Your Survival Guy is focused on you, the millionaire next door, who wants to enjoy travel and family in retirement. You may even be the type of saver who doesn’t want to stop working completely because you enjoy the skills you’ve developed over decades of working hard and saving til it hurts. When you invest your hard-earned money in a company, it’s because you expect the managers of that company to work just as hard as you do to return your money and then some. But not everyone thinks like you. There are shareholders who want to weaponize corporations to pursue their political agendas. They can buy as little as $2,000 in stock from a company and then force votes on any agenda item they want. The institutional investors, proxy advisory firms, and board members who control the voting are often swayed to go with the political trends rather than to protect shareholders’ interests. Marlo Oaks and Todd Russ explain this historic breach of fiduciary duty in The Wall Street Journal, writing:
Many American workers don’t realize that their hard-earned money is being used against them. Firms whose job is to deliver investment returns are instead weaponizing retirement funds, public pensions and other investments in pursuit of nakedly ideological goals. It is perhaps the most severe breach of the fiduciary standard in American history.
Institutional investors like us are the last line of defense. Treasurers and other state financial officers are fiduciaries—legal stewards of Americans’ retirement assets, not the owners of those assets. As such we must ensure that our investors’ proxy votes aren’t cast in favor of value-destroying political measures. Lately such proposals have included requests that U.S. financial institutions align their lending, financing and underwriting activities with a net-zero-emissions world.
On Monday we sent letters, co-signed by 20 other state treasurers and financial officers, to some of the biggest offenders—proxy advisory firms and the world’s largest asset managers, including Institutional Shareholder Services, Glass Lewis & Co., BlackRock, Vanguard, State Street and Fidelity. We asked pointed questions about how these institutions are fulfilling their fiduciary obligations to our beneficiaries. We demanded that these firms provide us with the economic analysis that justifies their support for shareholder proposals requiring racial equity audits (which are legally dubious at best), Scope 3 emissions reporting, and linking executive pay to sustainability measures.
By supporting shareholder resolutions that compel companies to pursue public-policy aims, asset managers are ignoring their fiduciary duty to act in the best financial interest of American workers. Shareholders have long been able to submit proposals to protect the value of their investments and play a role in corporate governance, but now activists are gaming the system.
U.S. securities rules permit a shareholder owning as little as $2,000 in stock for three years to submit a proposal to be voted on by the company’s shareholders. The incredibly influential but unregulated proxy advisory firms—a duopoly consisting of ISS and Glass Lewis—then provide institutional investors with vote recommendations regarding all of these proposals. These recommendations have a significant effect on the voting results and, ultimately, the financial well-being of millions of retail investors. What proxy advisor reports don’t provide is any evidence that these recommendations will maximize value.
For both the 2022 and 2023 annual meeting seasons, activists have introduced hundreds of shareholder resolutions demanding that companies sacrifice growth and competitiveness to pursue political agendas. With the explicit support of the Securities and Exchange Commission, a wink and a nod from global investment firms, and help from proxy advisory firms, activists can even oust and replace board members who don’t support their political goals.
Action Line: What’s the first step you can take to stop activists in the boardroom from mismanaging your money? Work with an advisor who is a fiduciary by law, not just in name. Then, own your shares yourself, not as part of an index fund where fund managers get to make the decisions for you. When you’re ready, let’s talk.
E.J. Smith - Your Survival Guy
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