Companies often use shareholders as an excuse to justify their abuses of workers, the environment, and the general public. Boards and executives can hide behind the shareholder, deflecting the attention of public onto shareholders and positioning them as the enemy. Activities like pay cuts, lockouts, unionbashing, unethical sourcing, and polluting are justified on the grounds that they make money for the shareholders, ergo the company is fulfilling its mission: To generate profits. The board has a legal responsibility to the shareholders, not to the public, let alone its workers, vendors, and sources, the people who make it run.
In this climate, shareholders trump the farmworkers who handle the produce, the sweatshop labourers who sew the designer jeans, and the people who monitor the quality in the pharmaceutical lab. Many board members have also sliced off a large piece of the pie for themselves, using their positions for self-enrichment even as they take care to stay within the lines of the law—or at least appear to do so—to avoid investigations from government regulators and other agencies. Right behind the shareholders come rocketing executive compensation, including ample signup and leaving packages.
Under the circumstances, it is not surprising to see members of the public resenting shareholders and identifying them as targets in the effort for financial reform. Leaning on major stakeholders is one way to pressure companies into changing their activities; if, for example, a large shareholder can be shamed for holding shares in a company known to use child slaves, it in turn will pressure the company to change its labour practices. Under the threat of losing that stakeholder and the accompanying value, the company may comply, and activists have achieved their goal of creating a meaningful and lasting change.
This is not, however, the only way to engage with shareholders. They themselves can be activists, and there’s a rising movement to utterly alter the landscape of annual meetings. Far from being a self-congratulatory pleasurefest, they are becoming a minefield for executives and key representatives, who are suddenly put in the hot seat by the people they are supposed to be working for, the individuals who collectively own the company and have the right to make key decisions about its operations.
It’s hard to retool the social relationship with shareholders, but that’s exactly what activists have been doing over recent years, and a growing number are joining in, pushing for change from the inside. Groups like the Jessie Smith Noyes Foundation and Domini Social Investments have been engaging in shareholder activism for years, for example. A group of nuns from Philadelphia have been using their shares in major companies to push for corporate reforms while groups like People for the Ethical Treatment of Animals have used their shares to compel changes in animal welfare policies. This kind of institutional investment as a form of social activism is not uncommon, but more individuals are adding their voices to the discussion in annual meetings, and it’s starting to show.
Some have a very personal stake in this. Activist Alex Friedmann is an ex-convict who is preparing to speak about prison rape at a Corrections Corporation of America annual meeting. He wants CCA to take a more active role in addressing rape and sexual abuse, and he’s using his $2,000 worth of shares to demand just that by calling for a resolution creating clear guidelines and parameters for reporting sexual assault statistics and other data from its facilities. Given the culture of silence surrounding prison rape in the United States, just bringing the resolution is a significant act, ensuring the issue doesn’t go unremarked and putting attendees of the meeting on the spot.
In 2011, it looked like shareholder activism—and revolt—was on the rise in response to changing economic conditions and a growing interest in using activism to reform the financial industry, rather than relying on regulators and policy alone. This trend appears to be continuing, and it’s entering the mainstream, to the delight of many organisers and trailblazers who have been involved with shareholder activism for decades. For newcomers to shareholder activism, it’s another method to add to the toolbox, while veterans of the practice are picking up new skills and thinking about ways to expand the scope of their work.
Shareholder revolts are a time-honoured tradition in the corporate world, as shareholders frustrated with company performance decide to use their clout to vote in a block for measures like rejections of executive pay, checks on compensation packages, and board ousters. Along with representing their financial interests, such groups also indirectly support the will of a growing number of activists on the ground. While people protest in the streets about social stratification and the vast disparity between CEO pay and that for average employees, shareholders are doing the same thing with their ballots, for a far more immediate effect.
Both groups play an important role in the fight for financial reform. Shareholders need to take a more active role in shaping policy at the companies they invest in, and they should be using their clout in annual meetings to push for immediate and direct change. More attention and aggression in annual meetings could have prevented some of the financial disasters of recent years, had shareholders been engaged and involved with the companies they were investing in.
At the heart of some shareholder resolutions can lie truly radical policy shifts. In the realm of animal welfare, for example, once one major fast food company commits to a change like not crating pigs, others are often forced to follow suit to remain competitive. Shareholders can create a domino effect across an entire industry with a single well-timed resolution, if they coordinate ahead of time to ensure they’ll get the votes needed to pass it, or at least to trigger an extensive conversation on the subject.
Meanwhile, street-based activism keeps the general public informed. As protesters gather at annual meetings and similar events, they can alert people to the social misdeeds of the companies they’re protesting, and the ways in which members of the public can act directly to confront them. While the media may attempt to ignore some protests, the coordinated national outrage created by the Occupy movement has proved difficult to push under the carpet. Consequently, such protests are getting more media face time, and more opportunities for direct engagement with the public. The result is an increasing awareness of exactly how bad some companies are—and what people can do about it.
The Guardian warns that a number of companies may be facing a ‘shareholder spring,’ a concept which might seem laughable, but is a very real risk for those in the upper echelon. While shareholders with large blocks of shares are traditionally among the most wealthy and powerful in society, they’re sending a signal to the companies they invest in, and society in general: enough. That message has been in part driven by pressure from the ground up, as the growing unrest and anger can no longer be ignored, but there’s also a sense of fury on the part of high-flying shareholders who are tired of financial abuses. The era of high executive pay and lavish perks on the side may be drawing to a close in the United States.
