Is corporate America beyond moral rescue?

Every year publicly traded companies hold meetings at which their shareholders can vote on matters of importance to the company. In addition to routine items such as electing members of the board of directors and appointing the independent financial auditor, typically resolutions are presented that ask shareholders to vote on matters of corporate policy regarding issues that are environmental, social and governance related (hence the acronym ESG). 

Activists have been pushing that process into increasingly divisive social issues. Case in point—abortion. Since 2019 left of center groups such as As You Sow and Arjuna Capital have been proposing ballot resolutions that are clearly intended to press companies to reconsider their business dealings in states that have restricted abortion.

In the world of proxies, shareholder resolutions are rarely openly directive. They seldom say something like, “The company should stop using fossil fuels,” or “The company must boycott pro-life states.” It is easier for the companies to block such proposals through the SEC if they are so overly directive. Instead, the usual form is to request the company perform an analysis studying the risk of some activity disfavored by the left. For example, recently a resolution appeared on the ballot asking Costco to “issue a public report … detailing any known or potential risks and costs to the company caused by enacted or proposed state policies severely restricting reproductive rights.”

What sort of risks might these be? Well, “women who cannot access abortion are three times more likely to leave the workforce,” and therefore “Costco may find it difficult to recruit employees to states where abortion is outlawed.”

Lest Costco lack specific action steps to mitigate any risk they might uncover, the activists have some suggestions. For example, “employee hiring, retention, and any decisions regarding closure or expansion of operations.” Also, the board may want to look at “political contributions policies, and human resources or educational strategies.” In other words, the companies are being nudged towards punishing pro-life states by divesting from them and defunding any politician or trade association involved with the pro-life movement. The threat is clear: Nice labor market you have there, North Carolina, it would be a shame if something were to happen to it.

Speaking of North Carolina, along with Alabama and Texas it has been mentioned as a state that is particularly risky. The facts reveal that claim to be an untruth. The timing on that observation could have been a little better given recent announcements that U.S. population is shifting southward. The Northeast is losing residents. “In contrast,” the Associated Press reported, “the South grew by 1.3 million new residents, and six of the 10 U.S. states with the biggest growth last year were in the South, led in order by Texas, Florida, North Carolina and Georgia.” So, to mitigate labor shortages, move your business away from the states people are moving towards and towards the states people are moving away from. Get it? Probably not.

But this is not an outrage story. This is a promising development. Up until the Costco meeting, the gigantic proxy services, the unseen but powerful actors in the world of proxy voting, agreed with such proposals and recommended that asset managers support them. Perhaps that is why last year some of these proposals performed much better than such out-of-left-field resolutions usually do, in one case getting more than 40 percent of the vote. But this year, the leader in the field ISS recommended a no vote. No doubt this is one of the reasons that instead of 40 percent, the proposal got only 15 percent of shareholder support.

Such a low number suggests that perhaps some of the big money managers also decided not to place their thumb on the scale against pro-life states. It probably doesn’t hurt that those states tend to have pro-life elected treasurers who are stepping up their resistance to politicization of the proxy process. The association of conservative state financial officers, the State Financial Officers Foundation, recently launched an educational effort about this sort of thing, called Our Money Our Values.

To be sure, the battle is not over. Costco, while opposing the resolution, did offer a bit of pandering. “Should an employee enroll(sic) in our benefit plan live in a state denying them the ability to obtain a covered abortion, the plan provides for travel and lodging reimbursement if travel over 100 miles is required.”

There will be more such proposals coming down the pike. Watch, for example, Coca-Cola and Pepsico. These resolutions are actually good news, because their appearance on the ballot means that the companies failed to capitulate to the left’s activism. In the past, a number of such proposals from As You Sow have been withdrawn. As of this writing, however, As You Sow has not reported any such withdrawals. That means negotiations with management have been failing.

So, management is no longer appeasing pro-abortion shareholder activists in every case, forcing the activists to try to take the argument directly to shareholders. The world’s largest proxy service is no longer automatically recommending support for those proposals, and so far this season, those proposals are significantly underperforming prior years in votes attained. Abortion is losing ground in corporate America. Resistance is not futile. And that, by any measure, is good news.