Working Together to Protect
Our Common Resources
Greetings. In this month’s issue, we want to update you on recent activity here at TSC. But we are not doing so just to pat ourselves on the back: we need your help, and in the description of our ongoing work, you will find opportunities to engage and even take a leadership role in transforming capitalism. Following that update, we discuss three ripped-from-the-headlines subjects that reinforce why our work is so relevant in this moment.
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CHANGING MINDS, CHANGING RULES, CHANGING BEHAVIOR
For the last couple newsletters, these Rambles have tended toward big ideas and philosophy—with even a few Biblical references thrown in. I thought this might be a good time to get a bit more specific on what we are actually doing. I hope that this will give you all a chance to think about how our work relates to you and how you can pitch in. At the end of the day, The
Shareholder Commons is about taking collective action to preserve our common resources, so we really do need your help. Specific requests are in bold.
Our first initiative is about changing minds—communicating our ideas through this newsletter, through publishing and through presentations and public speaking. We have articles in the current issues of the Oxford Review of Economic Policy and the Journal of Applied Corporate Finance. I also had a chance to be interviewed by Amelia Miazad, Founder of the Business in Society Institute at Berkeley, and one of the scholars out there who really gets it. We also helped teach a short ALI-ABA Continuing Legal Education program on ESG and Board Fiduciary Duties. Please take a look at these and pass them on to anyone who might be interested.
We are also working hard to update our materials for broader consumption. We are delighted that Sam Andrus is helping us translate our theory of change into slides and visuals that are easier to consume. We would love to test
drive these new materials, so please let us know if your organization would like to watch a presentation over Zoom—don’t be shy or think you are the “wrong” audience: we want to bring this message to everyone, and getting some early and honest reactions will be critical.
Our next two initiatives are about changing the rules by clarifying that the laws governing investing do not actually require fiduciaries to prioritize financial success at individual companies over the health of people and planet, as they are currently interpreted. Instead, those rules should allow for other people’s money to be managed in a manner that protects all of the common interests
that shareholders have, including their interest in a healthy economy, society and environment.
One of our rule-changing initiatives is litigation oriented: we would like the courts to clarify that the fiduciary duties of directors and trustees allow them to protect the broad common interests of their shareholders and investors. (More starkly, I want the courts to say that the directors of the companies I invest in through index funds should not
create economy-destroying carbon and inequality in order to boost returns, because that behavior really doesn’t help me in the long run.)
In June, we will hold our first workshop with practicing lawyers, institutional investors and law professors to discuss potential lawsuits that might establish this principle, as well as opportunities for participating in other litigation where the voice of the average index fund investor is not being heard. If you would like to participate in this effort as the beneficiary of a
pension plan or mutual fund, a shareholder of a corporation, as a lawyer or otherwise, please let us know. This is a great opportunity to get in on the ground floor of an exciting new effort.
The other rule-changing initiative is about actually rewriting the laws, as we discussed in this post about our efforts to draft a White
Paper. The most important part of this effort is going to be clarifying the laws that govern institutional investors like pension funds, endowments, and foundations. If you have an interest in working behind the scenes or directly with state officials and legislators in order to make it easier for these investors to engage with companies on issues of great
importance to our collective interests, let us know.
Our final initiative is aimed at changing the actual behavior of investors and companies. We want to spark a movement among asset owners and managers to use guardrails—minimum parameters for corporate behavior—as a tool for increasing the level of sustainable performance at corporations. We are initiating a process to develop a core group of early adopters from the asset owner/manager
community. If this would be of interest to your organization, please let us know—we think we can effect lasting change to the way business is done and you can be a part of it. To participate, we ask that institutions (1) commit to the proposition that certain substantive levels of conduct are non-negotiable, regardless of financial
materiality from an individual company perspective and are instead “tickets to the game” and (2) be ready to engage with companies on such guardrails in advance of the 2021 proxy season.
We hope this has given you a better idea of what we are doing on the ground and we hope to hear from you if you would be interested in getting involved. Please reach out to us and we would be happy to talk further about how you can engage
with our work.
