Shareholder Activists Drag Companies Into U.S. Culture Wars
Businesses face proposals on abortion, guns and climate change as groups with various viewpoints strive to get their agendas heard at this year’s annual meetings
A backlash against companies taking on issues ranging from climate change to abortion rights is helping to push shareholder proposals to record numbers this year.
More advocacy groups are using these resolutions to try to inject their voices into the corporate agenda, questioning companies’ adoption of policies that some view as being overly political. One group, for example, put forward a resolution requesting that Eli Lilly report on the risks of supporting abortion. Last year, the drugmaker expressed its opposition to Indiana’s near-comprehensive abortion ban.
Such proposals questioning companies’ stances on social and environmental issues have come in record numbers, surging to 74 for annual meetings held before May 31, up from 43 last year, according to data from ISS Corporate Solutions, a unit of proxy-advisory firm ISS.
“The incredible dissension in the political arena is spilling over into the capital markets,” said Heidi Welsh, executive director of the Sustainable Investments Institute, a U.S.-based nonprofit that says it provides nonpartisan analysis of sustainability issues. “Companies are getting dragged into partisan fights that they don’t want to be in, but they can’t avoid it anymore.”
Companies are facing proposals from both sides of the political spectrum, dragging them into the increasingly fractious conversations over environmental, social and governance issues. In total, 682 shareholder proposals were filed for annual meetings being held through May 31, according to ISS Corporate Solutions.
“This is becoming a focal point of our society as a whole,” said Jun Frank, an ISS Corporate Solutions managing director and lead author of a paper on the topic scheduled to be published this week.
As Republican politicians including Florida Gov. Ron DeSantis continue to push back on ESG, conservative-leaning shareholders have put forward proposals questioning, for example, the prudence of corporate diversity policies and the feasibility of decarbonization. Businesses should focus on the bottom line, they say.
“Companies are abandoning their fiduciary duties to shareholders to adopt the hard left position,” said Scott Shepard, a fellow at the National Center for Public Policy Research, a Washington-based conservative think tank that has put forward a number of anti-ESG proposals. “We’re just trying to get them back to sanity and neutrality.”
A left-leaning counterpart, California-based foundation As You Sow, said it wants to promote “environmental and social corporate responsibility” through shareholder advocacy. Proposals by liberal advocates aim to drive companies to scrutinize their carbon emissions or audit the racial makeup of their workforce, among other things.
A 2021 Securities and Exchange Commission policy change that has made it harder for companies to limit these proposals is also helping drive their growth.
Proxy season, a chance for shareholders to help shape corporate agendas, runs in the spring, when most companies have their annual meetings. Although shareholder resolutions are generally nonbinding, and most don’t pass, even a 30% vote in favor of an issue is often viewed by proponents as a strong message that the company needs to seriously consider it.
This season, American Express spoke out against an abortion-related proposal that would ask the company to report on the risks of cooperating with law-enforcement officials investigating abortions in states where the procedure is illegal. Amex’s board said the company is required to comply with law-enforcement requests. Shareholders agreed with Amex and voted down the proposal.
Alphabet, the parent company of Google, recommended that shareholders vote down a similar abortion-related proposal, saying the tech company routinely pushes back on “overbroad” demands. Shareholders are scheduled to vote on it in June.
Many boards try to avoid alienating customers and shareholders and thus tend not to take sides, advising that every proposal be voted down. In some cases, they negotiate with shareholders to withdraw proposals before a vote happens. But studying these proposals eats up board time and exposes the companies to potentially unwelcome media attention.
Mastercard is facing shareholder pressure on the possible tracking of gun-related transactions. The credit-card company said that although it has committed to working with officials on addressing gun violence, it paused efforts to implement a separate merchant category code for gun stores after several states introduced legislation on the category codes issue. The proposal targeting Mastercard is up for a vote in June.
“They’re in the business of doing business. Most companies would probably rather stay out of the political discourse,” said Michael Littenberg, a partner at law firm Ropes & Gray who advises companies on ESG issues. “There’s an increasing amount of proposal fatigue. The more proposals that companies get, the more proposals they have to spend time thinking about at the board level.”
Maria Ghazal, counsel at Business Roundtable, an association for company chief executives, said, the SEC policy change also has “lowered the bar” and has led to a “broken system forcing companies to divert resources and attention to addressing an influx of proposals that are often unrelated to their governance and long-term success.”
Many proposals ultimately fail to resonate with most shareholders: Last proxy season, about 12% of ESG-related proposals targeting S&P 1500 companies that went up for a vote won support from a majority of shareholders, according to data from accounting firm Ernst & Young.
Still, the Sierra Club, an environmental group, said investors sent a message in April when 28% of Bank of America shareholders voted for a proposal requesting that the bank disclose details on how it would meet its 2030 climate transition target. The bank’s board advised shareholders to vote no, saying the bank disclosed 2030 targets related to manufacturing, energy and power generation, and intended to provide more disclosures next year.
“Any material vote from the more substantial, longer-term investors in companies will usually trigger some kind of reaction from the board,” said Nathan Fabian, chief responsible investment officer at Principles for Responsible Investment, a United Nations-affiliated advocacy organization whose signatories include BlackRock, Vanguard Group and other institutional investors.
The current political climate means companies can expect more proposals next year.
“These proposals are not going away,” Ropes & Gray’s Littenberg said. “I can guarantee you that next year we will have another record number.”