Posted on 05/26/2023 6:03:16 AM PDT by Twotone
Back in the old days — oh, before, say, 2021 — the annual general meetings of company shareholders were boring. Questions asked of management more or less uniformly oriented toward the financial condition of the firm and the variables affecting the values of the shareholders’ stakes. How is the firm dealing with exchange rate risk? Are any major assets of the firm underperforming, and what does management propose to do about it? Why are costs rising faster than revenues? How does management justify its ever-bigger bonuses, other than declining golf handicaps?
After all, companies are supposed to be in business to make money for shareholders, the owners, by producing things that consumers value. But as businesses grew and evolved to pursue ever-more disparate business activities, the matters relevant to the performance of the firm increased in complexity, yielding greater disagreements among shareholders and between them and management. This has led to a system in which proxy advisory firms — the two overwhelmingly dominant ones are Glass Lewis and Institutional Shareholder Services — emerged to make recommendations to shareholders and managers about how to vote their shares on various questions.
It is crucial to delineate what has changed with the advent of politicized regulation by the Securities and Exchange Commission, in particular under the chairmanship of Gary Gensler. Previously, companies had the right to respond to the recommendations made by the proxy advisers, correcting factual errors, pointing out analytic mistakes, inconsistencies between shareholder interests and the proxy advice, and the like. In addition, SEC rules allowed firms to seek a “no action” determination ( SEC Rule 14a-8 ) by the SEC staff allowing management to exclude specific shareholder proposals from the annual proxy vote, in particular ones irrelevant to the performance of the firm, or those certain not to enjoy more than marginal shareholder support.
Oh, how matters have changed under Gensler. The right of management to respond to proxy recommendations has been revoked. The application of Rule 14a-8 has been changed to force consideration of resolutions of “wider societal interest,” yielding a predictable surge in the number of proposals having far less to do with shareholder value than with the latest fashions in environmental, social, and governance political imperatives. Now, during companies’ annual shareholder meetings, both activists and the proxy advisory firms pursue the timeless joy of spending other people’s money on such topics as climate change .
This shift in SEC priorities away from the disclosure of material information in pursuit of shareholder protection and economic efficiency has had substantial adverse effects, which are illustrated by an episode earlier this month at the annual general meeting of CNX Resources , a natural gas producer with substantial operations in West Virginia.
The fun began with a resolution by shareholder Handlery Hotels accusing CNX of failing to disclose its lobbying activities and demanding that the company confirm it is consistent with the Paris Climate Agreement . CNX explained in great detail that it does not lobby for or against the Paris Agreement — a stance of neutrality guaranteed to be self-defeating generally and to fail more narrowly to satisfy the politicized demands of such virtue-signaling entities as Handlery. Handlery’s efforts in this regard, by the way, were implemented by some organization called Proxy Impact , which believes ESG imperatives — that is, the pursuit of political objectives with other people’s money — are the appropriate central goal of business management. The fiduciary interests of shareholders? What’s that?
Handlery refused to meet or discuss the matter with the CNX management, at which point ISS recommended that shareholders vote in favor of the Handlery resolution. And then ISS too refused to meet with CNX.
So CNX was left with only one option: a supplemental filing with the SEC, a legal/regulatory action that is not cheap — the attorneys did not view this as a pro bono effort — and one that carries real legal liability because the supplemental filing is a formal action to the SEC.
And for what? Shareholders rejected the Handlery resolution by more than 76%. Neither Handlery nor Proxy Impact nor ISS had to bear any of the attendant costs themselves. Instead, the Gensler regime allows them to masquerade as defenders of the earth, with the expectation of invitations to all the fashionable cocktail parties, with literally no fiduciary duty or interest of their own at stake.
The environmental leftist industry comprises thousands of similar entities engaged in legalized protection rackets funded by various left-wing foundations. But the real opprobrium in this context should be reserved for Gensler. It is he who has been all too happy to shunt aside the SEC’s advertised role as a protector of investors, promoter of fairness in securities markets, and facilitator of informed decisions and confident investments by investors, in favor of a facilitation of politicized securities markets.
Obviously, Gensler would dearly love to be treasury secretary in a future Democratic administration, and so has been quite willing to pervert the traditional role of the SEC so as to feather his own political nest. This is only one narrow example of what “public service” has come to mean in the modern Beltway.
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Kind of tough to remain a superpower when you have this crap going on behind the scenes. But the Leftists (Ukraine War supporters) want just that.
Caveat emptor for shareholders. Hopefully these boycotts will make shareholders get rid of the woke idiots in the boardroom.
And as the Austrians remind us, malinvestment follows, no return on the wasted capital accrues, the companies’ fortunes are reversed, and the economic cycle goes into a downturn as companies and assets are recyled into productive ventures - at fire sale prices.
There’s too much corruption to hope for assets to ‘recycle into productive ventures’.
We have a special type of Capitalism that cannot be allowed to fail.
ESG Scores will soon be a mandatory line on Financial Statements. Like Social Credit Scores access to resources will be determined by this score.
Can’t fail becomes so big that eventually the whole system fails. Like trying to keep all of your allies and depenancies in line through war until you have so many wars in so many places that you start to lose some and then suddenly everyone wakes up and realizes you can’t win any of them.
Thanks for posting this very illuminating article. It really exposes the corruption at SEC and what it is costing all Americans as they keep this environmental sham and masquerade going.
Too bad they don’t spend this money an effort on making sure our banking system is sound.
bump
Please read the article.
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