Left-wing activists have weaponized the shareholder voting process by forcing public companies to adopt policies that are politically rooted and unrelated to financial performance. Congressional legislation is needed to curb the number of activist resolutions and focus on reforms that improve public companies and deliver economic benefits to all shareholders.
Publicly traded companies are subject to the proxy voting rules of the Securities and Exchange Commission, Section 14 of the Securities Exchange Act of 1934. Controlling the voting process The interaction between shareholders and management in deciding how to run the company.
SEC Rule 14a-8The , which is derived from this law, provides 13 exceptions that allow companies to exclude resolutions from the vote pending SEC approval. Many of these resolutions are meritless and have no substantial economic impact on the company and its shareholders.
Not all shareholders agree on what information is important when making voting decisions. Speaking about the SEC’s climate disclosure rules, SEC Chairman Hester Pierce said: stated that “[a]”All reasonable investors will focus on financial returns, but they may differ as to whether non-economic considerations are material.” Pierce explains that it is important to avoid “bombarding” investors with “information that is not relevant to the company’s financial position.”
The SEC is largely responsible for the rise of left-wing shareholder activism. In 2021, Gary Gensler’s SEC Guidance Documents It allows activists to force public companies to focus on what they describe as social, environmental or ethical issues.
The guidance, known as Staff Law Bulletin No. 14L, will make it harder for public companies to exclude shareholder resolutions from being included in their proxy statements. As things stand, companies may still be required to solicit shareholder votes. Request a resolution a company-wide “racial equity audit” or a commitment to reduce the company’s greenhouse gas emissions by a specified date.
Last year, the public pension fund was As “one of the most vocal advocates on social issues,” the union has submitted or supported “proposals, primarily related to racial equity audits and political funding disclosure.” Pension funds and unions are working to force U.S. companies to adopt ESG-related policies.
Support for ESG-related proposals is decreasingThe overall number of ESG-related resolutions being submitted is increasing. According to one study: report“[t]The number of resolutions on environmental and social issues will increase by 23% to 337 in 2023, up from 273 in 2022.”
The number of activist shareholder resolutions continues to grow at an astounding pace. Last year, approximately 65 percent “Of the total number of proposals filed,” activist proposals continue to make up a large proportion of all shareholder proposals.
The recent lawsuit against ExxonMobil is a perfect example of investor activism in action. Oil and gas companies Sued Activist investors Follow This and Arjuna Capital have filed a resolution calling on Exxon to reduce its greenhouse gas emissions. already “It rejected a proposal with substantially the same subject matter” as the resolution submitted by the activists.
California Public Employees Retirement System (CalPERS) Recently Announced ExxonMobil has indicated it intends to vote against ExxonMobil’s CEO and board of directors in retaliation for suing Followis and Arjuna Capital. Exxon’s lawsuit is justified given that activists have weaponized the proxy voting process through their acquisitions. Minority Shareholders Within a corporation, they submit perfunctory shareholder resolutions on topics unrelated to the company’s financial performance.
The best solution to prevent activists from submitting unjust resolutions is to Stop Woke Investments Bill (S. 3179) This bill would impose limits on the number of resolutions that may be introduced at a company’s annual proxy meeting. The number of resolutions varies depending on the size of the company.
The bill would also require resolutions to have a material impact on the company’s financial performance, and investors would be required to submit proposals that focus on the financial benefits to all shareholders.
Simply put, this bill would strip the power of the SEC and activist investors, giving companies more freedom to decide which resolutions to vote on. The bill would narrow the scope of resolutions, allowing companies and investors to waste less time on political issues and focus more on real issues like cash flow, liabilities, operating expenses, and revenue.
Activist investors cannot be allowed to use the proxy voting process as a political tool. The Stop Woke Investing Act would empower American capitalism while severely punishing ESG policies.
It’s time to take politics out of the boardroom and ensure that financial factors are always the only consideration.
Brian Bashur is director of monetary policy at the American Tax Reform Institute.
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