Capitol Building by Andrew Malone is licensed under CC BY 2.0.
On May 24, 2024, The Hill published an op-ed written by ATR’s director of financial policy, Bryan Bashur. The op-ed talks about how the Stop Woke Investing Act (S. 3179) is necessary to combat left-wing activist investors from burdening corporate America with ESG-related shareholder resolutions. Click here to read the full op-ed.
The piece begins by discussing how the Securities and Exchange Commission (SEC) governs a publicly traded company’s proxy voting process:
Publicly traded companies are subject to the Securities and Exchange Commission’s proxy voting rules. Section 14 of the Securities Exchange Act of 1934 governs the voting process and interactions between shareholders and company management when determining how to run the firm.
SEC Rule 14a-8, which is derived from this statute, provides 13 exceptions that allow a company to exclude resolutions from consideration for a vote, pending SEC approval. Many of these resolutions are gratuitous and fail to have a material economic effect on a company and its shareholders.
The op-ed goes on to discuss how the SEC has allowed activist investors to more easily propose gratuitous ESG-related shareholder resolutions:
Staff Legal Bulletin No. 14L, as the guidance is known, makes it more difficult for public companies to exclude shareholder resolutions from being placed on a company’s proxy statement. Under the status quo, companies may be required to solicit shareholder votes on resolutions requiring company-wide “racial equity audits” or commitments to reduce company greenhouse gas emissions by a specified date.
The recent activity at ExxonMobil is a good example of activist pressure:
ExxonMobil’s recent lawsuit is a perfect example of investor activism at work. The oil and gas company sued activist investors, Follow This and Arjuna Capital, for submitting resolutions that would require Exxon to reduce its greenhouse gas emissions. Shareholders already “rejected proposals with substantially the same subject matter” as the resolution put forth by the activists.
The California Public Employees’ Retirement System (CalPERS) recently announced its intent to vote against ExxonMobil’s CEO and board of directors as retribution for suing Follow This and Arjuna Capital. Exxon’s lawsuit is justified considering that activists have weaponized the proxy voting process by acquiring minority stakes in companies and submitting slapdash shareholder resolutions on topics that lack relevance to a company’s financial performance.
According to the op-ed, the solution is passing the Stop Woke Investing Act:
The best solution to prevent activists from submitting gratuitous resolutions is by passing the Stop Woke Investing Act (S. 3179). The bill would impose limits on the number of resolutions that can be submitted during a company’s annual proxy meeting. The number of resolutions depends on the size of the company.
The bill also requires that the resolutions have a material effect on the financial performance of the company, which would force investors to submit proposals that focus on pecuniary returns to all shareholders.
The article concludes by stating that:
Activist investors should not be allowed to use the proxy voting process as a tool for political gamesmanship. The Stop Woke Investing Act empowers American capitalism while simultaneously chastening ESG policies.
It is time to remove politics from boardrooms and ensure pecuniary factors are always the sole consideration.