Aldous Huxley warns in his first novel, Chrome Yellow:[t]o It can be destroyed with a prick of conscience, and bad deeds can be called “righteous resentment” – this is the height of spiritual luxury and the most delicious of moral delicacies. ESG (Environmental, Social and Corporate Governance) has reached such a height of psychological luxury that it is frankly becoming illegal.
For example, in May, under the banner of promoting ESG, nearly 50% of Travelers Insurance shareholders demanded the company break the law. Full stop. Specifically, about 47% of the company’s investors supported a shareholder proposal that caused the company to aggregate race into account when formulating insurance policies, in direct violation of state law.
Why do nearly half of insurance company investors now want their companies to break the law? Understanding how the ESG movement works is complex, but very important to
Under the Companies Act, shareholders of listed companies are permitted to submit proposals at the company’s annual general meeting, which are then voted for or against by shareholders. Historically, these proposals have been uninteresting: Should the tenure of directors be limited? Should the boards be staggered?
Over the past few years, this process has been adopted by ESG activists who want companies to align their business activities with the activist agenda. Activists told ExxonMobil to stop drilling for oil. They told Walmart to support abortion. They told Twitter to do more to censor so-called hate speech.
That has changed now. Last November, ESG activist and “socially responsible” investment firm Trillium asked Travelers Insurance to include a shareholder proxy vote proposal asking the company to conduct a “racial justice audit.” I requested. Trillium explained that it hoped to “fight systemic racism” and accused insurers like Travelers of “blaming” them.[ing] Higher premiums…in minority communities. Therefore, it called for “a racial justice audit covering insurance products.” The resulting report will be published on Travelers’ website and will include “recommendations for improving the racial impact of its policies.”
But here’s the problem. Travelers Insurance isn’t even legally allowed to collect information about race. Maryland law provides the clearest example. So do other state laws.
Incredibly, Trillium did not dispute that Travelers are not allowed to ask customers about their race. Instead, Trillium argued that its proposals weren’t really about racial justice in “insurance products,” but about Travelers’ internal hiring policies. It wasn’t. Trillium also countered that Travelers could still hire a race equality auditor.Travelers can then ‘share [the non-report] Travelers want to break the law for noble ends and seek exceptions to the “safe harbor” so they can collect and act on racial data to “address racial justice.” It is explained that
In other words, Trillium actually admitted that what they were asking Travelers to do was illegal, but they wanted shareholders to vote anyway.
The Securities and Exchange Commission is supposed to stand in the way of such nonsense. If a company believes a shareholder proposal is inappropriate, it can petition the SEC to bar the proposal. One of the reasons for doing so is SEC Rule 14a-8(i)(2). Under that section, a company may remove a proposal if it “causes the company to violate any applicable state, federal, or foreign law.”
Travelers made just such a petition. Travelers’ legal team and outside counsel convincingly explained in his 50-page filing that the proposal would cause the company to violate state laws nationwide. But in a single statement, the SEC disagreed.[We are] We cannot conclude that the company would be in violation of state law if the proposals were implemented. “
Congress should immediately take all SEC staff involved in this decision to Capitol Hill for clarification. Federal bureaucrats do not have the discretionary powers to allow activists to carry out corporate decisions contrary to state law. But it still might not solve the problem. Because the SEC isn’t the only villain in this story.
More than 47% of Travelers shareholders voted for it after the SEC ruled that Travelers should include a racial justice proposal on the ballot. How is this possible?
The responsibility falls on the shoulders of two actors, with proxy advisory bodies telling large asset managers how to vote on social justice issues, and large asset managers heeding their call. .
The voting advice market is an unchecked duopoly that has tremendous power over corporate votes. Two companies, Institutional Shareholder Services and Glass Lewis, control more than 95% of the voting advice market. And both companies advised their clients to back their solutions. Currently, ISS and Glass Lewis are not trustees. This means that we have no duty of care or loyalty to our customers. That means they are free to prioritize social justice agendas over seeking financial returns for investors. But the same cannot be said for asset managers who voted in line with their advisors’ recommendations in a manner charitably called careless, or more precisely reckless.
And which companies voted their customers’ money so thoughtlessly? State Street and BlackRock funds, UBS, BNY Mellon, Nuveen, Wellington, Credit Suisse, HSBC, Allianz, and more. To justify its vote, Wellington collected four words: “Current practices are inadequate.” Is that reason enough to break the law? And while his vote at this year’s Travelers Annual Meeting was certainly lawless, this is just one example of the potential illegality of his ESG movement.
Last month, attorneys general from 19 states sent a letter to BlackRock indicating that the world’s largest asset manager’s ESG activities may be illegal. The letter stated, among other things, that BlackRock had breached its fiduciary duty by using client money to further a political agenda rather than maximizing profits, and that it had colluded with other asset managers to bring corporate America to justice. accused of engaging in antitrust violations and boycotting the United States by imposing left-wing views on Energy industry violating state law. Since then, Indiana Attorney General Todd Rokita has warned that “woke big corporations are working with left-wing allies to subvert the will of the people,” adding that “this collusion is conscientious and unethical.” Not only is it illegal, but it’s also illegal.”
At Strive, where I am Head of Corporate Governance, I bring a different voice and vote to Corporate America. We would have voted against the Travelers proposal and loudly opposed it. As an asset manager, we never ask the companies in which we invest to break the law. We will not enforce arbitrary environmental mandates such as those promoted by BlackRock. Also, as a fiduciary, we never put social or political goals ahead of achieving the best financial return for our clients. ESG-related Wall Street companies may control trillions of dollars in global capital, but there are signs they may be falling from the height of their psychological luxury.
• Justin Danhof is Head of Corporate Governance for Strive Asset Management.