Letter from the Head of Corporate Governance
Growing up in New England in the 1980s and 1990s, my dream was to pitch for the Boston Red Sox. Watching Roger Clemens strike out 20 batters in 1986—the first pitcher in baseball history to do so—was mesmerizing. He did it again in 1996. The following season, he pitched for the Toronto Blue Jays, and I watched in awe when he started a game against the Red Sox with an immaculate first inning. In baseball, an immaculate inning means that a pitcher struck out all three batters with the minimum number of pitches, nine. And they are very rare.
At Strive, our corporate governance team is tasked with pitching the equivalent of an immaculate inning every single day. And we do. We vote on every single item on every single corporate proxy ballot in order to advance shareholder value. Full stop. Many other asset managers don’t. Instead, they vote to push their values or to please certain clients or to curry political favor.
So, as the 2022-2023 shareholder meeting season draws to a close, I want to take the opportunity to update our clients and supporters about how we are using our governance tools to maximize shareholder value. I would also like to share with you Strive’s perspective on the rise in national interest of the debate between shareholder primacy and stakeholder capitalism and the role that corporate proxy voting plays in that discussion.
This year, we voted 1,944 shareholder proxy ballots composed of 21,480 individual votes. We cast 10,756 votes on directors, 8,490 votes on management proposals, and 572 votes on shareholder proposals. And every vote we cast was singularly focused on maximizing shareholder value.
From the day Strive launched, we have been unapologetic in seeking to maximize value for our clients by leading companies to focus on excellence.
Our shareholder voting, combined with our corporate engagement, is the primary vehicle that we use to drive change in corporate America. That goes for each director vote, management proposal, and shareholder proposal.
Doing so was no small undertaking. Prior to proxy season, we put together a team of professionals to review every single shareholder ballot of the companies in our funds. Unlike asset managers that rely on a proxy advisory service, we voted all of our ballots in-house. And we did so with a human eye; at Strive we do not use any algorithms or formulaic policies to decide our votes. Instead, every single vote goes through a three-level review, and I personally sign off on each one.
Why do we go to such lengths for shareholder voting? We have a fiduciary duty to our clients, and we take that duty seriously. That duty is to maximize long-term financial value for our clients, putting politics aside. That’s something all asset managers should be able to agree on. But unfortunately, in today’s business environment, it is not.
Many asset managers now use their proxy voting power to try to orchestrate political outcomes on environmental and social issues. They vote in favor of proposals that would restrict energy use and consumption, ally business strategies with the goals of international agreements such as the Paris Climate Accords, install hiring and promotion policies based on race and gender rather than merit, and align executive officer pay with Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) goals.
It is impossible to overstate the importance of the shareholder proxy ballot. The issues being litigated on the corporate proxies are having a greater effect on society than ever before. The “Social” component of ESG encapsulates the true motivations of the stakeholder capitalism movement: Simply put, stakeholder capitalism seeks to change the whole of society by changing corporate behavior. Notably, in 2019 when the Business Roundtable (BRT) declared the era of shareholder primacy was over and committed to stakeholder capitalism, the organization listed out the stakeholders to which businesses now owed allegiance—shareholders were dead last on the list. This is wrongheaded for a multitude of reasons, primarily that stakeholders do not have the same skin in the game as shareholders; a shareholder is risking his capital in the enterprise. Inherent in any investment in a publicly traded company is that the investment could lose 100 percent of its value.
Elevating non-investing stakeholders gives these groups many of the benefits without assuming any of the risks. The bargain that companies make when they choose to go public is that they then owe a duty of care and a duty of loyalty to the investors. We consider that fiduciary mandate solemn.
The CEOs of BlackRock and Vanguard signed the Business Roundtable’s commitment to stakeholder capitalism, and State Street’s CEO joined the organization later on.[1] Therefore, it is no surprise that these firms (and many other large asset managers) often vote to advance political goals rather than drive shareholder value. As a result, the voting behavior and corporate engagement of these other asset managers have propelled many companies into social and political debates that have nothing to do with their underlying businesses. And shareholders have been paying the price.
