When engagement works

Widespread ownership of American stocks through 401k accounts and other retirement vehicles has enhanced interest in how people of faith think about their own investment portfolios. The cultural insanity of 2020 shined a brighter light on the pressure many companies face to advance a social or cultural agenda. This has animated many on the right and resulted in a mixed bag of different approaches to equity ownership.

One strategy has been to “own the market” (think of S&P 500 index funds) but to attach a more “conservative” proxy voting to the ownership. In other words, the investment strategy may be the same, but the shares of the index fund will be voted in line with conservative criteria instead of more objectionable criteria (DEI, ESG, etc.). Another approach has been one of boycott—that is, an investment portfolio that refrains from owning companies that participate in various activities or adopt certain policies. Still others have sought a more “positive inclusion” model—one in which investments are adopted less for their investment merits and more because their management and policies reflect values and ideas that are palatable to the right or people of faith.

I can find things to appreciate and critique in all of these approaches. The approach that happens to be the one used at my investment firm on behalf of our hundreds of clients and the $7 billion we currently manage is that of “authentic shareholder engagement.” In this approach, client portfolios are constructed around what we believe to be the best investment merits—good value, business strategy, dividends, and fundamentals—and yet from there we seek to engage company management for the purpose of optimal company behavior.

Where companies are hurting their relationships with customers, vendors, or stakeholders by taking misguided political or social positions, we use our legal rights as shareholders to push back, to make proposals and resolutions, and to discuss with company management the right path forward. We buy shares not to launch an activist campaign, but the “activism” stems from the rights and interests we have as owners. We speak at shareholder meetings, have legal proposals and resolutions heard and considered, have frequent calls and meetings with company management, and otherwise try to prompt good corporate behavior that maximizes returns for shareholders and avoids harmful and sinful behavior. This “engagement” becomes the opposite of boycott, and it grants a seat at the table for influence and persuasion. Proxy voting is a part of the engagement but not all of it.

A few things happen under this system unique from the others: For one, corporate management (when it is operating under good faith) gets to hear a perspective that they probably would not hear apart from this intentional engagement and that perspective happens to be shared by tens of millions of like-minded Americans! If the only voices Investor Relations or senior executives hear come from anti-Christian or progressive organizations, they will lack the optics needed to understand the foolishness of the path they are taking.

But for another, this system is rooted in trust, authenticity, and honesty. The interests are aligned because the investors have real skin in the game and share a confidence in the business model and underlying strategy of the company. Pure activists are fly-by, and management has little incentive to hear them out or engage with them. But owners who are authentic present a real chance for constructive dialogue.

Finally, it opens the door to real influence because it has leverage behind it—shareholder meetings, media coverage, proposals read by institutional investors, and direct lines of communication with senior decision-makers.

After two years of proposals and conversations, PepsiCo recently agreed to a public commitment not to discriminate against employees, block charitable contributions, or implement policies on the basis of religious or political beliefs. It was a bold decision from one of the largest snack and beverage companies in the world, and it came to be after countless hours of conversation with our consultants from Bowyer Research (headed by WORLD Opinions columnist Jerry Bowyer). Two years ago, we played a leading role in JP Morgan making sweeping decisions against debanking, and we put company CEO Jamie Dimon firmly on the record ensuring that such practice would not be tolerated at the world’s largest bank. (This came after they also took down language from their payment processing subsidiary, WePay, that was potentially discriminatory against conservatives and Christians.) Engagement caused Exxon Mobil to finally stand up and defend oil and gas as a needed source of energy that enhances people’s lives after spending two years on their back foot fighting off radicals from the left.

Our efforts are not alone here, and there is more work to be done, no doubt. But the strategy of “authentic shareholder engagement” is having a cultural impact.