Social "S" Proposals
The most common type of “S” proposal Strive voted on this year related to companies’ diversity and inclusion (DEI) efforts. Strive approached every DEI-related proposal with the same goal: to maximize shareholder value. As further described in the examples below, we saw a combination of both pro-DEI proposals and pro-fiduciary/return to merit proposals.
Generally, we voted against all proposals aimed at advancing value-destroying, potentially illegal DEI initiatives and for proposals that would reverse these corporate policies.
“Many corporate diversity measures, such as boardroom race and gender quotas, are based on a series of McKinsey reports linking executive diversity to corporate outperformance. Those reports are deeply flawed. It is actually more likely that financial success causes corporations to adopt diversity measures than the reverse.”[35]
This past proxy season, we saw a lot of shareholder activity regarding racial equity audits. Most of these proposals urged companies to divert company resources and shareholder dollars to audits examining corporate commitments to civil rights. However, several proposals included additional requests beyond the execution of a typical audit, calling on companies to prioritize various social goals over corporate performance. The vast majority of companies receiving these proposals had pre-existing systems in place to monitor workplace practices and no evidence of civil rights violations. Thus, Strive views such efforts as fiscally irresponsible and distracting from a company’s mission, so we voted against these proposals. Conversely, we saw a few shareholder proposals that called for the rescission of ongoing racial equity audits at certain companies. We voted for these proposals, as they serve as a necessary step in re-orienting corporate behavior to reflect shareholder primacy.
The Service Employees International Union submitted a shareholder proposal at Valero Energy Corporation that called for a third-party audit of the company’s impact on nonwhite stakeholders, arguing that Valero's emissions as a petrochemical producer create negative social and environmental consequences for certain stakeholders.[36] However, Valero’s management argued in its opposing statement that the company already implements internal processes to address and prevent discrimination and environmental misconduct. Moreover, the proposal did not even attempt to argue that investing in a third-party audit would yield positive financial returns for shareholders. For these reasons, Strive voted against this proposal, as we believe Valero should be solely focused on serving its customers and shareholders as a leading fuel producer.
Activist shareholders at Coca-Cola submitted a proposal that called for an audit of the company’s impact on nonwhite stakeholders.[37] The proposal also called on Coca-Cola to restructure its marketing strategy to align with “responsible marketing practices,” accusing the company of targeting advertisements toward nonwhite youth at a disproportionately high rate. In Strive’s view, marketing decisions are generally best made by the companies themselves, as they possess the data, expertise, and market insights necessary to maximize corporate performance. Coca-Cola already has a history of buckling to DEI activism through its gender- and race-based workforce representation quotas; continuing to distract the company from its business mission through an extensive racial equity audit is a step in the wrong direction. Hence, Strive sided with management in voting against this proposal.
Apple received a shareholder proposal from the National Center for Public Policy Research that urged the company to abandon its discriminatory hiring and advancement policies that disadvantage “non-diverse” candidates.[38] We voted for this proposal, as Apple's current DEI practices burden shareholders by inviting legal and commercial risks.
DEI progress proposals ask companies to disclose incremental progress on achieving pre-established racial and/or gender goals. Preliminarily, Strive is against corporate quotas at every level of a company and any corporate steps taken to advance them. Furthermore, the resources and attention required to fund such initiatives would undermine a public company’s role as a fiduciary. Because these measures do not appear likely to enhance long-term shareholder value, Strive voted against all DEI progress proposals.
On June 29, 2023, the Supreme Court overturned affirmative action in higher education, ruling that all racial discrimination is illegal under both the Fourteenth Amendment’s Equal Protection Clause and the Civil Rights Act. The implications of this decision are likely to soon stretch beyond the context of higher education, as the Civil Rights Act applies to private employers as well. Thus, companies that employ race- and gender-based preferences expose their shareholders to legal and commercial risks that will inevitably pose uncertainty for investors moving forward.
In July, Strive sent a cautionary letter to McDonald’s about its pursuit of corporate DEI policies in the wake of the Supreme Court’s decision.[39] Studies show that promoting and hiring based on race and sex, rather than merit, fails to improve financial performance.[40] McDonald’s policies are likely already costing shareholders and jeopardizing the company’s long-term value, but the legal ambiguity now introduces further risk.
