I have long been a champion of shareholder engagement. Since as far back as the 1980s, I have believed that companies and investors alike greatly benefit from engagement; I even advocated for engagement by individual directors – a view that generated some strong adverse commentary from those in the corporate community who disagreed with me. It’s therefore extremely gratifying to me that what was a rare and often disparaged occurrence has become the norm. Even prestigious law firms that referred to director-investor meetings as “corporate governance run amok” now embrace the practice.
I also admit that, despite my disagreement with the principles behind say on pay votes, such votes have had the very positive unintended consequence of making engagement commonplace. In fact, there is so much engagement going on that some investors can’t find the time to meet with the companies they own.
So far, so good.
However, I believe that things may be going too far. I refer, specifically, to the new movement to have a “say on climate” vote at every public company’s annual meeting (or, as the corporate community increasingly refers to it, the annual general meeting, or AGM – as opposed to an annual “specific” meeting, I suppose). The vote would be similar to the say on pay vote – advisory, non-binding, and so on. I have not yet heard anything about a second advisory vote to determine how often a say on climate vote would need to be taken, but I would not be surprised to learn that it’s under consideration somewhere.
Why am I so negative on having a say on climate vote? Well, there are a few reasons. For one thing, I am not a fan of actions for which no one has accountability. The people who vote against – or, for that matter, for – a corporation’s climate plans or actions never have to justify why they voted the way they did, nor do they have any responsibility for the consequences of their vote. Another reason is that this kind of vote tends to result in a one-size-fits-all approach to how companies respond to climate change and other environmental challenges, with no appreciation for the highly technical and ever-changing nuances that exist in this space. Phrased otherwise, an up-or-down vote on such a complex matter strikes me as silly or worse.
But the most important reason for my opposition is that I believe that the separation of ownership and management is one of the great strengths of our corporate system. It is not perfect, and goodness knows that many companies have a less than wonderful record when it comes to environmental matters and many other things, too. But the separation of the two has created what is arguably the most effective economic engine in history.
I’m not an uber-capitalist, but where does it end? If shareholders have a say on climate, why not a say on capital allocation? How about a say on any M&A deal? The hiring of a new CEO or other member of the C-suite? Maybe we should simply give each shareholder an app that enables him or her to vote on a whole slew of matters that are now left to the board and management. We can then do away with boards of directors and maybe management too, and let the shareholders make all the decisions. Of course, that brings us back to the issue of accountability; my experience suggests that the advocates of say on climate really don’t want that. So what’s the point?
I am not suggesting that companies shouldn’t listen to their owners on climate change and many other issues. However, that’s precisely what I like about engagement – it’s a two-way discussion that enables companies and investors to listen to, and possibly learn from, each other. And that is not a theory – I’ve seen it happen over and over again.
I recently participated in a program in which the topic of say on climate came up, and I was pleased to see that some major investors are saying no. Let’s hope that’s a say-on vote that sticks.