Own stocks? Chamber lobbies against shareholder democracy

Own stocks? Chamber lobbies against shareholder democracy
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This summer, during an event hosted by the U.S. Chamber of Commerce, Securities and Exchange Commission Chairman Jay Clayton indicated that he was weighing the idea of restricting the ability of shareholders to file proposals under the Securities Exchange Act. Around the same time, the Chamber released a paper criticizing shareholder proposals and suggesting ways to limit them.

By now, it is abundantly clear that the Trump administration and the Republican Congress are advancing the Chamber’s agenda, especially when corporate power and profits are at stake. So when the Chamber criticizes shareholder proposals and invites the SEC chairman to discuss the issue, we should worry that it wants him to undermine the fundamental tenets of shareholder democracy.

The Chamber claims that shareholder proposals, the primary vehicle for shareholders to raise their voices, are burdensome for both corporations and investors themselves. It argues that shareholder proposals are used to advance “political” and “idiosyncratic” agendas, like those seeking disclosure of corporate political spending or corporate policies on climate change, and that they are costly for companies.

Do these arguments withstand scrutiny? Simply put, no. The United States is experiencing a surge of consumer activism. For many, shopping has become a political act. Companies like PepsiCo, Disney, Nordstrom and Under Armour have found themselves under siege from customers upset by these companies’ perceived political activities or ideological leanings.

In an age of consumer activism, companies must be particularly careful about how their ideologically diverse customers will react to political spending. As such, not only does political spending transparency help investors understand the risks of a consumer backlash, it also forces management to address these risks, thereby minimizing the threat a backlash poses to companies’ bottom lines and in turn to their investors’ portfolios.

Similarly, climate change poses a significant risk to the profitability of numerous companies. Insurance, energy, food and beverage, and travel and tourism companies are just a few of the corporations whose business models may well be upended by climate change in the next few decades. Indeed, Vanguard just affirmed the importance of corporate disclosure on climate risk, which has been the subject of numerous resolutions. Dismissing shareholder resolutions on climate change as “political” reveals the Chamber to be taking an incredibly short-sighted, head-in-the-tar-sands approach to business in the 21st century.

What’s more, a large body of research demonstrates that companies that perform well on various environmental, social and governance metrics financially outperform companies that score poorly on these same indicators. Companies themselves seem to recognize this, judging by the fact that the vast majority of Fortune 500 companies tout their sustainability commitments on their websites and in their annual reports and more than half of the S&P 100 have moved to disclose some or all of their political spending. Research also shows that the costs associated with shareholder proposals are quite low and that public companies average only one proposal every four years. And while the Chamber would have us believe that there is some sort of epidemic of shareholder proposals, there is in fact no upward trend of proposals being filed.

So what is true about shareholder proposals? Critically, they have repeatedly been used to improve governance and performance at public companies. For example, shareholder proposals were behind the move towards requiring that independent directors constitute at least a majority of corporate boards. They have also been used to promote board diversity and give shareholders a say on executive pay. Shareholder proposals have not only provided shareholders with a voice, but also improved corporate performance.

So why would the Chamber ignore this rich history and lobby to restrict shareholder proposals? The big business-focused trade association is likely looking out for its own interests and those of corporate executives who don’t want to cede any power to investors. Because some proposals advocate for corporate political spending transparency, the success of these proposals would have the side effect of revealing one of the Chamber’s most guarded secrets: who funds it. And because the Chamber has become a hyper-partisan election-spending behemoth under President Thomas Donohue, greater transparency might also discourage some public companies from funding a group that constitutes an obvious reputational risk.

In any event, the Chamber’s steadfast opposition to shareholder democracy once again proves that its primary concern isn’t defending a strong economy or investors, or even sound management practices at public companies, but is instead defending its own power and those of corporate executives. SEC Chairman Clayton should resist the Chamber’s call for changes to the shareholder proposal process, and should do what he has stated publicly as one of his main goals: protect retail investors and their rights.

Daniel Dudis is director of the Chamber Watch Project at Public Citizen.