The pendulum in politics seems to swing back and forth, going from one extreme to the other, but ultimately finds itself mean averting to near center. The pendulum of business appears to do the same. The extreme left swing brought such things as diversity, equity, and inclusion into the corporate board room, a place in the past known only to maximize shareholder value. In a free society with checks and balances, via unbiased news and information, the populous will react to extremes and push back toward what was considered mid ground. Seemingly overnight activist groups on the left usurped power and administered their manifesto to what seemed to be an overly compliant board and management.
Companies from Target to Anheuser Busch have acquiesced to the DEI movement and have paid the price in terms of market share and stockholder value. You can only push a populous so far in one direction until resistance is met. This current resistance comes in the form of anti-woke shareholder activist groups, who like those on the left, are pushing their agenda into the workplace.
It’s different though. One would think that there would be no need for such anti-woke activism if the progressive line had not been pushed on corporate America. As stated by Scott Shepard, general counsel at the National Center for Public Policy Research, or NCPPR, “We who would prefer corporate behavior without partisan influence have really started to get into the game after years of quiescence.”
The drama plays itself out in the way of shareholder proxy measures and votes upon them. Everything from unseating board members to taking control of a company can all be accomplished through proxy measures. According to data from ISS-Corporate, shareholders have voted on 70 measures opposing traditional ESG initiatives at S&P 500 companies through the end of May this year, up from 30 two years ago and seven in 2020, a ten-fold increase. Data from the Wall Street Journal suggests annual meetings of UPS, Target, Ford, GE Aerospace, and IBM have or will vote on such anti-ESG proposals this year, while those of PepsiCo, Coca-Cola, and Citigroup all feature challenges to DEI measures on their agendas. The times they are a changing.
As mentioned, although the anti-woke measures have increased some ten-fold, they are not taking traction at the ballot box. ISS-Corporate notes that despite the rise of hostile motions, they’ve generated a median support level of 1.6 (percent) so far in 2024. So why is that? Mom and pop who hold a hundred shares of Target may vociferously disagree with the DEI corporate agenda, but have little say in affecting company policy. On the other hand, large institutional investors like pension funds and hedge funds hold multibillion dollar stakes in the companies under culture war assault and are deeply committed to most ESG objectives, especially on environmental issues. These are the real elephants in the board room, and unlike mom and pop and activist investors in general, they have the ability to bring a Fortune 500 company to its knees.
The current regime on the left will tell you that these ESG and other measures benefit the company and society at large in the longer term. Of course there will be studies that show that the initial financial outlay is more than made up for in corporate profit and somehow measured social good. According to Sarah Kate Ellis, chief executive of Glaad, a nonprofit focused on LGBTQ advocacy, “Supporting ESG work is the right thing to do and absolutely imperative for your business and the future of your business.” When talking out of the sides of their mouths, what they don’t tell you is that there’s something called opportunity cost and a firms cost of capital. The capital asset pricing model says that to maximize shareholder value, a firm should expend capital on the asset or project with the greatest internal rate of return. One knows that this won’t be a woke social program.
Take a close look at the footnotes in the next quarterly or annual report of a company whose stock you own, and see what potential liabilities they have via lawsuits. This is the hidden cost of both sides on shareholder activism. According to Reuters, recent litigation includes a lawsuit by affirmative action foe Edward Blum against a venture capital fund backed by JPMorgan Chase that makes grants to Black women, as well as a securities fraud lawsuit by a Target shareholder who says he lost money in the backlash to Target’s sale of LGBTQ-themed merchandise last spring, to name but a few.
The tit for tat in the courtroom will go back and forth largely ignored by the public. Corporations will remain acutely aware as this affects the bottom line. In all likelihood, we’ll see this latest wave of anti-woke shareholder proxies begin to bring the balance of politics in the boardroom back to the mean. What comes around goes around.
