ESG Corporate Governance PollBrian Langis
Professor Lawrence Cunningham has a poll and interesting article on his MarketWatch column.
Opinion: If investors really want companies to fight climate change, they should put their mouths where their money is
I’m not going to re-copy the full article and I suggest a read because it’s possible this is where things are heading in terms of shareholder voting on ESG. Here’s a segment:
Consider this modest, if radical, proposal: At annual shareholder meetings this spring, a board could sponsor a publicly disclosed poll regarding whether and to what extent the company should invest its pretax profit in environmental and social initiatives. The poll would be simple and non-binding to provide a cheap, clear way to gauge preferences.
The poll would state a proposed percentage of pretax profits that the shareholders might wish to allocate to environmental and social causes, such as 10%. The board would commit to target an allocation based on the percentage of shares voting yes. For example, if 50% voted yes, the board would commit to allocating 5% (that is 10% of 50%) of 2021’s pre-tax profits to such causes during 2022.
The board could poll the shareholders as to any proposed profit percentage — from 0% to 100% — that makes sense given a company’s specific circumstances in terms of shareholder base and current levels of environmental or social investment.
I answered Professor Cunningham’s two questions:
- If you were a director, would you support conducting such a poll?
- As a shareholder, what would your vote be?
Here’s my answer (cleaned up and edited for blog) that I’m sharing:
1) As a director, I would not support such a poll.
2) As a shareholder I would vote no if such a question was proposed.
Your question caught me off guard at first. Then I wonder why? Probably because there’s money on the line. “Skin in the game”. What do I want as an investor? Financial return. I’m delaying instant gratification for more down the road. If I want to save puppies my personal capital allocation decisions come into play.
Your question reminded me of something Howard Marks says often: “it’s one thing to have an opinion and it’s another to act on it”.
Such a poll might be novel at first. Get attention. Start a trend. Spark a conversation. Revolutionize shareholder voting. Then it opens the flood gate. It starts with saving the planet and then you have PETA trying to hijack the vote to save the puppies (one Pamela Anderson ad from the 90s might be enough to swing the vote).
You also run the risk of alienating your Quality Shareholders base at the expense of short term/transient shareholders with a different motive. If Quality Shareholders support the mesure, then it warrants a conversation. But if it’s just to please the latest woke/SJW/virtue signaling trend then it’s a great way to go bankrupt fast.
Consumers vote with their dollar. We are already doing that with our personal capital allocation decision. The market might reward “green” companies with a lower cost of capital and punish “dirty” companies with a higher cost. If a business doesn’t align with my values, I stay out of it. Collectively that speaks louder.
By the way, I already have your answer. They did a poll in Canada and they asked what was the most urgent issue? The top answer was climate change. Then they asked how much would you be willing to contribute to fight climate change? The average answer was $100. We all recognize the problem but we want somebody else to pay the bill.
Also, to a question like “The poll would state a proposed percentage of pretax profits that the shareholders might wish to allocate to environmental and social causes, such as 10%?” I don’t believe it’s simple or clear enough. To what cause? Who is keeping track? What’s the performance? Who’s auditing? What are the standards?….It just never ends and it’s never enough.
By encouraging shareholders to become Quality Shareholders, you can form a solid base for better long-term results. And like you mention in your book, how a company communicates and acts with its shareholders is really important.
I believe this conversation is important. Everybody is waving their virtue flag at the moment but doesn’t elaborate on the steps to achieve X goal. “Let’s take care of all the stakeholders”…well at what expense. The consumer? The workers? The shareholders? The supplier? Who pays the bill?
I’m curious to see how the experiment goes. It’s a good base for a future conversation.
Article by Brian Langis