In the recent past, the ownership and management of publicly-traded companies were separate entities. Shareholders were often not large enough to make their voices heard through voting. If you were displeased with the running of a company, the only option was to sell your shares.
That has changed as institutional shareholders have grown, particularly the pension funds in charge of delivering retirement payouts. Abuses such as the Bernie Madoff scandal that wiped out people’s life savings, have created an urgency that shareholder oversight is necessary. Large shareholders now have the clout and the mandate to affect change at the board level. Critics of such activism believe that while it helps a short-term stock price, it causes long-term drawbacks to a company’s success.
The movement toward environmental, social, and governance (ESG) issues in other areas of society is not a fluke and the financial world has been paying increasing attention to socially responsible investing. Last year, several large asset managers and shareholders endorsed a series of corporate governance practices, including avoiding dual class shares which limit the ability of small shareholders to enact change. Included in the list of those endorsing these practices were Mary Barra, Warren Buffett, and Jamie Dimon. State Street announced it would begin voting against companies that do not have female directors.
Of course, these concepts are not universally accepted, despite some large and influential names taking up the cause. Charles Schwab and IBM resisted proxy access at this year’s shareholder meetings. Proxy access allows shareholders to effect change by forcing out board directors, thereby influencing corporate strategy. 58% of S&P 500 now allow proxy access, up from 21% in 2016 and 1% in 2014. That is a huge increase and given the general trend toward supporting corporate governance issues, and companies who swim against the tide may get swept out to sea.
