M2 - U2 - Class 20 - CSG and ESG Flashcards
How can shareholders influence corporations?
- Buy/sell stocks (“Wall Street Walk”)
> Don’t have to buy stocks… you can walk away and influence the company - Vote their representatives onto the board
> Voting power based on how much you own
> Most people don’t own stocks but intermediaries do and they vote for you - Introduce and vote for proposals (resolutions)
> Official guidelines to submit shareholder proposal - they can submit this resolutions - Engage in activist campaigns
> Our article! Blackrock
how do corporate board elections work
- election of directors
> Annual elections at the shareholder meeting
> Announced in proxy statements - legal statement
–> Proxy voting.. Proxy..someone else does it
–> Early spring - One vote per share (but there are exceptions)
> Different kind of stocks (class or preferred) can change your vote power
> Extra voting power, special kind of stocks, based on last name or status - Zuckerberg example - One-year term (each director serves one year and is up for reelection the next year); except for staggered boards (classified boards)
> Class a, class b etc. one class runs for reelection at a time
classified boards - staggered board
xyz inc = 12 members in BOD
class 1 = 3 members (may 2020)
class 2 = 6 members (may 2021)
class 3 = 3 members (may 2022)
Reelection one at a time - Classified boards
Class is artificial distinction (A =/= better than B)
Board has committee that oversees election
what is shareholder activism
Actions taken by shareholders with the explicit intention of influencing corporations’ policies and practices
More direct and drastic
who are the activists?
Wealthy people, investors, asset management companies
Very Active: pension funds
> Cumulate huge amounts of money and puts it into stocks and corporations
> California pension funds for public employees are very active
what are the goals of activists?
- They want to maximize returns to their investors/investments
> Corporate raiders (?)
>Maximize investment by agitating stocks so they can sell when price high - Interested in Environmental social issues ESG
what are their tactics?
- public campaigns and announcements
> Issue letters, statements - Negotiations with companies managers directly
> Phone calls, emails - Public stunts - annual shareholder meeting
how has shareholder activism grown
less early movers, more aggressive opportunities and refined strategies
what do shareholder activists want?
human capital and wok force
climate change and emissions
social opportunities and community
humans rights
product liability and responsibility
exxonmobil vs. engine no.1
More needs to be done for climate change
Fossil fuels needed for long term
Net Zero is Engine No. 1’s goal
Impact through capital
Link company makes on climate in long term financial value of company
Making sure board can manage company for the future
ESG
Economic and _ initiative
Vote ETF
Stay invested in companies for a long time and they’ll vote in their elections
- What is Engine No. 1? What kind of company is it?
Investor/Hedge fund
Activist investor
- What did Engine No. 1 want?
Have companies like ExxonMobil to commit to taking climate change serious and aim for zero fossil fuel used
- How did Engine No. 1 win board seats at Exxon? What was their tactic?
The strategy of Engine No. 1 hinged on getting votes from Exxon’s three largest shareholders, BlackRock, Vanguard and State Street, on its side, an uphill climb since such firms often side with management.
Engine No. 1 held only 0.02 percent of Exxon’s shares, giving it a similar portion of proxy votes, while those three institutional investors together accounted for nearly 20 percent of the voting shares
- Can big oil companies like Exxon change its strategy on its own?
They can if they want to but they dont which is why activist investors exist. Sometimes they focus on maximizing profits too much so others will make them care more about stakeholders
Not all stakeholders are the same - Barnet - primary vs seconday
Primary stakeholders:
Direct influence
>Actually purchase your stuff etc.
Power
Legitimacy
Urgency
Secondary stakeholders:
Indirect influence
No exchange relationship
Unable to reciprocate
Stakeholder management vs CSR (ESG) image and core ideas
society (on top)
firms - primary stakeholder relations - financial returns
Core ideas:
- If company does well to generate profits and you get returns for shareholders = shareholder principle = red dotted line
- If you take care of your primary stakeholders and focus on them specifically, they give back to you through financial success. Small segment of consumers = instructional stakeholder theory= purple line
- **When thinking about societal issues it does not affect just wealthy people or employees but all of us if you do firm actions that will lead to financial returns = CSR and ESG = green line
> Just cuz you do something good for society doesn’t mean you’ll help your primary stakeholders and sometimes its a negative impact for final returns
> ESG/CSR is good for business because……
when can CSR benefit the firm? Barnett…
CSR can benefit the firm only through the primary stakeholders (who are appreciative) when:
- The CSR entails self-sacrifice
Something you spent money to do and was not easy to do
EX: wildfire and empty resort (shouldn’t be an opportunity to make money and you shouldn’t sell rooms for premium price) - The CSR is costly to the firm
Shouldn’t be free - The CSR is not belated
You are proactive even before people criticize you - The CSR is a sustained effort
Not just one time has to be consistent and continuous - The CSR is not self-promoted
Paradox because how do shareholders know you do this if its anonymously??
Publicize this in a smart way without looking like you’re bragging
Green dotted line becomes solid because of these 5 condition
What are the ways in which shareholders can influence the company?
Through voting power
Through buying/selling stocks
Submitting resolutions
Activism
What is shareholder activism?
Not picketing and chanting but through investing and actions taken by the shareholders and their intentions
Change company strategy and actions through investing
What is ESG?
Environmental Social Governance
Guidance for corporations and investors
How did Engine No. 1 win Exxon board seats?
Through buying and parenting with big investors (3)
Vanguard, BlackRock and State Street
Why does BlackRock advocate for ESG investing?
- Biggest investor in the world specifically coming from the top the CEO
- More people will trust them if BlackRock cares
Well you never really know his true intentions - Has impact on other investors - some believe they’re window dressing (pretending) AND state governments were mad because they handle pensions but they were mad cuz they’re supposed to be politically neutral because voters will claim they’re using their money to be “”“woke””” especially in states like Texas
Who can save the world: shareholders or stakeholders?
both imo
