Proxy Power: The Rise of Shareholder Activism

Shareholder activism is having an increasingly growing influence on how corporations make decisions. This trend is largely fueled by the rise of shareholder proxy voting, a process where investors can cast ballots on important company issues. Activist groups are strategically using proxy voting to push for changes in corporate behavior, from environmental practices to social stances. This week’s episode of Retire in Texas episode dives into how these efforts are playing out in the real world, exploring how companies like Costco and JPMorgan Chase are facing pressure from activist shareholders.

Today’s show highlights include:

*The rise of shareholder proxy voting and how activist groups are using it to push their agendas.

*Examples of companies facing pressure from activist groups, including Costco and JPMorgan Chase.

*How BlackRock’s voting priorities have shifted in recent years, with a move away from climate change being the sole focus.

*The importance of partnering with asset managers who share your values and can advocate for your interests at the corporate level.

If you enjoyed today’s episode, make sure to leave a comment and share the show with a friend!

Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group and you’re listening to Retire in Texas. Thanks for tuning in. This information is general in nature. It’s not intended to provide specific investment, tax or legal advice. Visit PAXfinancialgroup.com for more information and if you go to the website, hit connect now and we’ll connect you with a financial advisor here.

There’s ten advisors at PAX. They have a heart of a teacher. They’re an extension of what you hear on this program. And a 15-minute consult with them, it is not one of a salesman, but one that will see if it’s a good fit. And so, make sure you connect with an advisor through the connect button on PAXfinancialgroup.com.

Okay. So, you know, when you own a stock and everyone typically owns stock, sometimes it’s through mutual funds and sometimes it’s through 401(k)’s and ETFs and things like that. But just so you know, when you own a stock, you’re an owner of a company. Never forget that. It’s very, very important. It really helps in a lot of ways.

I mean, one, you get the growth of a company. So, if a company does well and they sell a lot of products and services, you get to participate in that growth. And two, if they have profits at times, they’ll send those profits out to you in the form of a dividend and so those are very nice. There’s a third attribute to owning a company as a shareholder and that’s, voting.

And I’ve talked about this before. I’m going to talk about the latest and greatest news in the voting space. It’s very interesting right now. And, let me frame it up real quick. So, when you vote, a lot of times if you haven’t owned individual stocks before, you don’t get this through owning mutual funds and ETFs, but if you own individual stocks, you get a little piece of paper, typically in the mail, and it says, cast your vote for something.

And when you cast your vote, what you’re doing is you’re actually it’s a proxy vote. So, you’re making, I guess, a statement, a proclamation that you can’t attend the meeting. There’s an annual shareholders meeting, and you’re saying I can’t attend, but here’s how I want somebody to proxy on my behalf. This is how I want somebody who is going in the meeting, this is how I want to vote. I can’t be there, but this is what I want to vote on.

And then it’s all kinds of stuff like, there could be, you know, a potential merger of the company. You could be voting on the executive compensation. I know that I just heard this morning that CalPERS, is denying shareholder compensation to Elon Musk. So just as a side and they’re doing it through the proxy voting. Other shareholder proposals, like conflicts of interest. I saw one where the leadership team and the board in general have too many conflicts of interest.

So, there was, there was a resolution, a proposal to limit conflicts of interest. You know, you could vote on having checks and balances in place, succession planning, proper auditing, just refreshing the board. There’s all kinds of very important governance, is what it’s called governance, to making sure that a company is operating efficiently and fairly for shareholders who are going about their day sending their kids to school, soccer.

This is the this is how, again, it’s an amazing system. If you think about it. This is how it is self-governed is through, this proxy voting process that we often take for granted. And what happened over the last five years is that a certain activist group, got wind of this process and really became strategic about influencing the direction of these corporations, senior leadership and their boards.

And you saw this reflected in Target and Bud Light, where they started to make decisions that were not in the best interests of shareholders, which the best interest of shareholders is to make money, growing the company or paying out dividends. But it’s changing, it’s changing quite a bit and it’s actually pretty refreshing. I mean, we’re not 100% through the nonsense, but like, for example, Amazon, they said, and this is a quote from them that some of the proposals and I don’t know if they would have said this years ago, but Amazon said some of the proposals and this is the quote, “contain assertions that we believe are incorrect or that reflect a fundamental lack of understanding of how our business operates.”

