Shareholder Power: The Emergence of the Regenerative Economy
A Conversation Between Christopher Skroupa, Skytop Editor-in-Chief, and Andrew Behar, CEO, As You Sow, Skytop Contributor / April 11th, 2022
Andrew Behar is CEO of As You Sow, the nation’s leading non-profit practitioner of shareholder advocacy and engagement. With a 30-year track record of success, As You Sow advances values-aligned investing and uses shareholder power to compel companies to reduce material risk on issues including climate change; toxins in the food system; ocean plastics; diversity, equity, and inclusion; racial justice; and wage equity. Previously Andrew was a documentary filmmaker and entrepreneur founding start-ups developing an innovative physiological monitoring medical device and grid-scale fuel cells. He is on the board of the Responsible Sourcing Network and a member of the XPrize Brain-Trust for Abundant Energy. His book, The Shareholders Action Guide: Unleash Your Hidden Powers to Hold Corporations Accountable, was published in November 2016 by Berrett-Koehler.
Andrew Behar: The world has come to see that our theory of change is center stage, that corporate power is understood to be where the action happens. Companies control governments. They buy and sell legislators. And then when a company changes its policies it ripples not only through its supply chain but to their employees and customers.
In 2021, we had a record breaking number of resolutions, a record breaking number of votes on resolutions, more majority votes than ever, more companies that were willing to make changes, and more withdrawals than ever. In 2022 there have been more resolutions filed than ever before.
The prior administration instituted new SEC rules to try and suppress shareholders voices, and you know what happened? We had 100 more resolutions than the previous year. So trying to suppress shareholder voice has only brought out even more shareholder power, and the bottom line is that the board of every company reports to their shareholders.
So if boards don’t incentivise their executives to make changes, to become part of the regenerative economy, based on justice and sustainability, then shareholders are going to have to bond together and they’re going to have to replace boards. You saw that with Exxon last year, with five new board members being brought in with two still to come.
Christopher Skroupa: What you gave me is so interesting for those of us who understand what democracy used to be before Citizens United and before accountability for elected representatives. Elected officials used to be accountable to the people that elected them. Today it’s triangulated, if not getting rid of the voice of the electorate, and that’s one thing I’ve always been afraid of. I think what you said is a way to rebalance power and make the world go into a better direction. You’re celebrating your 30th anniversary. Did you see this skewing of the democratic process as a pattern that developed to get us where we are today?
Andrew: What I did see coming was the rise in shareholder power. For the past 30 years, we’ve been educating people about the powers they have as shareholders. Most people abdicate their power before they even knew they had power. Most people don’t use their proxy vote. Most people don’t file resolutions or don’t know that they can.
Most people own mutual funds and enter pension funds, with 37 trillion dollars of pension funds in the United States alone. They hand their money to fiduciaries and it is hidden from view. They have no idea how they’re invested. It’s a species level issue. People work hard for their money. They take 5% of what they earn and hand it over to these fiduciaries, and they won’t tell the person how it’s invested. All of the invested money has votes attached to it and the fiduciary generally votes against the best interest of the people who earned that money.
You cannot even believe such a system could exist. Yet that is the system that we all have, an extractive economy that has created all this chaos in the world we live in, with climate chaos, ocean plastics, shredded social fabrics and we’re all unknowingly complicit in. No one is aware that they can actually take back that power. So for the past 30 years we’ve been educating people that the nexus of their power is in their money and people are actually starting to get the idea.
I think the trigger for this was at the end of 2019 when all these companies and the World Economic Forum said “you know, all these ideas by Milton Friedman, they’ve brought us to this current state of the world that we find ourselves in and we need to shift because it’s not survivable.” The entire economy is going to be collapsing because of climate change, and all these Milton Friedman theories.
Abuse your employees, dump in the commons, poison your customers, it’s all okay as long as you make a buck! Well it’s not okay and it eventually comes back around to bite the companies. So they declared stakeholder activism as the new philosophy. They basically agreed on all the shareholder resolutions of the past 50 years, and all the shareholder resolutions in the past 50 years have been about stakeholder capitalism.
Take care of your company and employees. Create a culture that attracts the best and the brightest. Take care of your customers. You want to earn their loyalty. Take care of your community. Don’t dump in the commons, and that extends out to the whole globe. You don’t dump toxins in a river because you’re going to have a lawsuit. You’re going to create risk. Take care of your supply chain, because without it you cannot have a business.
All companies came to realize that stakeholder capitalism actually benefits all stakeholders and themselves. That is key to the shift that is happening. We see the emergence of a regenerative economy, based on justice and sustainability, and we’re seeing a wind down on an extractive economy. Extractive meaning not only fossil fuel, but extracting work from people, as opposed to valuing human beings as your greatest assets.
We’re seeing a shift in thinking that’s based on economics. This is actually what capitalism is about. When companies start to disclose honestly, they’re rewarded by their investors. That relationship of a company tells you where they want to go and how they’re gonna get there. That relationship is the type of company that investors want to invest in and customers want to be loyal to. It’s a whole shift of philosophy.
