The corporate world, perceived by social activists as the belly of the capitalist beast, might have been expected to be the most difficult for left-wing activists to tame. On the contrary, it has been a soft target.
On August 20, the Wall Street Journal reported that the Business Roundtable, which includes the chief executives of many of the largest U.S. corporations, has ruled it no longer considers the purpose of a corporation to obtain profits for its shareholders but instead to act in accordance with the interests of “all stakeholders,” that is, society in general — which in practice means in accordance with social activists’ enthusiasms of the day.
This can only make even more difficult the life of Justin Danhof, the lone ranger trying to restore the concept of traditional fiduciary responsibility to corporations steadily lurching leftward. The outcome of that effort will have a major impact on the many millions of Americans who depend in their retirement on funds that have been invested in the market.
Danhof directs the Free Enterprise Project at the National Center for Public Policy Research. According to Danhof, the National Center was founded in 1982 by Amy Moritz Ridenour with “a really great mission” — to be a voice for the conservative movement wherever the movement was quiet. And it has certainly been quiet when it comes to countering the coordinated pressure campaign on corporations to adopt the Left’s positions on so-called ESG (environmental, social, and governance) issues, and, in the last few years, to dissociate from any pro-business organizations.
In a recent conference call organized by Steve Soukup of the Political Forum, Danhof called the landscape in which he operates “ridiculous.” There are 80 to 90 left-wing groups, most part of the As You Sow network, coordinating shareholder resolutions, while he is the lone shareholder trying to hold the fort on the conservative side. Working 80 hours a week, he says he can file 20 shareholder resolutions a year as against the 400 to 500 a year the Left files annually. While Danhof did not single it out, the example of the Interfaith Center on Corporate Responsibility highlights the imbalance. Created by the National Council of Churches in 1971, its first high-profile target was the Nestlé Corporation for its marketing of infant formula in the third world. (The Interfaith Center argued breastfeeding was much less expensive, healthier, and more appropriate for third-world mothers.). Today the Interfaith Center boasts of filing 300 resolutions a year and representing $200 billion in investor capital.
For 10 years Danhof has struggled to get companies “back to neutral,” meaning out of social and cultural battles that have nothing to do with their businesses. His task was made immeasurably harder a few years ago when Institutional Shareholder Services (ISS) and Glass Lewis, which together comprise 97 percent of the market for proxy advisory services, shifted to the left and began supporting ESG proposals. Danhof reports a recent example of what he calls “the black-and-white nature of their bias.” Shareholder activist groups have been pushing affirmative action policies, supported by ISS and Glass Lewis, for appointments to corporate boards. But when he introduced shareholder resolutions calling for increased viewpoint diversity on corporate boards, both ISS and Glass Lewis opposed him.
Given that so many institutional investors — including public service union pension, BlackRock, and Vanguard funds — outsource their votes to the proxy advisors, their recommendations have a huge impact. Before the proxy advisors’ leftward shift, says Danhof, shareholder resolutions, whether his or those of “progressive” opponents, typically received only 2 to 3 percent of shareholder votes. But with the support of proxy advisors, last year the Wall Street Journal reported the median level of support for the left’s ESG proposals rose to 24 percent.
That’s only part of the story. The groups advancing these resolutions seek to negotiate an agreement with the company before they get on a proxy statement, and, indeed, the Journal reported in the same article that 48 percent of ESG proposals filed in 2018 were withdrawn. Generally a withdrawal means the company preemptively caved to the Left’s demands.
To be sure, in many cases, executives and corporate boards are in sympathy with the activists. This is increasingly the case now that some of the search firms used by Fortune 500 companies, says Danhof, only identify liberal candidates for open board spots. The global warming apocalypse, the focus of much of the environmental proposals, doubtless has plenty of board-room believers. To a large extent, says Danhof, the corporation is turning into the college campus, run by liberals, for liberals.
Egged on by their own success, activists in the last few years have pressed corporate America to dissociate from pro-business organizations. Danhof describes the activists’ modus operandi in the case of the American Legislative Exchange Council (ALEC), which works on model legislation to reduce the regulatory burden on corporate America.
Because ALEC worked at one point on voter ID legislation — beyond the pale in the leftist worldview — the activists declared ALEC “racist” and flooded corporations with shareholder resolutions declaring they should not belong to ALEC because of “reputational risk.” That it was a circular argument — the activists decried ALEC as racist without evidence and then those same activists insisted corporations must not put their reputations at risk by belonging to it — did nothing to impair its effectiveness, Danhof notes. One hundred eighteen corporations left ALEC as a result of the campaign. The success of this smear tactic has provided the activists with a model to use against any trade group they choose to target. The corporations that weakly caved on ALEC, says Danhof, are now bombarded with proposals to leave the Chamber of Commerce, the National Association of Manufacturers, and even the National Restaurant Association (dubbed by activists “the other NRA”).
The “index” is another device the activists employ to great effect as both carrot and stick. The CPA-Zicklin Index, for example, is the product of the Center for Political Accountability at the University of Pennsylvania’s Wharton School. Funded by George Soros and ostensibly seeking to ensure transparency in the political activity of corporations, the index is used as a stick to keep corporations from engaging with groups like ALEC and the Chamber of Commerce, Danhof says.
Then there’s the Corporate Equality Index, produced by the Human Rights Campaign Foundation (HRC) to rate American businesses on their treatment of gay, lesbian, bisexual, and transgender individuals. Danhof says he can’t tell you how many shareholder meetings he’s attended in which the company has boasted about its perfect score on the Corporate Equality Index.
