the point.

As Michael Crichton noted above, “Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the ‘wet streets cause rain’ stories.”  True to form, the Journal’s reporters do just this, attributing rain to wet streets:

The shareholder proposals are part of a wider conservative activist effort directed at companies in recent years that in some cases have hurt sales by putting firms in the crosshairs of heated cultural and political debates.

Bud Light lost its spot as the top-selling beer in the U.S. last year after controversy over a social-media promotion with a transgender influencer caused a boycott from some shoppers. Target’s sales fell last summer after it reduced its Pride-month merchandise displays amid criticism, offending both supporters and detractors. Target also faces a shareholder lawsuit regarding the Pride collection.

Seriously?  This is about as backward as backward gets.  Addressing the Bud Light and Target stories, starting with backlash is a little bit like analyzing World War II starting on February 13, 1945 or even August 6 of that year – the initiation of the American/Allied firebombing of Dresden and the date on which the Americans dropped the first Atomic bomb Hiroshima, respectively.  “How cruel and vicious were the Americans, who destroyed two historic cities in pursuit of their radical agenda.  How cold and callous were Franklin Roosevelt and Harry Truman in their aggressive violence against the harmless Nazis and Imperial Japanese!  For shame!”

In reality, the boycotts of Bud Light and Target were end-stage battles in the culture wars, just as Dresden and Hiroshima were end-stage battles in World War II.  The conservatives who boycotted the two brands were hardly the aggressors.  In fact, in these cases – as well as countless others – conservatives were playing catch-up.  They were always on defense and never, even remotely, on offense.

One might reasonably expect that journalists for the world’s most respected financial newspaper might know what the Human Rights Campaign (HRC) is, what the HRC’s Corporate Equality Index (CEI) is, how the former has bullied companies for decades, how the latter has long been a proxy for the “S” in ESG, and how both Bud Light and Target were simply trying to burnish their “S” scores by indulging HRC.  Unfortunately, one would have to be hopelessly naïve to do so.

This whole story – and the burgeoning genre of which it is a part – is insane.  It’s so backward as to be laughable – but only to those of us who know better.  The rest of the world thinks Scott Shepard and the Free Enterprise Project are the aggressors in this culture war-inspired manipulation and abuse of capital markets.  The rest of the world suffers from Gell-Mann amnesia.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.