As Florida, under the “leadership” of Governor Ron DeSantis, declared war on Disney, one of the largest private employers in the state, it was clear that corporate America faced a battle of constituencies. Shareholders, Employees, Customers… and the Political Party in Power. It was equally clear that in most red states, where the overall national minority of right-wing of religious extremists is locally powerful enough to vote in the majority of elected officials, corporations that fail to follow the right-wing party line face severe punishment. For Disney, the Florida legislature stripped them of political control and tax advantages over the areas where Disney World reigned. LGBTQ employees, a significant constituency of Disney theme park workers, were on the wrong side of that evangelical tide. Disney’s efforts to back their employees and deter discriminatory statutes (particularly Florida’s “don’t say gay” anti-CRT law) provoked an authoritarian-leaning state to penalize Disney for trying to maintain good relations with its essential employees.
It might be valuable here to note a feature of American law, one that is quite different from most of the European Union, is that corporate officers and boards have only one overriding fiduciary duty: to shareholders. One single solitary stakeholder, under every American corporate statute in every state. Every corporate decision, even donating to charity and being a good local citizen, must be tied to the corporate purpose of enhancing shareholder values. Many other nations with market capitalism add additional official stakeholders, who are accorded board seats. These constituencies have equal validity with the shareholders. Such stakeholders include: employees, the relevant local community, national priorities (often environmental), etc.
Sure, American corporate boards can justify making workplaces attractive to employees, but not because that’s morally correct. It must be justified in light of corporate productivity and as a revenue/share value driver. Making charitable donations to non-political worthy causes is justified as making customers more likely to patronize the subject corporation. Everything has to point back to “enhancing shareholder values.” That’s one of the main reason corporate America cannot be trusted to self-regulate on any issue that could impact production costs, like paying to clean up their negative environmental footprint or to treat customers fairly.
But nevertheless, social issues make their way into shareholder meetings, board decisions and the actions and omissions of senior corporate officers. In today’s investment atmosphere, which has to be tempered by recent drops in major stock markets due to inflation instability, there are funds which value equities or invest in debt instruments under philosophical guidelines. For example, Investopedia.com identifies two significant forms of such movements: “Socially responsible investing (SRI), also known as social investment, is an investment that is considered socially responsible due to the nature of the business the company conducts. A common theme for socially responsible investments is socially conscious investing. Socially responsible investments can be made into individual companies with good social value, or through a socially conscious mutual fund or exchange-traded fund (ETF). [And, one form of SRI, the ESG factor…]
“ESG stands for environmental, social, and governance, which are important factors for some investors to adhere to. Those investors look for solid management of a company and seek out those that gear toward sustainability and community improvement. In 2020, the popularity of ESG investments took off.” Thus, social responsibility enters market practices through the backdoor of gaining shareholder investments by catering to their social values.
But corporations are also among the largest contributors to political campaigns. Some to curry favor in soliciting business from one or more government agencies, others for political advantages (usually to minimize governmental regulations and taxes), whiles other cater to the biases of identifiable customers. But all goes back to what’s best, as interpreted by the corporate deciders, to enhance shareholder values. There’s very little true altruism in them thar hills.
Writing for Bloomberg (June 9th), Jeff Green and Saijel Kishan provide a quick glimpse of how major American corporations are coping with pressures from customers, employees, shareholders and, increasingly, unscrupulous politicians using direct legislative and executive power to rein in any corporation that remotely disagrees with their agenda. The First Amendment? What’s that again? Well, it’s ugly out there:
“As Americans struggle to find common ground on a growing list of social issues, investors are demanding some of the country’s biggest companies take action… A majority of Sturm Ruger’s shareholders want the gun maker to investigate the human rights effects of its firearms. McDonald’s and Apple and at least half a dozen other companies have been asked to measure and account for potential racial disparities in the workforce and local communities. Abortion also was on the agenda at several company meetings, including those of Lowe’s and Walmart.
“A record number of shareholder proxy questions addressing issues of racial justice, gender equality and gun violence have been on the agenda at annual meetings this year. Although a majority failed — most shareholder campaigns do — some initiatives received significant backing… Average support for racial audits has been running at about 46% and eight of the resolutions passed, according to Bloomberg Intelligence.
“[Investment fund/asset manager] BlackRock recently released research that showed about two-thirds of resolutions that get 30% to 50% support lead to companies partially or fully meeting the requests… ‘This is how corporations are being held to the fire,’ said Amanda Jackson, economic justice campaign manager for civil rights advocacy group Color of Change, which has been pushing companies to conduct third-party racial audits. ‘The groundswell, the groundwork, has been calling for companies to be more accountable.’
“And the growing momentum has been increasingly backed by large asset managers such as BlackRock and Vanguard Group, which have been more willing to back plans agitating around previously taboo topics. Sexual harassment revelations spurred by the #MeToo movement and the racial injustice protests sparked by the murder of George Floyd have combined to bring greater public attention — and corporate promises — to address societal inequities.
“Proxy voting advisory companies led by Institutional Shareholder Services and Glass Lewis also have been active in recommending shareholders support social topics… Home Depot, Johnson & Johnson and Waste Management were among the companies where requests for independent racial audits succeeded. The civil rights initiative was the only shareholder proposal to gain the backing of the majority of votes at McDonald’s annual meeting.
“‘The ball is now in the board of directors’ court to show that they’re going to be serious and do a quality audit,’ said Dieter Waizenegger, executive director at SOC Investment Group, which has been advocating for racial audits. It remains to be seen whether companies will respond with robust reports that go beyond ‘greenwashing,’ he said.
“Conservative shareholder advocates have countered with requests for their own twist on the racial audit, riding a growing backlash against companies making business decisions governed by environmental, social and governance principles.
“The National Center for Public Policy Research filed a dozen resolutions with companies, including Bank of America and Walmart, demanding reports that assess whether their initiatives are detrimental to the civil rights of workers other than those whom ‘companies label diverse.’ The proposals received less than 4% backing from investors.” If PR advisors, ad agencies and spin-doctors can successfully distort a corporation with a lot of negative baggage as “part of the solution,” so much the better. If their lobbyists can thwart legislative and regulatory limitations, that’s another alternative. And neither of the above work, they just might do what’s right… just don’t hold your breath. And take a good look at the picture above! That could be you in corporate eyes.
I’m Peter Dekom, and if you ever wonder how companies get away with stuff that really bugs most of us, just remember, the system was built that way on purpose… just follow the money!
No comments:
Post a Comment