Taking stock of shareholder votes: Pushing back on 'woke' resolutions

For investors in individual stocks, the spate of annual meeting notices that begin arriving in electronic and postal mailboxes in January can represent an annoyance that is easily swept aside and into the trash.

But as shareholder activism on the part of organized progressives ramps up, conservative stockholders who fail to exercise their voting rights at annual meetings may risk ceding valuable ground to advocates of opposing causes and views.

Today, shareholder resolutions on issues like climate change, executive compensation, and workplace policies on diversity, inclusion, and sexual harassment are proliferating, typically sponsored by so-called ESG (Environmental, Social, and Governance) investors. At one time, a majority vote on such actions was a rarity, but today more are succeeding.

For example, a shareholder resolution calling on Costco to adopt greenhouse gas emissions reduction targets to achieve net-zero emissions by 2050 or sooner was approved January 20 by 70 percent of that company’s shareholders. Green Century Capital Management, a mutual fund firm, filed the Costco proposal as a test and now is looking at 10 other food and agriculture companies for possible action. Green Century’s first shareholder resolution – on protecting tropical rainforests – was filed eight years ago when getting a 25 percent favorable vote was considered a success because it was viewed as a means of pressuring a company.

PUSHING BACK ON THE LEFTWARD DRIFT

Jeremy Tedesco, senior counsel and senior vice president of corporate engagement for Alliance Defending Freedom, said progressive activists have largely cornered the market on shareholder activism with 90 percent of shareholder resolutions coming from left-leaning groups driving a narrow political agenda. However, he said, there has been growth in such activity the last few years among conservative and religious shareholders.

One such effort is being spearheaded by the National Center for Public Policy Research, a conservative think tank, which is encouraging conservative investors to use their annual meeting proxy votes to counter progressive policies at Disney and other corporations. The center’s Free Enterprise Project has published a guide, Balancing the Boardroom: How Conservatives Can Combat Corporate Wokeness, and its supporters have bought shares in companies like Disney, allowing them to introduce their own proposals.

Additionally, the Boardroom Initiative, in which the Free Enterprise Project is a partner, is seeking to counter “woke” policies in corporations by getting the companies to focus on business goals instead of political ones. It also is spearheading its own shareholder resolutions, most recently a proposal asking Bank of America for a racial equity audit to determine if the company — in the name of racial equity, diversity, and inclusion — is committing illegal discrimination against employees deemed “non-diverse.”

ACTIVE, ATTENTIVE SHAREHOLDING

Joel Griffth, a research fellow in financial regulations for the Heritage Foundation, said it is unlikely most investors support the policies being advanced in many progressive shareholder resolutions. “The majority are moderate or politically conservative,” he said, “and they want the focus of businesses to be on generating shareholder value, not woke politics.”

Hence, Tedesco said, “It’s critical that people who own shares pay attention to what’s going on, read the resolutions, vote their shares, and even more so, engage in their own form of communication with companies and tell them what they think.”

Shareholders also should be aware that some boards now have activist directors who got their positions as part of a progressive strategy to pressure corporations. Tedesco said it is possible to file a resolution to get a problematic board member removed, but that conservatives need to wake up to strategies that are impacting the way corporations are acting in the political and public square and the kinds of policies they are adopting — in other words, to push back against those tactics.

He encourages shareholders to contact the investor relations departments of companies in which they hold shares to make their views known.

“There are many stories of corporations hearing from conservative and religious shareholders and saying, ‘We’re really glad you called us,’” Tedesco said. “Positive things sometimes can happen from those conversations. These corporations need to understand the diversity of opinions represented among their shareholders. That will keep them from taking actions that will risk alienating people.”

When they do take radical positions, especially those unrelated to a company’s performance, corporations should expect to hear from shareholders who object. Following Disney’s declared opposition to the Florida Parental Rights in Education bill, for example, conservatives have begun to speak out, and Tedesco predicted there could be significant blowback from those who are shareholders.

Although some say individual stockholders have limited voting clout compared to institutional investors like BlackRock and Vanguard, Griffth said studies show that fewer than 20 percent of individual investors are even casting their votes. Meanwhile, institutional investors are casting more than 90 percent of theirs.

“More than half of American households do own stock,” Griffth noted, “and to think a vast majority are not exercising their right to vote is allowing the woke agenda to move forward faster than it otherwise would.”

INFLUENCING DECISION MAKERS

Legate George Schwartz of Schwartz Investment Counsel said it is important to note that in many cases, votes on shareholder resolutions are advisory and that boards are not obligated to act on them. For example, a shareholder proposal to de-stagger the board of Texas Pacific Land Trust, now Texas Pacific Land Corp., was approved by 56 percent of shareholders, but the board chose to retain staggered voting of directors.

However, when 77 percent of Microsoft shareholders in 2021 approved a proposal to publish a report on the efficacy of the company’s workplace sexual-harassment policies, Microsoft hired a law firm to review the policies, even after recommending a vote against the proposal.

Likewise, although Apple said it already had fulfilled the objectives of a third-party civil rights audit approved by its shareholders, the company agreed to heed the recommendation in the resolution, which had been supported by SOC Investment Group, Service Employees International Union, and Trillium Asset Management.

In yet another instance, Amazon in April announced it had hired a law firm to conduct a diversity, equity, and inclusion audit of hourly workers after a proposal calling for such an audit failed at last year’s annual meeting but received 44.2 percent of votes. A similar proposal was on the ballot for the annual meeting scheduled for late May, but the company recommended a vote against it since it already is having the audit done.

VOTE THROUGH INVESTMENTS

Schwartz said boards typically recommend voting against shareholder resolutions because to capitulate to a group making a proposal is not without cost. “The board will often argue it’s not worth the shareholders’ money or that its policies are already adequately addressing the matters,” he explained.

He added that shareholders interested in making sure their values are being reflected by the companies in which they invest also have the option of engaging in morally responsible investing through funds like the Ave Maria Mutual Funds, which his company manages. This, he said, can be another form of shareholder activism.

Ave Maria has six funds with varying objectives, and all operate under the guidance of a Catholic advisory board that sets guidelines for the companies in which the funds will invest. “They are activists to the extent that they exclude companies that violate the core principles of the Catholic Church,” Schwartz said.

Griffith said when investing, conservatives also must consider that progressives who are attempting to influence corporations and their boards have a vision of less economic growth.

“A lot of them believe humankind is a parasite on the planet. When they buy a minority interest in a company, they’re not looking at it as a way to generate a return for themselves,” he said. “That’s not their primary goal. Their goal is to reorder the economic system, and they’re having trouble doing that through the democratic process. So, they’re trying to do it through the back door of using this [proxy] voting process.”

Where puzzled shareholders can find assistance

Investors seeking guidance in navigating the sea of shareholder proposals being generated by progressive investors can look to organizations that are engaged in both research and solutions.

The National Center for Public Policy Research (nationalcenter.org) serves as a clearinghouse for conservative votes and is responding with its own brand of shareholder activism.

Similarly, the Boardroom Initiative (boardroominitiative.org), a coalition that includes the Job Creators Network, Free Enterprise Group, and Second Vote, seeks to counteract progressive policies that are negatively a¡ecting shareholders and employees of publicly traded companies.

Judy Roberts is a staff writer for Legatus magazine.