At Strive, our chief aim in all voting and engagement activities is to maximize shareholder value, a goal that necessitates the depoliticization of corporate America.
That is not to say that societal issues are unworthy of debate or consideration. We simply believe that many of the decisions being promoted and litigated on the corporate proxy ballot belong on a different ballot—a political one—where every citizen, rich or poor, gets one vote. Shareholder proposals on racial strife and climate issues may well be addressing important underlying issues. Readers can make their own values judgement as to the legitimacy of those causes. However, what we have is forum shopping by aggrieved political activists. Unable to achieve through the front door of political or legal process, shareholder proponents are going through the back door and attempting to force big business to step in and take sides, using the tremendous wealth amassed by large asset managers to force their policies through.
This is an undemocratic sedition of the system our founders implemented. Local, state, and federal politicians should pass legislation that addresses political issues within the bounds of the law; asset managers that vote to advance these political goals rather than maximize value have lost sight of their role as fiduciaries. At Strive, our role to maximize value is never out of sight.
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There has never been more attention on proxy voting than over the past year. What was once a highly technical topic of interest only to corporate governance diehards has now entered the national lexicon, regularly making headlines in the Wall Street Journal and New York Times.
The notoriety is well deserved. In the past five years, ESG activists have slowly taken over corporate America, wielding the tremendous power of large asset managers to pressure American businesses to pursue their favored political and social goals. And they’ve had as much success as they have because they’ve been able to do it quietly. Democracy may die in darkness, but ESG thrives in it.
We are proud of the work Strive has done to shine a light on what is happening in America’s boardrooms and the ESG activists whispering in their ears. In the past year, we have written article after article after article on how using investors’ money to pursue ESG goals hurts companies and shareholders, and how the Big Three asset managers (namely, BlackRock, Vanguard and State Street) are doing it anyway.[2]
I have spoken at countless conferences throughout the years. The first such conference I spoke at, I had to define what the acronym “ESG” stood for. I no longer do. In addition, many more organizations and political leaders are working to raise awareness around the issues of stakeholder theory and ESG.
But awareness is not enough.
Action is needed by legislators, regulators, the asset management industry, and investors big and small to counter and curtail the enormous power that the ESG movement wields. If 2023 was the year of awareness, 2024 must be a year of action.
As ESG burst onto the national scene in 2023, state and federal legislators took note. Across the country, lawmakers who care about restoring shareholder primacy have formed countless committees, issued subpoenas, held hearings, and hauled the Big Three in for testimony. But while we are encouraged to see lawmakers taking interest in these issues, legislative efforts need to effectuate more change.
At the federal level, legislators willing to defend American capitalism are simply in too short supply. There have been many positive initiatives in Congress, including a suite of new bills designed to protect retirees’ investment accounts from being coopted for political causes.[3] But these bills are unlikely to be enacted into law without the support of the White House. And given the Administration’s staunch support for the European model of stakeholder capitalism, that support is doubtful.
We saw this unfortunate process play out last Spring, when a bipartisan coalition of Congress passed legislation overturning the Biden Administration’s Department of Labor regulations encouraging retirement fund managers to use ESG investment strategies. Despite the bill’s strong support from the legislative branch and the public, President Biden vetoed it.[4] I fear that many of the current bills will end up in the Oval Office dustbin with it.
States have also taken some measures to push back, but much more needs to be done. For example, last year a group of red states pulled about $4 billion out of BlackRock.[5] This is a scintilla of BlackRock’s largess, and the devil is in the details. For instance, Florida pulled $2 billion of its investments with BlackRock, claiming that the state did not want to “fund BlackRock’s social engineering project.”[6]
However, most of the investments withdrawn were in the form of cash and bonds—not stocks, which are the primary vehicle that BlackRock uses to advance its ESG advocacy, specifically through its engagement and proxy voting strategies. Furthermore, the $2 billion represented only a fraction of the total $13 billion that Florida had invested with BlackRock, with the rest of the assets remaining untouched.[7]
In short, while the withdrawal might have been a proverbial shot across the bow, the move failed to hit BlackRock where it would truly hurt.