And not all shareholders are representing major funds, unethical institutional investors, and individuals with very high net worth interested in curbing executive pay and other practices solely because they pose a financial risk. Some are pension funds and other social groups, while others are social justice-minded organisations who have chosen to use the power of the boardroom to push for reforms from the inside, in addition to lobbying for greater government oversight and more comprehensive reform from the outside. Their investment activities can be an important part of their activism strategy, although this aspect of their work is not as visible to the public.
They’ve started asking lesser shareholders to join them, adding their voices to shareholder meetings. While shareholder activism has traditionally been framed as something that is only possible with large blocks of shares, any shareholder with enough votes can speak up at a general meeting, and that means executives and representatives can be directly confronted with the voices of people affected by company policies and activities. While these shareholders don’t have the clout to force a meaningful vote on these issues, they do have an opportunity to force companies to face the real-world consequences of their actions.
This is a departure from the traditional model of shareholder activism, where groups have focused on coordinating votes to support specific single measures with the goal of reforming policy or publicly shaming companies. Asking for individual testimony can also result in shifts in corporate attitudes, but more critically, it humanises and individualises the company’s actions.
There’s a profound difference between a united effort between multiple environmental investors to pressure a company into using ethically sourced wood, and forcing executives to hear testimony from indigenous people threatened by illegal logging practices. Both can create reform, but one also drives home the fact that this is an ethical and moral issue. Voting against a resolution in the wake of such personal testimony is a public relations gamble, as the voter is effectively put in the position of opposing human rights and dignity, not just a dry resolution.
The Occupy movement has readily joined in to create coordinated protests at shareholder meetings. While protesters advocate on the street in front, representatives enter the meeting to provide testimony, as happened recently at a Bank of America meeting in Atlanta. At other board meetings, activists have taken advantage of the right to proxy votes, delegating representatives to attend in their stead to give them a voice they wouldn’t otherwise have. People with a group of shares large enough to entitle a shareholder to speak, for example, turn over a seat at the meeting to someone directly affected by a company’s pollution. That person, acting as a proxy, can give voice at the meeting.
Coordinating efforts like this results in a situation companies cannot ignore. While they may try to shield their investors from the angry public marching in front of their meetings, they cannot keep shareholders and their proxies out of annual meetings except by technicality, and too many technicalities start to draw attention. The practice of invading annual meetings via direct shares or proxies is well-established in Europe, and the fact that it’s spreading to the United States is a good sign, illustrating that it is possible for small voices to be heard in the din, and for the historically downtrodden to have a voice.
For many people in the lower classes in the United States, the economic meltdown has been accompanied by a sense of futility and an awareness that as individuals, people are often powerless to take direct action. Shareholder activism puts the power back in the hands of the people, many of whom are being supported by established activist groups with experience in this arena who are delighted to have more participants on board. Some are working with local organisations to offer mentoring and support as they start to explore shareholder activism and prepare for specific actions.
Some investment firms have issued statements of solidarity with the occupy movement, highlighting the fact that the divide between investors and the people is much more blurred than some activists may realise. Owning shares in a company does involve a direct investment in the system, but the way those shares are used may run contrary to the tendency of capitalism to put profit before all else.
It’s unsurprising that in this landscape, organisations like The Wall Street Journal are attacking shareholder activists, while agencies like the Federal Reserve block shareholder activists in the guise of protecting the economy. These authorities are beginning to recognise that even shareholders aren’t safe from the growing desire for social change. In moving to protect the interests of the rich and powerful, they counter the myths they promote about the free market and self-regulation; surely, in a world where the market can look after itself, shareholder activists should be viewed as a natural evolution with a place in the framework, rather than a threat.
Thus, we may end up in a world where occupy protesters are buying shares in major companies for activist purposes, and using their earnings to fuel more shareholder activism. Which means that they need to start thinking about their strategies and goals. Much of the outside criticism of the movement has revolved around the superficial lack of organisation and seemingly disconnected nature of much of the messaging and activism from city to city, and even within individual cities. Such criticism will continue, and protesters need to be ready to counter it.
As a tool for directly shaping company policy and corporate activities, shareholder activism has tremendous promise, but only when used effectively. Tactics like soliciting shareholders and proxies to provide direct testimony at shareholder meetings are an excellent component, as are measures like those promoted by Friedmann, who is taking the additional step of bringing resolutions to annual meetings. While such resolutions may have a slim chance of passing, they still require consideration, discussion, and a vote. And lay the groundwork for next time.
This provides an opportunity to air grievances in a forum where they must be heard and taken seriously before the meeting can proceed. While this may present a temptation to stage a series of nonsense resolutions in the goal of prolonging the meeting and creating a sense of irritation, this isn’t a good long-term strategy. The backlash against shareholder activists has already begun, which requires them to be one step ahead when it comes to shaping policy without being shut down, silenced, and thrown out. Allowing this tool to be taken away would be a profound disservice.
Activists claim to be ready for the delicate dance—whether they really are remains to be seen.