WHAT WE’RE TALKING ABOUT
Even when we move from talking about our philosophy to talking about our work, it can be hard to understand exactly what we are trying to accomplish. For a real life example, I cannot imagine anything better than this heartfelt post by Tim Bray, a VP at Amazon, who left a job and colleagues he clearly loved because Amazon’s prioritization of profit over people had become unacceptable to him. Read the full post to understand how the company’s response to warehouse employees’ concerns around Covid led to the rupture, but here is the essential part:
And at the end of the day, the big problem isn’t the specifics of Covid-19 response. It’s that Amazon treats the humans in the warehouses as fungible units of pick-and-pack potential. Only that’s not just Amazon, it’s how 21st-century capitalism is done.
Amazon is exceptionally well-managed and has demonstrated great skill at spotting opportunities and building repeatable processes for exploiting them. It has a corresponding lack of vision about the human costs of the relentless growth and accumulation of wealth and power. If we don’t like certain things Amazon is doing, we need to put legal guardrails in place to stop those
This is spot on. Companies like Amazon really do accomplish great things that make many lives better. But the unfettered drive for profits also makes them do things that make many lives worse, and that eventually will catch up with all of us.
The insight we add at TSC is that the shareholders of Amazon are the very people at risk from its behavior: these shareholders are workers, parents and citizens, and just like Bray, they have interests beyond the financial success of an individual company. If these shareholders established guardrails so that no company could treat workers like “fungible units,” then the competitive pressure
to do so would evaporate. If shareholders would exercise the power they already have to establish climate, inequality and other guardrails, then companies could continue with all the wonderful innovating they do but leave exploitation behind.
WHAT WE’RE TALKING ABOUT
But there are obstacles to shareholders acting collectively, and there are entrenched interests that wish to exploit those obstacles. For example, this recent opinion piece argues
that BlackRock—the world’s biggest asset manager with $7 trillion in assets under management—is breaching its fiduciary duties by promising to give greater priority to the treatment of stakeholders by the companies in its portfolios (and that would include the treatment of Amazon workers).
The author’s argument hinges on the idea that the management decisions that advance the interests of individual companies always match up with the interests of their shareholders. This is just wrong, because companies can be extremely successful by externalizing costs—a free lunch for the company. The problem, though, is that shareholders often pick up the tab for these external costs in their
roles as shareholders in other companies, as workers and as citizens.
Yet the author claims that considering the way that these costs might affect their investors is a violation of federal law:
In sum, if I were running the Department of Labor or the Securities and Exchange Commission, I would seriously consider reviewing BlackRock’s strategy for potential breaches of its fiduciary duties.
This is why the TSC litigation and policy strategies are so important. We need to remove any threat that money managers are prohibited from protecting the common interests that all of us—shareholders included—have in a growing economy, a healthy planet and thriving social institutions.
WHAT WE’RE TALKING ABOUT
On Wednesday of this week, 53% of the shareholders of oil giant Chevron voted in favor of a shareholder proposal to have the company report on whether its lobbying and political spending policies are in
line with its public statements about its commitment to the Paris Accords and other climate-related matters. And BlackRock, its second biggest holder, voted in favor of this proposal —against management’s recommendation.
This is a big deal—climate resolutions rarely succeed in the US, and big asset owners like BlackRock have traditionally supported management on such questions. To be candid, we think this type of transparency resolution is a far cry from the sort of guardrails necessary to limit the climate risk that our carbon-dependent economy is creating. All companies need to be subject to science-based
targets aimed at keeping the temperature increase below 2˚ C. But the point is that shareholders are waking up and seeing that even if they are invested in Chevron, they need to make sure Chevron’s profits do not come from unsustainable practices that threaten our shared prosperity. And fiduciaries are recognizing that they can vote responsibly without violating their duties; indeed, they must do so in order to protect the best interests of their beneficiaries.
We hope this issue has been helpful in painting a picture of what we do, and why it is relevant in this moment. Please pass the newsletter on to those who might be interested and let us hear from you!
Meanwhile, try to stay safe, sane and healthy. And don’t forget to breathe.
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