In the last few decades, our financial markets have adapted to changes that reflect an increase in technology, a developing political and economic climate as well as a legislative and regulatory framework that reflects these changes. Whether Americans are investing through their employer sponsored retirement accounts, working with financial planning professionals, or using electronic applications available on smartphones, all investors are affected by these changes.
Significantly, investors suffer from the escalation of a particular kind of shareholder activism which uses their stake in companies for the purposes of advancing proposals that have little to no long-term shareholder value and may even diminish it. Often times, these proposals would force a company to take a stance on an unrelated social policy or other issue, potentially putting its employees and shareholders at odds with many of their customers. Over time, earnings that could be reinvested back into the business or used to compensate shareholders are instead spent pursuing unrelated social and political policies that diminish the value of the company. These proposals effectively earmark shareholder capital toward activist agendas at the expense of all shareholders. This loss of capital hurts most pension fund beneficiaries and small shareholders who rely on the continued growth of these investments for their retirement planning.
Additionally, the proxy advisory firms that review shareholder proposals and are expected to act as conflict-of-interest-free third parties, have instead become activist in nature when providing recommendations. There is no shortage of examples where these firms have provided advice for investors to reference when voting in person or online during annual meetings that actually contradicts a company’s long-term interests, but nevertheless has had a demonstrated effect of shaping shareholder votes. These firms lack appropriate oversight, accountability and transparency, leaving companies with limited opportunities to appeal and correct inaccuracies published in their materials distributed to investors before a shareholder vote. This unaccountability extends beyond shareholder votes as businesses and investors are restrained from pursuing remedies that protect against similar inaccuracies in the future.
Whether shareholders are those investing significant capital and resources or those using smartphone apps to invest in small increments, the Shareholder Advocacy Forum’s goal is to protect all shareholders’ interests, including their ability to maximize their return on investment (ROI). The unfortunate truth is that many retail investors do not even realize their money is being allocated to other projects. Through the Forum, we aspire to inform all shareholders of proposals that diminish long-term value for short-term social and political statements. Through their investments, shareholders are in a unique position to vote on proposals to ensure Directors and Executives are not placing the social agenda of some ahead of their fiduciary duty to all shareholders. SAF will work toward educating shareholders who actively participate – and importantly as well as those who currently do not – about such proposals and their negative impact on the business, and ultimately shareholder returns. The Forum is also an educational platform to emphasize why it is important for shareholders to continue participating in the voting process.
SAF will also be a voice at the table to provide support for legislative and regulatory proposals that allow businesses to more easily access capital, support for recommendations that create more accountability for proxy advisory firms and highlight research on creating value to allow shareholders to benefit. In addition, the decisions of private institutions and shareholders should be respected and protected from government intrusion, including instances of shareholders supporting mergers and acquisitions.