In corporate governance, the “Big 5” are made up of the three asset managers that have been documented as together constituting “the largest shareholder in 88% of S&P 500 firms” (Blackrock, Vanguard and State Street), and the two proxy advisors that “make up an estimated 97% of the proxy advisory market” (Institutional Shareholder Services (ISS) and Glass Lewis).
The reason they might all be liars is because they consistently favor left-leaning proposals over right-leaning proposals by dramatic margins, yet they repeatedly insist they are unbiased. Let’s dig into this issue a bit more.
Last month, 18 state financial officers sent letters to ISS and Glass Lewis, highlighting “concerns of favoring left-leaning initiatives and freezing out conservatives.” The letter to Glass Lewis noted that, “for the most recent year for which data is available (2022), you supported approximately 53% of Social Shareholder proposals and 60% of Environmental Shareholder Proposals, but 0% of shareholder proposals from conservative groups.” (Similar evidence of bias can be found in the letter to ISS and in the report on asset manager voting available here.)
As noted in the Glass Lewis letter, one of the defenses for supporting zero conservative proposals essentially boiled down to a claim that the conservative proposals were “political” and thus did not warrant support. But the state financial officers’ letter pointed out the hypocrisy in that defense by contrasting these supposedly political proposals with left-leaning proposals that were supported:
“[I]s a group that wants to burn more coal automatically to be deemed as political while groups which want to burn less coal are not? As energy demand skyrockets and geopolitical instability drives up the price of oil, and renewables run into the limits of both politics and physics, is it not possible that it would be fiduciary for companies, especially coal companies, to burn more coal?”
Accordingly, when one combines the evidence of biased voting and recommendations with the nonsensical defenses thereof, one must consider the possibility that the Big 5 are simply lying when they say they aren’t politically biased. And if that’s the case, it may be worth considering the various types of players who combine to create that reality. Specifically, we should examine the relevant true believers, opportunists, useful idiots and cowards. Examples of the underlying motivation of each follow.
The true believers are convinced they are on the right side of history and that this justifies them in elevating their views on, for example, climate and diversity above earthly considerations like their fiduciary duties. This is what they understand to be “the work” of social justice, and a natural outgrowth of the belief that “the personal is political.”
The opportunists have concluded that the “anti-ESG” backlash is just noise – even when coming from the likes of state AGs and members of congress. Sure, they might have to take a public tongue lashing – but nothing’s actually going to change. So, they can just feign shock at being accused of bias and go back to feeding on the subsidies and excess fees of the ESG-industrial complex.
The useful idiots may believe they are simply applying objective expected value calculations, and that the fact that these calculations seemingly always leave them siding with leftists is pure coincidence.
The idiocy here stems from the massive blind spot these folks have regarding the assumptions and baselines underlying their calculations. For example, they might claim that aligning their votes on climate proposals with a benchmark from Bloomberg’s Task Force on Climate-related Financial Disclosures is objective when a truly objective person could reasonably conclude that this benchmark is drunk on climate hysteria.
Finally, the cowards realize that all the folks making their promotion decisions, etc., are one of the foregoing three so they had better play along to get along.
So, what is to be done? First, the Big 5 can start supporting more conservative proposals than zero – or at the very least be more transparent about what those proposals are lacking when contrasted with comparable left-leaning proposals. Second, the Big 5 can ensure that legitimate right-leaning options are available to their customers and clients when it comes to things like self-directed voting options.
Finally, they can engage with conservative groups to ensure their own benchmarks aren’t biased – particularly in order to address concerns about blind spots created by left-leaning echo chambers.
Of course, it is not necessarily the case that there are bad faith or unconsciously biased actors driving the Big 5 here – but it would be naïve to simply assume there aren’t.
Stefan Padfield is an associate at the National Center’s Free Enterprise Project (FEP), whose stated goal is to oppose the woke takeover of American corporate life.
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