In May 2021, activist hedge fund Engine No. 1 gained the support of major shareholders, such as Blackrock, to force the departure of three members of the board of directors of Exxon Mobil. The three board members were replaced by the fund's other candidates.
Typically, companies hire board members through a process similar to that of recruiting executives. They then issue a ballot to their shareholders to elect their new board members. Engine 1 wasn't required to appear on the ballot, as the company didn't have to do so. However, due to a regulation issued by the Securities and Exchange Commission under the Biden administration, the company would have to include the fund's candidates on the ballot if an insurgent campaign were to occur.
Will Hild, the director of Consumers Research, said that the SEC's rule would help reduce the costs associated with the recruitment and training of new board members. He noted that it would also increase the chances that minority shareholders would be able to participate in the company's operations. According to him, the rule could allow investors to bring forth candidates who are capable of improving the company's profitability.
Hild noted that the SEC's rule was one of several measures that it has taken to allow activist investors to participate in the company's operations. One of these is by removing the requirement that shareholder proposals should be specific to the company's core business. He said that there has been a significant increase in the number of political-oriented proposals that have been submitted by investors.
Following the leak of the Supreme Court's decision on the matter of Dobbs, various companies, such as Wal-Mart, TJX, and Lowe's, faced shareholder proposals that criticized the company's support for abortion rights.
—In response, Trillium Asset Management and Clean Yield Asset Management submitted shareholder proposals. They asked the companies to provide a comprehensive report on the potential risks and costs that they could face due to the policies and proposals that restrict reproductive rights. They also requested that the company disclose the various strategies that it has in place to minimize these risks.—
— Several companies, such as McDonald's Corp. and Meta Platforms Inc., are facing questions regarding animal welfare. Also, major banks are being held accountable for their actions related to climate change.
These and other controversial issues will be decided by shareholders at upcoming annual meetings. In total, over 200 shareholder resolutions have been submitted to companies in the US. The support that the world's biggest money managers have shown for these proposals has put more pressure on companies to address these issues.—
All of these issues are fair game. According to Blackrock, shareholder proposals that receive around 30 to 50% support usually result in the company taking action. The company can also leverage its power to influence the composition of corporate boards. As a proxy for its investors, Blackrock can force activist proposals to appear in the image of its CEO Larry Fink.
How many of the investors who have money in Blackrock funds actually want to see Exxon Mobil stop drilling and McDonald's and Apple carry out race audits? The SEC is supposed to protect these individuals, but it has recently allowed institutional investors to use their funds to push political agendas. This is supposed to be a boost for left-wing social activism as the individual investors who are affected by these issues are not being heard. Instead, the large money managers are spending their time attending the Davos meetings.
"According to Hild, the increasing number of shareholder proposals that are aimed at disrupting the operations of companies will lead to more costly and time-consuming meetings. It will also give activists more leverage to influence the composition of corporate boards. Despite the negative effects of these proposals, the SEC's new rules should still prevent it from beingbiased against free-market proposals."
The parallel economy is also expected to lead to more frequent and costly boardroom battles. One of the first companies to take on the ESG agenda is Strive Asset Management. In September, the Wall Street Journal reported that the firm sent letters to the boards of Apple and other companies. In the letters, Strive urged companies, such as Disney and Apple, to avoid focusing on ESG issues and instead focus on their core business. The firm also urged energy giant Chevron to increase its fossil fuel production and reduce its spending on climate change.
The preceding is a summary of an article that originally appeared on PJ Media.
