When I moved to New York a decade ago, I thought “activists” were profit-hungry, bloodsucking, arch-capitalists — like the Gordon Gekko character played by Michael Douglas in the film Wall Street (remember the “Greed is Good” line?). No longer.
This week “activists” are creating convulsions at annual general meetings in the US — but with environmental, social and governance issues. To be fair, such ESG attacks are not entirely new: earnest Scandinavian pension funds and nuns have been staging AGM protests for years. But while the C-suite used to dismiss those, ESG activists have become so powerful — and mainstream — that they are hard to ignore. Just look at the drama at Exxon.
Will these protests prevail? When Moral Money went to press it was uncertain. But what is clear is that activists have become adept at using digital tools to track what companies are doing, and mobilise — and ESG investors are watching to see what mighty asset managers such as State Street, Vanguard and BlackRock do too. The new mantra is not “Greed is Good” but “transparency is all”. Gillian Tett
All eyes on Amazon, Chevron, Exxon, Facebook annual general meetings
We cover a lot of talk about the climate and sustainable investing — from Davos chatter to the latest net-zero pledge.
But Wednesday is a day of action for ESG interests as shareholders vote on issues at four big, controversial companies — Amazon, Chevron, Exxon and Facebook.
Later today, Exxon’s shareholders will decide whether to replace four board members and reset the company’s clean energy strategy. The vote is easily the most important ESG turning point for a US company this year, and the outcome will have significant consequences for investors and companies.
A win for the activists would suggest no company is safe from ESG scrutiny if its share price underperforms. And even if Exxon ekes out a win, environmentalists are likely to use the Engine No. 1 blueprint to attack other polluting companies.
Eyes are on the world’s largest asset managers too. Collectively, they have the power to swing the vote for or against the quartet, and their reputations will be under scrutiny regardless of how they vote.
Also on the docket today: oil-and-gas company Chevron faces a shareholder vote concerning how it will get to net-zero carbon emissions by 2050.
And Facebook has five shareholder proposals up for a vote, including petitions calling for disclosures about online child sexual exploitation, platform misuse, and for an independent director with human rights experience. Chief executive Mark Zuckerberg controls more than half the company’s voting shares, making ESG proposals at Facebook all but impossible to pass.
Amazon faces a whopping 11 shareholder proposals covering issues ranging from facial recognition to plastic packaging use. A coalition of nuns is demanding the company disclose more information about potential human rights violations arising from surveillance. The nuns, who are often punchy on corporate ESG issues, raised concerns about Amazon’s relationship with Palantir, a data analytics company, which used Amazon cloud services to help the Trump administration track undocumented immigrants.
Moral Money pledges to monitor all the vote counts and keep you updated about Wednesday’s winners and losers. (Patrick Temple-West)
Record opposition to executive pay packages
Speaking of friction between shareholders and boards, a record was broken last week for the number of US companies failing to get majority support for their executives’ pay in a year — and proxy season is far from over.
The question is whether this is a one-off reaction to directors moving the goalposts on bonus plans during a pandemic year, or whether it signals that investors are getting tougher on chief executive pay.
Your correspondent, who wrote his first story on pay protests in 1994 (on the shocking prospect of the chair of a privatised UK power company making one MILLION pounds from his options), has doubts that this marks an end to the one-way ratchet on boardroom pay.
Seasoned governance watchers are equally sceptical: the median say-on-pay vote has fallen only slightly this year, one of them noted, from 96.4 per cent to 95.2 per cent.
Dan Price is not holding his breath, either. The Gravity Payments founder made headlines in 2015 for setting his company’s minimum salary at $70,000 and cutting his own pay from $1.1m to the same amount.
He had thought that big companies would feel compelled to follow suit. “It failed,” he told Moral Money. Price, who grew up in a conservative household and doesn’t consider himself the dangerous socialist that critics see him as, has visceral experience of how wedded executives are to preserving the status quo.
“A CEO I’ve looked up to for my whole life . . . came up to me and said ‘f- you’ and walked away. That’s not an unusual occurrence,” he recalled.
That has left him doubtful that the much-widened pay gap between chiefs and their employees will narrow any time soon, he said: “The evidence-based projection would be to say that CEO pay is going to continue to skyrocket.”
Do you think this is a pandemic one-off or a turning point for executive pay? Have your say in our poll.
Virtual AGMs allow directors to avoid a smackdown
To borrow a term for the staged clashes professional wrestlers portray as real, there has always been something a little “kayfabe” about activists’ appearances at shareholder meetings. Whether clad in polar bear suits outside or lecturing chiefs about their pay packages inside, most know that they won’t sway big fund managers’ votes, but can at least tell their supporters they held management’s feet to the fire.
