Investors fret as corporate activism overtakes shareholder prioritization

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Increasing corporate involvement in political and social justice initiatives has led some investors to worry they are straying from solely prioritizing shareholder value.

Over the past few months, and really years, companies have begun to wade further into the realm of politics and issues of social justice that don’t directly have an impact on their bottom lines. Executives at major companies are championing environmental, social, and political causes in droves.

Several corporations caused a stir when they became involved with opposing Georgia's new voting law. The law, which was passed by Republicans in the fallout of the 2020 presidential election, soon became a lightning rod of activism. Major League Baseball even pulled its All-Star Game from Atlanta in protest.

More recently, without specifically naming the legislation, dozens of companies announced their opposition in a statement to two Texas bills — one that would mandate students only compete in sporting competitions based on their sex at birth and the other that would define giving puberty suppression drugs to minors as “abuse of a child.”

REPUBLICAN LAWMAKERS WARN THAT CORPORATIONS COULD FACE CONSEQUENCES OVER VOTING LAW ACTIVISM

The movement gained even more traction, with hundreds of businesses and individuals signing a new statement this month saying they feel a “responsibility” more broadly to oppose any laws that restrict voting rights. The push has attracted vocal GOP opposition, with Republicans warning companies not to become more enmeshed in politics and activism.

Richard Shinder, a longtime investment banking and investing professional, told the Washington Examiner that he thinks the movement could cause investors to examine more closely to what extent corporations are prioritizing investors.

The founder and managing partner of Theatine Partners said that while it is still in the “early days” of this corporate shift, he thinks that over time, investors will become wiser and more attuned to “which companies have that narrower focus on value maximization versus those that are trying to balance creating shareholder value with other objectives.”

Two years ago, Business Roundtable released a statement, signed by 181 CEOs, that attempted to redefine what the purpose of a corporation is and heralded a shift toward “stakeholder capitalism,” which bucks the notion that the sole purpose of a corporation is to serve its shareholders and rather also focuses value also on customers, employees, suppliers, and communities.

“If one really takes stakeholder capitalism to its logical conclusion, how do you balance social justice against good investments?” Shinder said. He used a theoretical example of the lowest-cost labor being in a place that is rife with human rights abuses and said that while producing a product there might maximize shareholder value, it could violate the company’s stakeholder standards.

Charles Elson, a professor of corporate governance at the University of Delaware, published an editorial this month in Directors & Boards, where he is also the executive editor at large. Elson contends that corporations are not the place for political and social advocacy in large part because they are made up of so many investors with disparate views.

“The corporation and its various constituencies reflect the diversity of the body politic. Employees, customers, suppliers and shareholders hold viewpoints that may be quite divergent within their ranks,” he wrote. “For a CEO to direct a particular position which reflects his or her own viewpoint may equally be opposed by as many constituencies that support it.”

He argued that companies becoming “red” or “blue” businesses alienates investors who might hold different points of view than whatever statements or positions executives at the corporation they are investing in might hold. He maintains that investors from both sides of the political spectrum are unhappy contributing capital to a venture whose politics are divergent from their own.

During a Tuesday phone interview, Elson told the Washington Examiner that he thinks a correction could be coming as companies continue to shift away from focusing more narrowly on increasing shareholder value. “It’s divisive,” he said.

But what is driving these companies toward politics? While some investors might be driven to invest in companies that prioritize shareholder value first and foremost, other investors, known as ESG investors, push corporations in the other direction. ESG stands for environmental, social, and corporate governance, and some investors look to put money into companies that promote the good of more stakeholders, for example, companies that put a priority on reducing emissions.

During a Tuesday phone call with the Washington Examiner, Charles Payne, Host of Fox Business Network’s Making Money with Charles Payne, called ESG a “massive force” and said that the ESG movement has “made a sharp turn and is building up momentum.”

“You’ve got to do the right thing, and if you don’t, well, there’s some large investors who right now manage trillions of dollars who will never buy your stock,” he said.

Still, a few companies under pressure from conservatives now appear to be pivoting away a bit.

For example, Coca-Cola, whose CEO publicly repudiated the Georgia voting bill, recently backtracked on the matter and attempted to strike a conciliatory tone after GOP political figures, including former President Donald Trump, called for conservatives to boycott the company.

“We believe the best way to make progress now is for everyone to come together to listen, respectfully share concerns and collaborate on a path forward,” Coca-Cola told the Washington Examiner at the time.

Additionally, Coca-Cola and Delta Air Lines, which also waded into the voting law controversy, were both absent from a statement by hundreds of businesses and individuals affirming their company’s commitment to voting rights.

Elson also said that institutional investors have played a role in shifting corporations toward a model that includes more stakeholders because of the pressure they can exert.

According to Elson, another reason why corporations have become more politically polarizing is because of the “intense politicization of society” and the personal sympathies of those who run these organizations.

Shinder said that, as of now, some investors look at the ESG and political push as more talk than action but that as investors wanting to focus on shareholder value become savvier about how companies handle ESG and social justice initiatives, they will become more discerning about which companies “pay lip service” to stakeholders but still prioritize value creation, versus those “who are all in” on the non-shareholder, value-maximizing initiatives.

“I do think they’ll start to pay closer attention,” Shinder said.

Investors aside, GOP politicians have not been happy with the recent political bent in business. This month, Sen. Rick Scott warned that “woke corporate America” will face a “day of reckoning” if Republicans retake the House and Senate after next year’s election.

“I hope you are all having fun with your virtue-signaling,” Scott said. “I hope you are enjoying trying to one-up each other and showing how woke you can be, all the while believing that you are more sophisticated and morally superior to the hard-working people of this country.”

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

Sen. Pat Toomey, the ranking member of the Banking Committee, told the Washington Examiner earlier this month that “many conservatives will inevitably choose to walk away” from businesses that become entrenched in leftward politics.

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