But the HRC keeps moving the goalposts. Danhof reports that about three years ago the HRC tweaked the index to demand an “outward-facing” event promoting the LGBTQ community each year. If not, the company would forfeit 10 percent on its score. This, he explains, accounts for the recent plethora of LGBTQ Super Bowl ads replacing the humorous ones to which viewers were happily accustomed. The HRC subsequently upped the demand to three “outward-facing events” annually. Last year, Danhof says, the Corporate Equality Index was tweaked yet again: if a company opposed a shareholder proposal that the HRC supports, the company would automatically lose 25 percent on the index.
Corporations not only bend quickly under pressure but also produce the desired results much more quickly than courts or legislatures. Danhof offers as an example the fate of Georgia’s 2016 “religious freedom” bill, which affirmed the rights of those who opposed same-sex marriage on religious grounds to withhold services. Both houses of the Republican legislature passed the bill, which needed only the (willing) Republican Gov. Nathan Deal’s signature. The activists could have launched legal challenges, but that would have taken years with uncertain results. Instead the liberal activist network flew into action. Georgia was hoping to be selected to host the Super Bowl in 2019 or 2020, and the National Football League announced it would be out of the running if the governor signed the bill into law. AMC Networks announced it would not film the seventh season of its hit series The Walking Dead in Georgia, and Disney threatened to stop all filming in Georgia. Gov. Deal did not sign the bill.
While the liberal activist network mobilizes the troops, Danhof notes that those who oppose some of the most flagrant corporate decisions — like the decision by Nike to ditch its sneakers with the Betsy Ross flag because Colin Kaepernick told them to do so — confine themselves to personal expressions of outrage on Twitter.
With corporations, including the country’s largest, lining up to throw out traditional notions of fiduciary responsibility to shareholders in favor of responsibility to everyone and everything up to and including the planet (reversing climate change is a favorite cause of the activists), is there anything that can be done to reverse the anti-business tide that has taken root within the corporations themselves? At the outset, conservatives must finally begin to take notice and address the problem seriously.
Danhof says that over the past five years he has personally attended more than 150 shareholder meetings, filed over 130 shareholder resolutions, and had over 200 meetings with corporate executives. His law degree comes in handy as he also does all the legal battling, much of it involving corporate filings with the Securities and Exchange Commission. But however admirable the lone ranger is (Danhof has an occasional Tonto who will go to a shareholder meeting for him if in the event of schedule conflicts), he cannot carry the day alone against the activist behemoth.
Danhof offers a host of measures that conservatives could and should take. They can start their own rating systems to counter the activist indexes. Why, he asks, are companies rated on how much they promote the LGBTQ community while there is no liberty rating system? Why isn’t the Heritage Foundation rating companies on cronyism? Why isn’t the NRA rating companies on how they engage in Second Amendment issues?
How about developing fast-action social media response teams to counter the Left’s outrage machine, which so often produces corporate action? That way conservative anger would not be dissipated in ineffective bursts of emotion on Twitter.
Danhof says there should also be an effort to elevate business-minded conservatives to corporate boards rather than leaving the shaping of these boards to people like Eric Holder, who is currently working to get as many former Obama people as possible on corporate boards.
There should be an effort to engage corporate managers. Even those sympathetic to favored activist causes can be persuaded, Danhof believes, that it is in their interest to keep power and control over decisions, not to outsource them to groups that don’t care about their shareholders and in many cases would shut down the business tomorrow (think fossil fuels) if they could. He urges them: Don’t adopt a policy based on flawed studies that made it into a shareholder resolution.
Most important of all, according to Danhof, is finding a way to deal with the radicalized proxy advisors, which he calls an existential threat. If he had a silver bullet, he says he would buy the Institutional Shareholder Services because its role in increasing the impact of the shareholder resolution cannot be overstated.
One piece of good news is that the SEC has finally issued new guidance limiting the usefulness (and thus the power) of the proxy advisor. No longer will investment advisors be able to simply outsource their recommendations to the proxy; they will still be responsible for doing their own due diligence. And the proxy advisors will now be legally on the hook for false and misleading communications. While Danhof does not believe the SEC rulings will have much impact in the short term, the Wall Street Journal in an August 28 editorial treats this ruling as a significant sign the SEC is looking out for shareholders, not political stakeholders.
Organized advocacy of “stakeholder” over shareholder rights is relatively new, going back to the Ralph Nader-created and inspired so-called “public interest” groups of the 1960s, which sought to politicize the corporation by turning it into a miniature government whose decisions were to be made by a “legislature” that included the public affected by the corporation. At the time this was dismissed as fringe chatter. Now that the vast majority of the corporate leaders of the Business Roundtable have adopted the then-far-out notion of satisfying the “stakeholder” as their central mission, many in the media simply shrug, dismissing it as inconsequential window dressing. In the Hill, Danhof points out that, on the contrary, the Roundtable has provided “the rope that the Left can use to put around the necks of its corporate members.” Indeed he envisions shareholder proposals being fashioned right now demanding Roundtable member companies leave the Roundtable because some of its pro-business advocacy is contrary to the positions of some ESG “stakeholders.”
The notion that stakeholders trump a corporation’s shareholders may be new. Much older is the pithy observation of Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations that “I have never known much good done by those who affected to trade for the public good.”
Rael Jean Isaac is the author (with Erich Isaac) of The Coercive Utopians: Social Deception by America’s Power Players (Regnery) and (with Virginia Armat) Madness in the Streets: How Psychiatry and the Law Abandoned the Mentally Ill (The Free Press).