Tcouncil unions Rarely look to corporate raiders for inspiration. Yet the Strategic Organizing Center (SOC), a coalition of North American labor groups, is running the kind of campaign normally associated with hedge funds. The group’s target is Starbucks, a coffee shop chain with a market capitalization of $107 billion. While traditional activist investors take a piece of a company and pressure management to change strategy, hoping to profit from a share price increase, SOC owns just $16,000 worth of Starbucks stock and ultimately wants to improve the lot of the company’s employees.
The basic principle is that the interests of shareholders and employees are actually aligned. Starbucks is wasting money and alienating customers with its approach to “human capital management,” the group argues. Productivity would be higher and spending on consultants lower if Starbucks followed the workplace advice. That is why it wants three of its candidates to be appointed to Starbucks’ eleven-member board. The hot drinks giant is less convinced. The board is already filled with “world-class business leaders,” says a representative, adding that a fifth of profits last fiscal year went to raises, training and new equipment.
Five years after the Business Roundtable, a 200-strong group of CEOs from some of America’s largest companies embraced stakeholder capitalism, but the mood is now very different. Most bosses would rather leave politics to the politicians and avoid the boycotts and bad publicity that come with getting into culture wars. They are content to focus on shareholder returns, rather than trying to improve society as a whole. But while top executives have largely given up their flirtation with stakeholder capitalism, they are still living with its consequences.
This year’s proxy season, which kicks off in the spring, is likely to even surpass 2023’s in terms of proposed non-binding resolutions. That year marked a record in the field of environment, society and governance (ESG) movements. Among the large and small U.S. companies that make up the Russell 3000 index, 513 of the 836 proposals submitted to shareholders addressed such questions, according to the Conference Board, a think tank. The increase reflected a legal shift. In 2021, the Securities and Exchange Commission (SEC), a regulator, said it would no longer allow companies to rule out measures as irrelevant if they were to focus on “significant social policies”.
Conservatives are also mobilizing. Last year’s proxy season included 92 anti-ESG proposals, compared to 54 the year before. On February 28, at the annual meeting of Apple, a technology giant, shareholders were asked to consider five such proposals, including one asking the company to report on the risks of not taking into account “viewpoints” in its equal opportunities policy. The supporting statement says there are indications that conservatives in Silicon Valley may be discriminated against. Another two, filed by conservative pressure groups, asked the company to report on how it arbitrates between government and consumer interests, particularly in its relations with China. For their part, liberals offered only one solution: ask Apple to change the way it reports on racial pay gaps. The company advised shareholders to reject them all, which they did.
Politics by other means
Will other campaigns be more successful? In 2023, the average environmental proposal received the support of only a fifth of shareholders, down from a third the year before. Shareholders are more disciplined, says Lindsey Stewart of Morningstar, a research organization, and only support climate change resolutions that target emissions over which companies have direct control or that they will have to disclose to satisfy regulators, rather than those in their own country. supply chains. Financiers have realized that it is not their job to determine energy or industrial policy, he explains. Meanwhile anti-ESG proposals fare even worse: on average they receive the support of only 5% of shareholders.
While such campaigns are rarely successful, they do matter. ExxonMobil, an oil giant, is taking the unusual step of suing its own shareholders who have made green proposals. Arjuna Capital, a hedge fund, and Follow This, a campaign group, used a stake of less than $4,000 to put forward a non-binding proposal to accelerate greenhouse gas reductions, with targets and timelines. The proposal has been withdrawn, but Exxon is still pursuing the case. It says that the underlying problem with the SEC‘s approach is still unresolved: clarity is needed on proxy voting rules that are “increasingly broken by activists posing as shareholders”. Many companies quietly agree.
And as the Starbucks case suggests, crusades are becoming increasingly ambitious. According to investment bank Lazard, more shareholder activist campaigns started in 2023 than ever before. Smaller groups, including the SOChave been helped by rules known as “universal proxy,” which were introduced in 2022 by the SEC and that means that both a company’s nominees and its dissident shareholders must appear before the board of directors on the same ballot. Instead of shareholders choosing one or the other, they can now mix and match with outsiders and insiders. The SOC has spent about $3 million on his fight. The outcome will indicate whether unions can enlist Institutional Shareholder Services and Glass Lewis, which advise institutional investors, on their case.
Other small shareholders are pursuing similar strategies. In Europe, Bluebell Capital, a small hedge fund, has entered the fray BP, another oil supermajor. The fund argues that BP should exit the offshore wind energy sector, which it says is destroying shareholder value. It would be preferable BP to increase oil and gas production, and to return money to shareholders, who could then invest in better green options, says Giuseppe Bivona, a partner at Bluebell, who defends the fund’s environmental credentials. “Contrary to what probably seems superficial, we think BP follows an ‘anti-woke’ strategy,” the fund argues in the letter to shareholders.
Dissident investors don’t have to win board seats to achieve some kind of victory. After presenting the latest set of results to shareholders, BP increased the pace of buybacks to satisfy investors who do not object to the green energy strategy. Meanwhile, the SOC hopes Starbucks’ defense against its campaign could include concessions. Traditional activist investors are pushing companies to split up, divest assets or return money to shareholders. Even without any campaigns launched, boardrooms have started doing these things to avoid attracting the attention of corporate raiders in the first place. A new generation of corporate raiders, taking advantage of cuddly capitalism, will hope their campaigns will have a similar impact. ■
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