Given that directors spend most of the year shielded from critics, though, how they handle the embarrassment can be revealing.
But executives will get a reprieve this year. This proxy season, companies have stuck with the virtual format they implemented in the early weeks of the pandemic.
The technology lets more investors participate, but it also lets boards filter questions in advance, allowing them to boil down long lists of hostile questions into something more insipid — or skip tricky questions altogether.
At Intel, for example, 20 spiky shareholder questions about the company’s alleged indulgence of “leftwing wokeness” were turned into the anodyne question: “Does this company get involved in political matters?” McDonald’s, meanwhile, read out no questions about the tumultuous exit of its former chief.
“This is, I think, one big problem with the virtual set-up,” said Dieter Waizenegger, executive director of CtW, which posed one of those questions to McDonald’s. “It shuts down any effective way to, this one time in the year, ask an unfiltered question of the board,” he told our friends at Agenda.
Activists have understood the need to hold meetings virtually while Covid-19 risks remain, but as governance concerns rise up shareholder agendas, investors of all stripes should watch whether companies continue to choose the control of a remote set-up over the messier clashes once in-person events resume. (Andrew Edgecliffe-Johnson)
Chart of the week
A lot of activists may be hoping that the world’s largest fund managers will have their backs today, but history is not on their side. According to data compiled by As You Sow, fund managers vote with management an overwhelming majority of the time.
These numbers call attention to multiple problems, said Andrew Behar, chief executive at As You Sow. For one, consolidation in the asset management industry has given a handful of people an enormous amount of influence.
And when fund managers vote against items that have clear backing from the public (such as eradicating slavery in the supply chain), they are under no obligation to say why.
Asset managers may say they have engaged with the company and “believe their intent is good,” but investors must often just take their word for it, Behar said.
“Has having lunch with the company gotten them very far? I don’t think so,” he said. “I think this needs to be looked at . . . and ultimately I think it should be broken up and there should be fractionalised voting.”
Tips from Tamami
Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.
Shareholder meetings may be a big deal, but they are not the only story in the world of business this week.
The Tokyo Summer Olympics are expected to start in two months, but Japan is struggling with a new wave of Covid-19 infections. The surge is so severe that the US state department added Japan to its “do not travel” list on Monday.
The International Olympic Committee’s officials insist the games can be held safely, but the Japanese are not convinced. Recent polls show that more than 80 per cent of the public want the sporting extravaganza to be cancelled or postponed.
And some big names in corporate Japan have spoken out:
Hiroshi Mikitani, chief executive of Japan’s top ecommerce company Rakuten, said hosting the Olympic Games is a “suicide mission” for the country, during an interview with CNN.
Masayoshi Son, chief executive of SoftBank, tweeted: “There’s talk of a huge penalty [for cancellation] but I think we could have a lot more to lose, [such as] lives, subsidies if a state of emergency is called, gross domestic product, and the public’s patience, if 100,000 people from 200 countries descend on vaccine-laggard Japan and the mutant variant spreads.”
But these two (whose companies are notably not listed as official Olympic sponsors) are an exception. Most Japanese corporate leaders have remained silent.
Under usual circumstances, no corporate leader would want their company’s name associated with an event that the vast majority of their customers are against. But when it comes to the Olympics things are not simple.
If you are an ESG-minded investor and a shareholder of one of the Olympic corporate sponsors, how do you want them to act? Please share your thoughts: email@example.com
Oil producers face a costly transition as the world looks to a net-zero future, wrote our colleagues for the FT’s Big Read. Many fossil fuel-dependent economies will struggle to diversify despite intense pressure to hit 2050 targets.
Has China’s net-zero commitment uncorked commodities inflation? Our colleagues at Lex wrote this week that China’s carbon-neutral targets prompted some big steelmaking cities to cut production by up to a half. And local steelmakers passed on steep prices to other industries, including construction and automotives.
Member countries push back against IEA’s net zero road map (FT)
Young voices grow louder in company strategies and values (FT)
US companies step up pace of hiring black directors in wake of George Floyd murder (FT)
Japan’s largest farm lender to pour $90bn into ESG projects (Nikkei)
Millennials spurred growth in sustainable investing for years. Now, all generations are interested in ESG options (CNBC)
How Far Could Pension Funds Drive Sustainable Investing? (Wharton)
Green Bond Seller Investing in Coal Shows ESG Can Be Tricky (Bloomberg)