Other states have passed laws that proclaim to bar ESG-aligned financial institutions from doing business with the state. Again, a laudable goal. But the devil is in the details. Texas’s bill, for instance, bars only financial institutions that boycott or “penalize” fossil fuel producers.[8]
Accordingly, BlackRock has argued that the law does not apply to them, because when they use their clients’ proxy votes to replace Exxon’s board members with climate activists or tell Chevron to cut emissions, they are doing it to help the companies meet climate goals, not to “penalize” them.[9] The end result is that BlackRock’s conduct has gone unchecked.
And, of course, it is not as though pro-American capitalism advocates are marching unopposed. As the pro-investor movement has gained strength, stakeholder capitalism activists have lashed back. In January, House Democrats launched the Sustainable Investment Committee to draw up the “Democratic battle plan on ESG.”[10]
Earlier this month, California passed sweeping climate disclosure regulations that would impose onerous requirements on nearly every large business in America.[11]
Nearly a dozen states have proposed pro-ESG legislation to force even more ESG considerations into investment accounts.[12] Even Europe is getting into the game, proposing trade rules that would require American businesses to take action on carbon emissions, deforestation, wildlife biodiversity, community impact, and diversity issues throughout their supply chains.[13]
The battle over who should control Americans’ investment accounts is far from over. As such, any declaration of victory would be not only premature, but dangerous. We are only in the first inning, not the bottom of the ninth. That is just one of the many reasons why we at Strive continue to advocate loudly for investors not only through our proxy votes, but in the public sphere.
In the midst of this struggle, we have seen large, ESG-aligned asset managers including BlackRock, State Street and Vanguard scramble to fortify their pro-ESG positioning, while claiming they are in retreat. This broad strategy has played out in a number of ways.
The most common way is through “voting choice” programs, which purport to give investors greater control over how to vote their shares. In the past 12 months, many large asset managers have made headlines for supposedly giving back the vote to certain investors. BlackRock, State Street, and Vanguard have all publicly announced some form of voters’ choice initiative.[14] In reality, the move is little more than a PR campaign to make it seem as though the Big Three have relinquished control over their ESG-cudgel when they have not.
In fact, as others have noted, “voting choice” programs may actually lead the Big Three to vote in a more pro-ESG way. That is because these programs do not actually allow individual investors to cast their own votes—for example, to vote against a racial equity audit at Home Depot or a plastics reduction measure at Amazon. Instead, investors must choose from a handful of pre-set voting policies exclusively offered by the proxy advisory firms Institutional Shareholder Services (ISS) or Glass Lewis.[15] But these firms are both foreign-owned and “follow United Nations-led efforts like the Sustainable Stock Exchanges Initiative and the Principles of Responsible Investment,” which “ensure that your investment dollars are led by progressive policy priorities, not financial returns.”[16] As Forbes has explained, this is a serious problem: “ESG proxy measures often have adverse impacts on companies’ operations. Nevertheless, ISS’ and Glass Lewis’ recommendations support ESG proxy measures most of the time – and much more often than the largest asset managers.”[17]
As former CKE Restaurants CEO Andy Puzder wrote in a RealClearPolitics commentary, BlackRock’s “Voting Choice program is an attempt to create a defense against fiduciary-malfeasance claims by making it appear that BlackRock has seen the errors of its ways and is returning proxy-voting power to investors. But that simply is not the case.”[18] And the Wall Street Journal Editorial Board agrees, noting, “BlackRock seems to be more concerned with obtaining political and legal protection than providing true voting choices to its investors.”[19] Hopefully, investors and policymakers will see through the ruse.
Another way large asset managers have feigned retreat is through their own post-season proxy voting reports. To hear BlackRock and Vanguard tell it, they slashed their support for ESG proposals this year compared to last.[20]
But that is simply not the case. Their numbers are down as a matter of percentage, but only because activists submitted much more radical ESG proposals, meaning BlackRock and Vanguard could continue to vote for the same number of net zero and diversity proposals while making it appear that they had had a change of heart.