This year, the shareholder advocacy group As You Sow submitted a proposal to UPS that requested a report on the effectiveness of the company’s DEI efforts.[41] The proposal called for increased disclosure of quantitative data regarding UPS’s hiring and promotion practices, specifically across gender, race, and ethnic categories. However, UPS already diverts excessive time and resources to its DEI program, which includes problematic and likely illegal short-term global representation goals across racial and gender lines. Strive voted against this proposal, as it would promote the continuation of harmful DEI efforts as opposed to re-focusing business operations to align with UPS’s true mission as a shipping company.
We encountered several proposals urging companies to investigate racial and gender pay gaps. However, no evidence suggests that any of the companies receiving such proposals implemented discriminatory pay practices. Accordingly, providing raw data on any alleged gaps likely serves only to provide fodder for negative media commentary and potential lawsuits. Pay gap reporting can also incentivize intentional, illegal discrimination by making companies more reluctant to hire women and minorities for entry-level positions that typically come with lower pay. Because the pursuit of these costly and distracting efforts would not benefit the bottom line or shareholders, Strive voted against these proposals. Unless there is clear evidence of dubious corporate pay practices, we believe that companies themselves—not activist shareholders—are generally best equipped to make human capital decisions.
Kroger faced a shareholder proposal that would have required the company to produce an expansive, costly, and time-consuming report on gender and racial pay gaps on a global, by country level.[42] Strive sided with Kroger’s management in voting down this proposal, as the company has had an internal program in place since 2016 that allows managers to oversee fair compensation practices.
As Strive believes it falls within a company’s fiduciary duty to disclose to shareholders how their investment dollars are being spent, and because Strive believes all businesses decisions should be undertaken through the lens of a financially-based return on investment analysis, we voted in favor of shareholder proposals that called for a cost-benefit analysis of DEI programs. These programs, oftentimes riddled with race- and gender-based initiatives, require time, attention, and funding that distract companies from their mission and fail to maximize shareholder value.
There are downstream costs of producing such reports, as well, including negative press, decreased employee morale, and exposing the company to potential litigation. Yet companies often launch DEI programs without conducting a serious cost-benefit analysis to ensure such programs are likely to lead to long-term financial benefits for company shareholders.
Therefore, Strive supported proposals that enhanced shareholder oversight of companies’ anti-fiduciary DEI programs through a cost-benefit analysis of DEI programs.
Mastercard Incorporated received a shareholder proposal from the American Conservative Values ETF (ACVF) requesting a report on the cost-benefit analysis of diversity and inclusion efforts.[43] Mastercard operates a robust DEI program that employs racial- and gender-based hiring goals and applies an ESG modifier to all employees’ bonus compensation. Despite the financial costs and risks associated with this program, there is no evidence that Mastercard conducted a financially-sound, return on investment analysis to ensure this program would benefit shareholders. Shareholders of Mastercard deserve to know how these efforts and others are affecting the return on their investments, so Strive voted for this proposal.
This past proxy season presented a large number of non-discrimination shareholder proposals, calling on companies to remove anti-meritocratic hiring practices. Because there is no evidence that affirmative action-type programs maximize long-term shareholder value, and because there are financially material legal and commercial risks posed by race- and gender-based quotas, Strive generally voted in favor of non-discrimination proposals. However, in cases where companies had no evidence of implementing discriminatory hiring practices, Strive did not deem these proposals fiscally responsible and voted to abstain.
The multinational food corporation Kraft Heinz has DEI initiatives heavily embedded into its governance structure, targeting short-term race- and gender-based hiring goals, offering career development programs exclusively to certain demographics, and reserving professional acceleration opportunities to employees who identify as minority.[44] The National Center for Public Policy Research submitted a proposal requiring a report on how these policies adversely affect “non-diverse” employees and candidates.[45] Strive believes that Kraft Heinz is deterring talent, sacrificing corporate performance, and failing its shareholders by discriminating against candidates based on immutable characteristics. We therefore voted for this proposal, as Kraft Heinz’s DEI practices likely pose reputational, legal, and financial risks to the company and its shareholders.
