Dimon has also been a fierce critic of President Obama’s economic policies, including parts of the Dodd-Frank banking reform bill. Many union pension funds as well as public officials running large pension funds have vocally supported the president’s economic and regulatory policies, and the recent shareholder vote was designed to quash Dimon’s public criticism of these policies, people inside JP Morgan say.
That's from Charlie Gasparino's report today that the House Financial Services Subcommittee is going to hold a hearing "into whether proxy advisory firms are pushing political agendas rather than serving shareholder interests," which I guess is no sillier a hearing than most other hearings. More things:
Executives at many companies have complained to Congress that such battles are fraught with politics, with advisory firms often pushing the political agendas of some of their biggest shareholder clients at union and public pension funds.
There's much to unpack there1 but the basic questions are:
- do you think proxy advisory firms are mostly interested in (a) politics or (b) good corporate governance in its received technocratic Standard Governance Model codification, and
- if you picked (b), do you think the Standard Governance Model is mostly lefty or mostly righty or mostly orthogonal to politics?
The first question strikes me as an easy one: a few bad apples aside, I've always assumed that ISS and Glass Lewis, and their customers, really mostly believe in the Standard Governance Model, which involves plenty of shareholder democracy, lots of director independence, robust capital return policies, and few or no takeover defenses. The second question is maybe more interesting2 but I guess the short answer is that you don't hear a lot of politicians talking about classified boards one way or the other.
Part of why the first question seems easy to me - that "corporate governance" is obviously its own codified thing unrelated to your political, etc., views - has to do with a weird fact that a reader pointed out to me recently, which is that even politically engaged shareholders like labor unions support the Standard Governance Model, even when it seems sort of against their political and union interests. Here, for instance, is a press release issued last week by UNITE HERE, the hotel workers' union, that on its face is a little bonkers:
Yesterday, a second hotel company adopted provisions of shareholder proposals filed by UNITE HERE seeking to improve corporate governance policies, according to the hospitality union. Strategic Hotels & Resorts [NYSE: BEE] agreed to terminate its shareholder rights plan known as a “poison pill” and submit any future pill to a shareholder vote within 12 months. UNITE HERE has withdrawn its proposal in advance of Thursday’s annual stockholder meeting. ... Strong corporate governance structures are correlated with better returns, and shareholders are voting for changes in the hotel industry after a long awaited rebound.
Umm surely "strong corporate governance structures are correlated with better returns,"3 but not having a poison pill is probably correlated with being taken over. Which ... I mean, if the 2012 election taught us anything, it's that takeovers always lead to massive layoffs.
Strategic Hotels is maybe a bad example because it has only 39 employees, none unionized, but there does seem to be a general pattern. According to FactSet SharkRepellent, unions have submitted 47 poison-pill redemption shareholder proposals since 2001. And public pensions are near the top of the league table for submitting all shareholder proposals, behind only crackpots, I mean, individuals,4 and their proposals tend to fall within the mainstream of the Standard Governance Model. Which tends to favor easier takeovers and returning cash to shareholders rather than workers.
Doesn't that seem a little weird? I don't have a great explanation; here's a 1998 paper that tries to explain it through some combination of "laws like ERISA require unions to act as fiduciaries for their shareholder-beneficiaries, not for their unions' workers" and "actually shareholders and workers tend to have a common interest in not being screwed by management that outweighs workers' interest in not being screwed by shareholders." (Also: takeovers tend not to be that bad for workers.) So, I guess.5
Still it suggests to me - redundantly, perhaps - that this House Committee is barking up the wrong tree. The intellectual and emotional power of the Standard Governance Model is strong among people who concern themselves with shareholder voting. And those people tend not to mix their politics with their corporate governance - even when they maybe should.
1.Like: Are unions really among ISS's biggest clients? Again the whole proxy ecosystem baffles me but like wouldn't you use ISS if you didn't know how to vote? Like, if I ran a cynical index fund I'd want to outsource my shareholder voting because what do I care.a But if I ran a union pension I'd probably spend like half my time getting angry at things and then voting on them, right? Also aren't there no more unions, or pensions, by now? 401k world don'tcha know.
a.Obvs I would do this via stock lending, not relying on ISS/Glass Lewis, but we're getting ahead of ourselves.
2.Until this House hearing most of the criticisms I'd seen of the Standard Governance Model came from, more or less, the left: that "good governance" promotes a focus on short-term shareholder returns that strips all of the surplus out of enterprises to give it to owners of capital rather than to workers. (E.g.) Lynn Stout is probably the most important critic of the Standard Governance Model and her critique is mostly technocratic rather than political but you do get the sense that it's lefty-ish.
3.Using "surely" in its technical sense of "I don't want to actually look for any evidence." I suspect you can find studies either way.
4."Interestingly, just six individuals, Chevedden, father and son William and Kenneth Steiner, Gerald Armstrong, Evelyn Davis, and James McRitchie were responsible for 64% of the proposals sponsored or co-sponsored by individual investors (212 out of 332 proposals)," says SharkRepellent. That seems like a good gig.
5.If you believe the lefty critique of the modern corporation in which "[t]he boundary between high-ranking managers and the capitalist classes is blurred" then I guess you'd be like "meh, I'm gonna be screwed by entrenched management or by empowered shareholders, either way it's just as bad, might as well annoy the managers since at least I can see the look on their smug faces when they get voted out" or whatever. That's as good a theory as any.