Christopher: It is, and there’s even more to it, which you know as well. But it started with the insistence on proxy access during the Dodd Frank debates, saying that shareholders should have a weigh-in or voice on how companies are governed and what they’re doing. You can think of it like you’re a voter and you can’t get your elected official to represent your voice and your district. You can address it by moving your voice over to a company that does have values that you align with.
We’ve recently published in my Editor’s Note, “Top Risks of 2022”, and inside there has been a lot of discussion about the alignment of political risk and social risk with how it relates to company CSR or company human capital/management. Do you feel that in some way this will help us balance out what governments currently can or cannot do? Or does that seem a little far fetched from your perspective?
Andrew: We don’t really deal directly with policy. We’re a C3, not a C4. We do look at how corporations do political spending. An example that we are looking at is all these companies that fund state legislators that are trying to banish history, trying to stop the teaching on slavery, the holocaust, things of that nature. And we see that companies should not be associating their brand and spending money on legislators that are fundamentally regressive.
We do see that corporations do have power in who gets elected since getting elected takes a lot of money. So that’s really how we interact with politics or policy questions.
Christopher: That’s interesting because you and I have talked about seeing companies that speak out of both sides of their values. By that I mean you may see a company that is engaged in doing something positive from a responsible position, whether it’s something to do with racism, inclusion, or diversity. But on the other side of the process, they give money to candidates that oppose that same activism. This seems like a good way of putting accountability into the process, where you see what a company is saying, you see what a company is doing, and see if they are the same thing.
Andrew: We’re actually in the middle of a battle right now with Amazon and Comcast on that very issue. We look inside every mutual fund, rate and rank them, and update it once a month. With these 3000 mutual funds we look into, we see if there’s fossil fuels, we see if they’re funding companies that are involved in deforestation of the Amazon rainforest, private prisons, weapons companies, companies that are bad with gender equality, etcetera.
We aggregate those up in a 401k plan. So for instance with Amazon, operationally, they’re doing great stuff on climate and electric vehicles. They power their data centers with renewables. But they’re forcing every employee who has a retirement fund with them to own companies that are burning down the Amazon rainforest. So we asked the company, is that not cognitive dissonance? Does that not harm your brand? You’re doing one thing, but doing the exact opposite with the money. Of course, they said no, we’re very happy with this.
So we escalated to filling a shareholder resolution, which they immediately challenged. They wrote a letter to the SEC saying these shareholders can’t ask these types of questions. Last week the SEC ruled in our favor and the resolution will go to a vote. We are asking the board for a report on how they can say one thing in their marketing and then do the exact opposite in their operations and what harm that may cause to the brand.
You’ll see a company say one thing, then send their money to the Chamber of Commerce to buy political influence to do the exact opposite, so that’s another problem. The company is telling their shareholders that they’re great on climate and at the same time spending this much money to stop any climate bills from being enacted. I think they just need to be absolutely upfront about it.
That’s the right of shareholders to know that, and if people want to keep investing in companies that say one thing, do the other or oppose themselves, then so be it. But there are going to be people that say I don’t think I want to be a part of this. Or there will be people that will advocate for change because the duplicity within the board means that we need to replace the board, that this is not the way I think a company should be run and so I’m going to advocate for that. I’m going to run a board slate, and I’m going to try to get the company to change their policies. So there’s a lot of ways you can work on this issue.
Christopher: I think you’re right. At the end of the day, shareholders want to know what a company is doing and why. There may be reasons to change their path or process, but what’s often been an issue is companies not listening and not changing their path or process.
Andrew: I’d like to talk about honest disclosure, that the lack of veracity is really a critical thing that we need to address. For instance, last year we filed resolutions at Exxon and Chevron because they state in their audit that greenhouse gas emissions are material. Material means financial; financial means it should be audited. So they state in their 10K that greenhouse gas emissions are material, but then the disclosure of the emissions were not only misleading but were not part of the audit. We believe that the audit committee of the board at Chevron and Exxon were in breach of their fiduciary duty by signing off on that audit. They should have said greenhouse gas emission data needs to be verified by a third party and included in the audit.
Now imagine if everything that was material, again financial, affecting an investor’s decision to buy or sell this stock, was verified by a third party, and audited. Now we’d have a wealth of data, where investors could actually compare a company to another company and know what you got, just like with the financial data.
Also Sustainalytics, MSCI, all of the ESG data in the system would start to converge on agreement. Right now you’ve got different grades from all of the different providers because they’re all taking their best guess. They’re all reading newspaper articles and websites and CSR reports and trying to triangulate on what is the truth, whereas the companies are actually required by law to tell the truth.
So we need that level of data from the company so that we as investors can have comparability and be able to tell, distinguish, and choose the right company for us. Now that global standards are forming, SASB is going international with the international sustainable standard board to define what is material for every company in the world.
We also need that so we can all have the same definitions. We can have the same data sets. We can display it in the same way, and we can have it audited and verified. Then you actually have capitalism. That is what, if that is like a necessity to have capitalism, because otherwise you have no comparability, because your data is all skewed.
Christopher: I think the concept of moving onto an international standard is interesting. There are certain opponents to that, that there are some areas of the world where ESG may be a bridge too far, and I’d love to get your opinion on this.