The National Center for Public Policy Research presented a similar “non-discrimination and returns to merit audit proposal” at Caterpillar.[46] While Caterpillar vaguely ties ESG considerations into its executive compensation program, there is no evidence that the company employs race- or gender-based hiring quotas. Instead, Caterpillar views diversity progress through the lens of broadening hiring pools, fostering an inclusive workplace, and valuing diverse perspectives.[47] Strive voted against Caterpillar’s executive compensation program to express our opposition to unspecified ESG metrics affecting corporate operations. Although we believe Caterpillar’s shareholders deserve more ESG-related transparency, we believe this is best accomplished through executive compensation engagement instead of pursuing an expensive and time-consuming third-party audit, so we voted to abstain.
This past proxy season, Strive voted against multiple pro-unionization proposals. Advocates of these proposals argue that union membership will benefit corporate financial performance by mitigating the reputational risks associated with employee dissatisfaction, but cite no persuasive evidence to support this assertion, much less that any alleged reputational harm will cause greater financial hardship to the company than unionization itself. While Strive supports corporate adherence to all applicable U.S. labor laws, we oppose measures that produce unnecessary cost and material risk to shareholders such as activist-driven pro-unionization proposals.
Strive voted against a proposal at Starbucks that required the company to assess its commitment to workers’ rights.[48] This proposal ultimately passed with 52 percent of votes despite the Board’s recommendation to vote it down.[49] Starbucks is now paying for an independent, third-party human rights impact assessment, “which will include a deeper-level review of the principles of freedom of association and the right to collective bargaining.”[50] Strive believes that this diversion of time, focus, and money fails to uphold shareholder primacy. We support Starbucks’ view that companies themselves are generally best equipped to make human capital decisions, particularly given that union demands often introduce material risk to shareholders.
Because Strive did not vote on any companies facing credible allegations of human rights violations, we voted against all shareholder proposals in favor of human rights initiatives. Strive did not find such proposals likely to enhance company performance or benefit shareholder value, as most companies had pre-existing human rights frameworks within their Code of Ethics to ensure compliance with relevant law, and additional initiatives would only distract from the company mission. Moreover, activist shareholders often use the guise of “Human Rights” to push other agendas, such as demands to increase wages and establish a DEI quota.[51] Strive therefore generally votes against human rights proposals unless a company has a clear history of abuse that the proposal is likely to mitigate or address, such that voting for the proposal is likely to inure to the long-term financial benefit of company shareholders.
Lockheed Martin, a global security and aerospace company within the defense industry, received a shareholder proposal calling for a human rights impact assessment report.[52] The proposal argued that Lockheed and its shareholders are susceptible to legal risks, as weapons produced by the company have contributed to international human rights violations. Strive sided with Lockheed’s management in opposing this proposal, as it would interfere with the company’s ability to serve its customers and shareholders by imposing additional restrictions on military sales. Additionally, the U.S. government already regulates and reviews Lockheed’s foreign business operations, so we concluded that the proposal would place unnecessary burden on the company and its shareholders.
A significant number of shareholders were concerned about their companies’ business operations in China given risks posed by the country’s Communist government structure, human rights violations, and tight regulatory environment. The SEC’s materiality standard legally requires all companies to publicly disclose risk information to prospective investors and shareholders, yet enforcement of this standard has been lax as it pertains to China risk.
Companies that claim to be “global citizens” by creating countless ESG reports while simultaneously ignoring the far more financially-material ethical and geopolitical risks associated with China are disregarding their role as a fiduciary and putting investors at risk. Strive believes China risk is investment risk and voted for shareholder proposals aimed at enhancing transparency to shareholders where the company appears to have substantial operations in, or dependence on, China.