And so, it’s just refreshing that they’re saying this is nonsense and so they voted against all 14 outside proposals that came in where I’m not sure, maybe in the last 3 or 4 years, they probably would have considered that a lot more, even if it didn’t make sense, even if it was nonsense.

But today they’re saying, it doesn’t make business sense and I love that. And I think that we’re starting to see that a lot more in corporate America, so that should give you some hope. Let me give you three quick examples of how this is playing out. Costco as an example. Costco to me doesn’t- I don’t think of Costco like a company that would be in the abortion business.

Like, I don’t think you would either. Like that’s just do what you do and do it really well. And I think this is thematically when I talk to people who are, engaged in the advocacy platform, when they’re actually talking to corporations, they just keep telling me over and over again, Darryl, we’re not trying to push for Christian agendas.

We’re not trying to push for certain things. What we’re trying to say is, hey, you as a company, stick to the mission and stop trying to do this nonsense stuff. Well, Costco is getting a lot of outside influence to sell abortion drugs through Costco. I have reason to believe that Costco did manufacture this idea internally. It’s an external pressure.

And so, if that pressure continues to mount, then that’ll end up happening where you go to Costco, and anybody can get an abortion drug because the FDA actually removed the in-person dispensing requirement. So now, pharmacies can dispense the drug to anyone with the prescription, whether in person or by mail. And so, there’s looser rules on these abortion drugs.

And so, outsiders are saying, Costco, we want you to start selling it. So, what’s interesting is that the other side is starting to come to the table and saying, hey, we’ve got different convictions and so here’s our message. And before this, this other side never came to the table and said, we’ve got different convictions.

They were just comfortable. I’ve used this word before. They were too comfortable. So now Inspire, a third-party asset manager, I’ll talk about them later. Actually, sent us and many other shareholders not a proxy vote, but a petition. I don’t know why they went that route, but anyways, they sent a petition to us and a bunch of people of influence signed it saying, Costco, we need you to hear the other side of the story.

There’s another side story. And that story isn’t necessarily of we want you to sell, you know, something else. It’s stick to your business and not to the nonsense. And most of these companies are saying, yeah, you know, we’re tired of having to cater to activists. So, we’ll see where that goes. But it’s very interesting to see a petition going around Costco. There’s a different group of people that have a different opinion. Hear us.

Recently and example number two recently, JPMorgan Chase, I don’t know if you know this, but in 2021, there was this, Family council, Arkansas Family Council. They promote and protect and really strengthen traditional family values and know, adhere to the Bible and that’s what they do.

And so, they got kicked off of being able to use a payment service, that was owned by JPMorgan Chase. And so, this payment service is important because if people are going to fund your initiative, we always swipe our debit cards or punch in our numbers through the website to send a donation. They were just kicked off this payment service, which is very frustrating and very difficult.

But the thing that really made it frustrating is this email that they got. And here’s this email. This is the exact quote. “Unfortunately, we can no longer support your business. We wish you all the luck in the future and hope that you find a processor that better fits your payment processing needs.” So, they’re like, what the heck?

And then the next year, this guy named Sam Brownback, he was a U.S. ambassador and former Governor of Kansas. He had an organization called National Committee of Religious Freedom. Now, this is the 501 (C) (4), which is- it’s a nonprofit, but you don’t get a tax deduction whenever you make a contribution to this 501 (C) (4), 501 (C) (3) you do, but 501 (C) (4) you don’t.

So, it has a political kind of a political arm. So, what they do, I think it’s a good it’s a good thing for whether you’re Jewish, Muslim or whatever. It actually protects proactively defends the constitutional rights of religious freedom so that all Americans, and their religious communities and faith, they can peacefully and publicly exercise their religious beliefs, and they’re permitted to legally promote and endorse political candidates.

So that’s the framework of this organization. Well, JPMorgan Chase said, sorry, you can’t bank with us anymore. It’s in that what they told him is that it’s irrevocable. Okay. Then they once they said that, then they came back and said, but we’ll reconsider if you give us a list of your donors. That stuff by JPMorgan Chase is absolutely nonsense.