I read a report recently that ESG in certain countries may have a destabilizing effect in the short term, not to say that that’s a reason not to establish a global standard, but I do think that materiality is going to very in some of those areas and you can certainly see the gaps in either a labor perspective or an environmental perspective. Global companies certainly have a lot to deal with in those contexts.
How do you feel corporations will be challenged on this concept of a global standard? It seems to me that we need to head there, but the building of that bridge is fraught with its own side effects.
Andrew: Let’s just start with how far Europe is ahead of the United States on so many issues.They are for the most basic things. In Europe they have the precautionary principle. In Europe, if you’re going to put something into your food, you have to prove it safe. In the United States, you can put anything in your food and if enough people die, you can prove causation, maybe you can have that chemical you know removed from the food system.
In Europe, the government is actually structured to take care of its citizens. In the United States, the government exists to help companies make profits but that’s because the companies are allowed to own the people who run the government. Just starting with meeting European standards is going to be such a massive improvement. Europeans are coming out with the naming of mutual funds, and saying what’s inside, in the US, you can have an ESG fund that’s full of fossil fuels, you could claim to have a fossil free fund that’s full of fossil fuels.
We just met with the SEC about this. The fact is that we look at 90 mutual funds and 60 of them get a D or F from the As You Sow rating system. The prospectuses are even more misleading, so the US is just so far behind the most basic honest disclosure. Adopting an international standard is only going to be improving, certainly for what we have in the United States.
You know other countries that may be defining ESP differently. I think that they’re working through that issue, and I think it’s an important issue that needs to be looked at in great detail. But, you know ISB is not fully baked yet. It’s forming and so I wait to see. I know people who are on some of the advisory boards, and so I know they’re working through these issues.
Christopher: Am I correct in recalling that you mentioned you have quite a busy season coming up in terms of shareholder resolutions? What are your priorities for the spring ahead? From your perspective, is there a short list of hit issues? Is there a short list you’ll be showing most companies or is it a border spectrum of areas?
Andrew: So the number one issue is climate change affecting the economy, as Larry Fink says, climate risk is an investment risk, every company must adopt a 5% emissions reduction plan and immediately implement it. 5% every year, getting to 50% in a decade and another 50 in that next decade. We’ve filed around 40 on climate, there’s net zero resolutions, resolutions with banks, insurance companies, pipeline companies, big oil utilities, this is across the board, not just with As You Sow, but everyone is seeing climate as affecting everything.
Number two I would say is racial justice, we filed 27 different racial justice and diversity, equity, and inclusion resolutions, but many other folks have filed racial justice audits. Justice is really the big issue here, can you run a company that has a culture that’s based on justice and following that, political spending is a pretty hot topic, the moves by state legislators to stop people from voting and being educated is outrageous.
The thing about resolutions, it’s the zeitgeist, it describes the time when you look back 10 years or five years and look at what resolutions have been filed. It really does capture the moment and so. Right now I’d say climate, justice, and political spending are the three top issues. But there are many other issues that are going to be filed on, but those three are the main issues you’ll see.
They play out in different ways, for instance we filed a resolution at Facebook, there’s nine at Facebook right now all about misinformation, disinformation, hate speech, child pornography, sex trafficking, all the things that mark Zuckerberg seems to enjoy because he has absolute power there because he has a 10 to one voting preference and so, if they’re happening at Facebook it’s because mark is saying this is what I want and there’s no two ways around it, he doesn’t have a board he has barely advisors. He’s a king. That’s the question, Facebook has all this power, but they’re not using it well.
So there’s a lot of things, I mean that the whole misinformation, disinformation also that crosses over because disinformation and climate disinformation and sexual reproductive health in on voting on political spending so you got like layers of these different issues happening. Race and racial justice, and climate climate justice, we’ve filed some farm justice resolutions for companies that are spraying pesticides on their fields but it’s also affecting the adjacent farming communities, which are generally lower income communities of color that are being exposed to toxic materials that are causing infertility they’re causing cancer that are causing all kinds of harm so there’s a lot of work to be done.
Christopher: There’s a lot of work to be done. With respect to being careful on politics, it seems that we’re entering another period of potential high instability with midterm elections coming up and parties getting ready for the next election. If you’re tracking political contributions, it would be interesting to see where companies are placing their chips on candidates and how they relate back to the issues on the platform that the candidates are pressing. Do you see an emerging uptick in how companies are preparing for the election?
Andrew: We work with other political groups that do this and track corporate spending on politicians that support things like abortion being banned. In how many states, I’ve lost track, but issues like CRT, which isn’t even CRT, it’s just banning history. And these things are very dangerous for companies to get involved with because you don’t want to alienate half your market. And that’s some of the things we’ve brought to the attention of many companies who have funded legislators that push these heartbeat bills.
Do you really want to alienate half of your customer base? Because that’s what you’re doing, taking away women’s right to choose, and you approach them asking if that’s really a good use of corporate money
Christopher: That’s where I was going is exactly that, is this action going to unlock the full potential of your company? Will it help the company grow in terms of profitability and brand value? It feels like it’s all tied together in one psychic knot.