“Operating in China is risky business. Shareholders are asking questions, demanding to know how enmeshed American corporations are in China and what risks such investments pose. Yet support at the corporate ballot box is wanting. Recent proposals asking for China risk reports have received less than 5 percent of the vote. They fail for a simple reason: most investors don’t vote their own shares. Instead, they’re voted by large asset managers like BlackRock, Vanguard and State Street — the ‘Big Three.’”[53]
“The world’s largest asset managers, many of which regularly warn U.S. portfolio companies about risks relating to climate change and board diversity, are conspicuously silent about Taiwan-related risks. While the consequences of China’s annexation of Taiwan would go far beyond stocks or the economy, market actors can make a difference. U.S. semiconductor companies and their investors can protect against Taiwan-related risks now by investing in a silicon shield of their own.”[54]
“Boeing’s reluctance to grant its shareholders’ request for information about its China risk speaks volumes. Who is Boeing truly catering to? Its shareholders and the U.S. investing public, or its untoward reliance on the greatest economic adversary to U.S. capitalism which created the company in the first place?”[55]
Starbucks, Disney, and Apple, among many other companies, received shareholder proposals this year calling for China risk reports. Between China’s censorship policies, human rights abuses, and economic threat to the United States, shareholders deserve to know the financially-material risks posed by these investments.
As the largest company in the world by market capitalization, Apple holds unparalleled power to influence the global market, human rights, geopolitical events, and more.[56] Unfortunately, Apple’s dependence on China not only poses risks to the company and its shareholders but also supports the economy of America’s biggest adversary. Apple manufactures around 95 percent of iPhones, AirPods, Macs, and iPads in China, claiming no other country offers the labor with the specialized skillsets its production lines require.[57] Further, Apple hit an all-time sales record in China just last year, indicating the company has no plans of slowing down.[58] Therefore, Strive voted for a proposal submitted by the National Legal and Policy Center that would have required Apple to produce an annual report on the extent to which it depends on and is vulnerable to risks posed by the Chinese Communist Party.[59] We believe that such a report would serve the long-term financial interests of Apple shareholders.
While the Walt Disney Company may be an iconic brand in American culture, its undisclosed business entanglements with the Chinese Communist Party threaten the value of its shareholders’ investments. For example, the CCP owns 57 percent of Disney’s Shanghai Resort while Disney itself owns just 43 percent. Under the CCP’s tight operational control over the Shanghai resort during Covid-19, it contributed to the company’s loss of over $350 million in the first quarter of 2022.[60] Paired with China’s history of ousting Disney from its media market for producing unflattering content towards the CCP, Strive believes that Disney’s China risk is a material financial risk to shareholders, and so we voted for the National Legal and Policy Center’s proposal to require reporting on China.[61]
Starbucks operates over 6,500 stores in Chinese cities with a goal of reaching 9,000 by 2025.[62] The company took tremendous losses during the Covid-19 pandemic due to the CCP’s economic shutdowns; CEO Howard Schultz commented mid-2022, “Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year.”[63] Yet, Starbucks decided to increase its growth plans in China, presenting serious risks to its shareholders. In favor of transparency to investors, and to help the company develop a financially-sound long-term plan to maximize value for its shareholders in the face of these risks, Strive voted for a proposal calling for enhanced disclosure of risks associated with China.[64]
Notably, the China risk proposals at Apple, Disney, and Starbucks received nominal support, with 4.3 percent, 7.1 percent, and 4.5 percent of the votes respectively. This can be strongly attributed to the “no” votes by asset managers like BlackRock, State Street, and Vanguard who are among the largest investors in Apple, Disney and Starbucks, and who are themselves beholden to China.[65] In the spirit of Strive’s ongoing mission to encourage companies to disclose and mitigate financially-material risks related to China, we voted for these China risk report proposals.
This proxy season, several companies faced shareholder proposals seeking enhanced reporting on operations related to policing, the military, and the 2nd Amendment. Strive voted against these proposals, as they would have interfered with the targeted companies’ abilities to pursue their missions and did not appear reasonably calculated to increase long-term shareholder value.
These proposals also served as avenues for shareholder activists to push social and/or political agendas into companies’ corporate governance structures, creating risk to shareholders by investing in controversial programs and isolating customers.
Axon Enterprise, Inc., a company that develops technology and weapons products for the military, law enforcement, and civilians, faced a proposal that sought to discontinue its ongoing pilot program with law enforcement involving taser-equipped drones. The proposal’s supporters argued that the non-lethal taser drone system could “increase the rate at which force is used, particularly on POC.”[66] Strive, however, along with Axon’s management, believes that this program demonstrates the company’s commitment to innovation and falls in line with its fiduciary duty to shareholders. We also believe that social and political issues are matters of public policy and should not be shaped by shareholder activism. Therefore, Strive voted against this proposal.