Well, thank God there’s organizations that are actually saying, hear us out. You can’t be doing this, JP Morgan Chase. And so, a Christian law firm, they push back, and they got JP Morgan Chase to reverse, what they were doing, and they removed the terms of service that they had that allowed employees to leverage those terms of service to be able to debank Christian organizations or faith-based organizations.

So, Alliance Defending Freedom was able to push back against JP Morgan Chase. Will it happen again? I don’t know, but they did make progress in removing language that was harmful to people who disagreed or had a different opinion. Okay, so that’s good. Now the third example is actually Blackrock. And for those that know I’ve used Blackrock for, gosh, 20 years now. Before they got into the political arena, they were great asset managers for us.

We had a good relationship with them. I flew up to New York and met their team- knew how they worked, knew that they knew a lot of their leaders. They were just, honestly, they were just one of the best asset managers around, no nonsense, very good at risk management. They did their job well with excellence.

But, you know, Larry Fink in his recent years has really made climate change a priority. And so, I became very vocal and frustrated with Blackrock. Now we still have clients that have legacy Blackrock positions and that’s fine if they want to keep them. We’re not going to force anyone out of Blackrock, but they just really frustrated me with some of their decision making.

But I still have a good- by the way, I find that having a dialog with them not yelling, which I do have a great dialog professional relationship, I express my concerns, I do it in a way that I think is very professional and the relationship still works. And I think, I would like to think I’ve kind of nudged him a little bit to think about a potential differing opinion.

So, but BlackRock’s huge as you know, and like in 2023 they voted on 170,000 proposals and this is 14,000 companies globally. So, when they vote I mean it makes an impact. And so, but here’s what’s interesting and I just found this out- very cool. So, and you know again climate change it was in the last several years a priority.

And I would suggest to you at the expense of shareholder returns, like that’s, that’s the problem when there’s a sacrifice there’s a conflict that and shareholders are getting a reduced return because you’re overemphasizing these initiatives. And again, climate change in and of itself, that’s a different topic for discussion. But when there’s this fiduciary responsibility to maximize shareholder returns and climate is being interjected and it doesn’t make sense, then that’s a problem.

And so, in 2021 they supported 47, about half of all climate shareholder proposals. So, it was like almost every other one, but in 2023 only 6%, only 6% and they changed their attitude towards this. They said only if it has a material impact for the business and I’ve seen some examples, and I guess you could make the case in the 6%, but I just want to just recognize progress where progress has been made.

They did not support- So there has been many proposals to cease providing finance or even insurance underwriting to these traditional fossil fuel companies. They did not support that initiative and they’ve been supporting initiatives that I think make sense, like practical stuff. Like they told a gold company out of Canada, your board of directors are to old.

Now they say, you know, tenured, but they’re way too old, you need fresh blood in there to keep this company going. So those types of things, being an advocate for the well-being of an organization, so they think through things critically and they hold them accountable to excellence. That’s what we need these organizations for, because we’re all doing life.

And so that’s kind of- where I kind of wrap a bow on this thing. PAX Financial Group, we do what we can is, you know, I’ve done lobbying and at the state and federal level, and that’s not my wheelhouse, but I do what I can. There’s actually, you know, it’s kind of interesting how I forgot, but there was actually a legislative bill a while back that they mentioned my name on the Capitol floor. I forgot about that.

That was just a kind of a little feather in my cap. But whether it’s meaningful or not, it was kind of interesting because I find myself trying to help where I can, and it’s just rooted in just trying to, protect those people who have deeply held convictions in their faith and trying to also protect small business.

And we do what we can at PAX, but the challenge most importantly is operationally, our priority is the families in front of us. So, we can’t do too much because we have to really, we really sincerely want to focus on the families in front of us. So, I say all that because we do have great partners that do a lot of it.

And so, Inspire and Eventide. If you haven’t used those asset managers, you can talk with your advisors, but those two organizations are very active in being advocates at the corporate level. And so, we try to partner with those individuals that share our values that can go to these shareholder meetings or talk with their executives and say, hey, there’s a different point of view for you to consider.

So, thank you for listening in. And, as always, I just want to remind you that despite all the craziness, despite all the noise, you think different when you think long term. Have a great day.

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