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(AP Photo/Seth Wenig, File)
Over the past year, shareholder activism has come under the microscope, revealing how environmental and social governance and related issues have intricately permeated the proposal and voting process. Annual general meetings and proposal submissions are rife with climate and diversity concerns, which are proving to be distracting and burdensome for companies, and reducing the profitability of investment strategies.
Typical consumers and shareholders ultimately bear the brunt of the consequences through lower profits and reduced corporate efficiency. Companies must allocate significant time, money, and resources to address concerns that have little bearing on overall performance.
A November 2021 Securities and Exchange Commission bulletin states that “proposals that raise issues of broad social or ethical concern related to the company’s operations may not be excluded.” This fostered a lax environment for shareholders to pursue resolutions that had little or no material impact on the company’s financial performance. This approach was a huge failure.
Last month, the American Consumer Association published a paper discussing this issue. The number of proposals submitted to companies has increased dramatically in recent years, with half of them related to social and political issues.
Fortunately, some state and federal leaders are taking action, hoping to end pursuits motivated by agenda rather than fiscal optimization.
The House Financial Services Committee established an ESG task force to “combat threats to capital markets.” To that end, we held several public hearings to examine the interrelationships between shareholders, proxy advisory firms, and ESG. Multiple experts have exposed the underlying agenda that a small group of people are advancing by exploiting lax Securities and Exchange Commission standards and the current shareholder proposal process.
Last spring, 18 governors issued policy statements pledging to protect “taxpayers from ESG impacts across the state system.” To maximize returns, in financial investments he only considers financial factors, not ESG.
Republican attorneys general from 21 states have issued a letter to 53 large fund companies, informing them that asset managers “many of whom have committed to actions inconsistent with the economic interests of their clients.” did.
Three Republican senators introduced the Stop-Wake Investing Act in December. The bill would require the SEC to amend the Code of Federal Regulations to cap the number of shareholder resolutions that companies must include in their annual proxy votes. It also mandates that the shareholder resolutions included have a monetary impact on the company’s financial performance, rather than a political or social one.
American companies should be given the freedom to do business without interference from those who want to make political statements rather than maximizing economic profits. And consumers deserve to have a company that can focus on them and their best interests, rather than political agendas.
Kristen Walker is a policy analyst at Consumers Association of America/InsideSources.
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