In 2021, the U.S. Department of the Army awarded Microsoft a $22 billion contract to create a semi-custom Visual Augmentation System for American soldiers to use to enhance operational performance. In 2022, pro-ESG shareholder activists submitted a proposal calling for a third-party report to assess the reputational and financial risks associated with Microsoft’s development of weapons.[67] Strive voted against this proposal, as we agree with Microsoft that its partnership with the U.S. military strengthens shareholder value through technological innovation. Moreover, we believe judgments pertaining to U.S. national security interests are best assessed by policymakers and governmental institutions, which Microsoft engages with regularly, as opposed to shareholder activists.
This past proxy season, Mastercard received a proposal calling for a report on the company position on a new Merchant Category Code (MCC) for standalone gun and ammunition stores.[68] As provided in Mastercard’s Statement in Response, the company already reports on MCC standards and has already committed to adopt an MCC for standalone firearm and ammunitions merchants, but MCC implementation is currently contingent on pending legislation. Hence, Strive voted against this proposal, as it would be fiscally irresponsible and disruptive to company operations, ultimately disfavoring shareholders.
Strive’s votes reflect our firm belief that politics have no place in the boardroom. We acknowledge, though, that corporate engagement with the legislative and legal process is a necessary function of business that serves the best interests of companies and shareholders. Companies should be able to work with necessary policy agents to achieve corporate objectives without interference from shareholder activists. This year, we saw a large number of shareholder proposals calling for increased political spending and/or lobbying disclosure. The vast majority of these proposals were unidirectional and aimed to expose and shame companies contributing to “conservative” politicians and issues and funnel corporate political donations solely to Democratic candidates and causes instead.[69] These proposals are also used to urge companies to use lobbying as an avenue to shape corporate environmental policy. Strive believes political issues are best resolved in the civic sphere, not through activist-applied pressure from the corporate sector. Hence, Strive voted against these proposals.
Spotlight Example: Comcast
This year, Comcast received a shareholder proposal requesting a report on political contributions and company values alignment. The proposal claimed that Comcast’s representation and environmental goals are incongruent with potential expenditures to “political recipients working to reduce abortion access, eliminate climate regulations, or reduce voting rights, among others.”[70] Essentially, it sought to compel Comcast to end its corporate engagement with legislators with whom the proposal’s supporters politically disagree. Strive sided with management and voted against this proposal, as we believe Comcast’s business leaders are best equipped to strategically partner with necessary policy agents to achieve vital corporate interests.
Strive saw a few abortion-related shareholder proposals, both in support of and against corporate initiatives to increase employees' access to abortion. Strive believes that debates about life pose no relation to the core of a company's mission, create reputational risk, and are best resolved by elected representatives and officials.
Because such proposals do not appear likely to increase shareholder value, Strive voted against them. However certain proposals sought to depoliticize corporate decision making regarding the abortion debate. Strive generally supports those in favor of depoliticizing the corporate ballot box.
Coca-Cola faced a shareholder proposal requesting a report on actions the company is taking to mitigate risks associated with certain states’ abortion restrictions.[71] The proposal argues that women may be deterred from working for Coca-Cola in states with strict abortion policies. Just as Strive stands against shareholder-driven political pressure affecting companies’ lobbying endeavors, we believe abortion-related issues are best decided by voters—not by corporations. As described in our walk-through video describing how we voted on Coca-Cola's ballot, “We are aggressively apolitical when it comes to our shareholder voting.”[72] Because we did not believe this proposal was likely to contribute to maximizing financial value for shareholders, we voted against it.
In 2022, Eli Lilly publicly opposed an Indiana law that tightened abortion restrictions within the state. Eli Lilly made statements indicating a clear pro-abortion stance, such as offering Indiana employees out-of-state travel to access abortion services and claiming its ability to attract diverse talent would be hindered.[73] This past proxy season, the National Center for Public Policy Research submitted a proposal requesting a report on the risks and costs associated with altering company policy in response to states’ abortion policies.[74] Strive voted for this proposal, as we believe the report will help shareholders and Eli Lilly assess the material risks created by Eli Lilly’s decision to publicly advocate for controversial political causes and will ultimately inure to the long-term financial benefit of Eli Lilly and its shareholders.