They have also moved much of their ESG advocacy to the engagement process, rather than proxy voting. And if they can convince a company to adopt ESG goals ahead of a shareholder meeting, they vote “no” because the shareholder proposal is “redundant” with what they have already convinced the company to do—not because they want the company to focus on business rather than politics.
If we vote “no,” it is not because the company has already adopted the ESG goal, but because the ESG goal should not be pursued at all.
A third tactic has also become widespread: retreating from the phrase “ESG,” without retreating from the practice. The three-letter acronym is now verboten at BlackRock.[21] But the rebranding is in name only: “ESG” is now “conscientious capitalism”; “E” is now “climate and natural capital”; “S” is now “company impacts on people.” Troublingly, corporate America has begun to follow suit: McDonald’s quietly removed ESG from its website; Colgate has leaned into the phrase “sustainability and social impact” instead.[22] But substantively, nothing has changed. BlackRock continued to support the majority of key ESG proposals last year, and its proxy voting policy insists that its ESG strategy has not changed.[23]
There is a certain irony in these developments: The Big Three found themselves in hot water not because they went all in on ESG—socially-conscious investing has been around since at least the time of the Puritans, after all—but because they did so behind their clients’ backs, after promising to maximize their returns.
Now that they’ve been caught, their crisis management strategy borrows from the same playbook: say one thing, do another. Hopefully, investors won’t be fooled again.
It would be remiss for me to talk about recent developments in the proxy voting space without talking about the rise of anti-ESG firms that seek to redirect corporations to pursue conservative, rather than progressive, political goals.[24] In the past year, we have seen an uptick in funds focused on American job creation, second amendment rights, support for Republican candidates, and other conservative causes. There is no doubt that these anti-ESG firms are offering an important alternative to the Big Three and other ESG-aligned asset managers that has been missing from the marketplace, and that investors who want to use their investment dollars to push political goals should have the option to do so regardless of their political persuasion.
But Strive has taken a different tack. Our goal at Strive is not to tilt the political scales in one way or another, or even to try to balance it; our goal is to convince companies to throw out the political scale altogether and focus on business issues alone.
Fortunately, the market has begun to take note. Whereas Strive was once sometimes lumped in with the “anti-ESG” camp, the industry is now recognizing that Strive stands apart:
“Most anti-ESG funds just hold stuff that ESG investors hate, or they hold companies where the CEOs don’t virtue signal. Strive is different, because they just own beta and are voting shares of companies in favor of profits.”
In Strive’s view, this is a critical development not just because it reflects the truth, but because corporate America is much more likely to take us seriously when they see us as a partner that is trying to help them achieve their maximum financial potential, rather than just another political activist.
At Strive, our vision is crystal clear. We exist to maximize shareholder value; we oppose everything else, whether it’s ESG or stakeholder capitalism or sustainability or socially conscious investing or whatever term the top brass at the UN come up with next. And if we ever get it wrong, we want to hear about it. That is why we have implemented what we call radical transparency into our governance department.
To view most asset managers’ proxy votes, one must wait until they file their annual N-PX form with the U.S. Securities and Exchange Commission and then sift through its ancient EDGAR database. We publish every one of our votes on our website and refresh that page with new votes every two days.[26]
You can search for our votes by fund, company name, company ticker, and alphabetical order. We also have an open-door policy for our clients. If you have any questions about our voting, our policies or our report, please contact the governance team at ir@strive.com.
Strive isn’t afraid to stand up for what we believe in, and we will continue to maximize value for our clients by leading companies to focus on excellence.
While my baseball career fizzled out in my early 20s, I remain a fan of the game. And I am immensely humbled and proud to work with a dedicated group of professionals who work every day to vote immaculate proxy ballots on behalf of our clients.
Sincerely,
Justin Danhof, EVP, Head of Corporate Governance
