Capitalism is great, truly the human mind’s example of abstract thought at its best. But like all the mind’s creations, it is subject to errors and improvements. Two unforeseen harmful attributes, in my opinion, need attention for the sake of freedom and health.
First, capital can be amassed in quantities by individuals and by compacts large enough to control natural resources. The largest natural resources at risk today are the same as ever, clean air and clean water. An episode of the Simpsons cartoon brilliantly demonstrated the problem: Mega-wealthy Mr. Burns built a giant shade to block the sun, then charged people for access.
Air, and with a little scientific education people can understand that air also means the entire atmosphere, was polluted by a few corporations that used the atmosphere as a free dump for their smoke and particulates and acids (remember acid rains that killed thousands of miles of the USA’s forests) that people saw, smelled and coughed over. A few laws in the 1970s and 1980s helped a lot. Today, carbon dioxide is invisible, odorless, and accumulates so slowly that people do not pay attention. Carbon dioxide is a pollutant when its concentrations increase above a critical threshold. A few irresponsible capitalists, and a few irresponsible governments still use the atmosphere as a free dump.
Water, and people with a little scientific education can understand that water also means the world-wide water system including lakes, rivers, oceans, rain, snow and ice, was polluted by dumping directly into waterways and by dumping into the atmosphere which pushes pollutants down to earth by rain and snow.
Useful things that burn for heat and light, and useful things that get discarded into the air and water have overwhelmed the atmosphere and water system. Control over more and more natural resources has led to exploitation for profit of things that belong to the planet, that is, to all living things. We can compare and contrast capitalism of different fields – capitalism that exploits tastes in fashion and ice cream flavors may continue to expand to new levels without harm, but capitalism over natural resources creates some meaningful harm and needs regulations to prevent a few concentrations of capital from exploiting the world’s natural resources. The benefit to those same few wealthy individuals is not benign to the planet.
Second, before the legal abstraction (abstract thought may be the mind’s greatest feat) of corporations was invented only a couple of hundred years ago, businesses were held directly accountable, that is, the individual owners, whether a man, a woman, or a partnership of many could be held personally responsible if the business caused harm – – a man or a woman or many individuals went face-to-face with an injured party. Today, that is not possible in our corporate world. The corporation is a faceless entity void of the feelings of shame, remorse, indignance, justification, and all the other complex emotions.
The invention of the corporation, which had many benefits such as continuity of its capital, its management and its legal status uninterrupted by the death of anyone, was embraced on all sides at the time. Now, a couple of centuries later, we find unforeseen consequences. A board of directors insulates shareholders to a large extent and the shareholders can be anonymous and can change in a moment. Worse, the board of directors can insulate itself from the concerns of its shareholders. These attributes of corporate insulating have led to irresponsible acts without appropriate accountability.
Marc Lane, a leading legal thinker in the US, addresses this component of corporate responsibility and the emerging mindset of few corporate leaders who today recognize the values of the morally solid shareholder (e.g., Gates and Buffett). If morally solid shareholders require their corporations to serve them accordingly, then the public square in which the corporation operates will benefit, too. These values were self-evident just a couple of generations ago, but in the meantime got lost or obscured. The steps Marc Lane outlines deserve the attention of the business world.
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Strategic Shareholders and Prudent Directors Come Together
By Marc J. Lane
Despite a disturbing rise in unequal voting structures and virtual shareholder meetings at public companies, this year’s corporate proxy season reflects the best of corporate boards’ growing commitment to transparency, accountability and engagement. It’s no surprise that the savviest of corporate directors are eager to set themselves apart as reliable stewards among their peer groups in seizing the upside of the unprecedented disruption before them.
Going into 2017, directors of public companies faced a new world order, one that challenges them as they’ve never been challenged before. Political instability and shifting geopolitical and regulatory environments are tougher than ever to navigate. Internal and external cybersecurity and other existential threats call for a more nuanced approach to enterprise risk management. Technological change is increasingly empowering new competitors, recasting supply chains and lowering price points. The gender and racial diversity of human capital is now universally seen as delivering a “diversity dividend” while boards are reconstituting their own ranks to gain the benefits of the varying perspectives, knowledge and skills that diversity carries with it.
Against this dynamic backdrop, 38 institutional investors, having invested more than $20 trillion in U. S. equities, signed on to a new “Framework for U.S. Stewardship and Governance” in January which will take effect next January. The principles they embrace will affirm that boards are accountable to shareholders; that shareholders should be entitled to voting rights in proportion to their economic interest; that boards should be responsive to shareholders and be proactive in order to understand their perspective; that boards should have a strong, independent leadership structure; that boards should adopt structures and practices that enhance their effectiveness; and that boards should develop management incentive structures that are aligned with the long-term strategy of the company.
Already, proxy access is becoming commonplace among American companies. After corporations have long resisted shareholder proposals that bylaws be amended to allow them to nominate directors, more than half of the 100+ resolutions seeking that power were accepted by management this proxy season. Now, a full 60% of S&P 500 companies have proxy access bylaws, up from 1% just three years ago. As a result we’re likely to see a growing number of boards boast that their members are recruited and assessed to ensure that they’re competent to oversee the company’s strategy and risks.
This proxy season also saw significant movement on gender diversity and pay equity. Since only 18% of S&P 1500 companies had female directors in 2016, it came as no surprise that shareholder proposals asking boards to increase their diversity were among the most numerous this year, The shareholders of 30 high-profile companies demanded the disclosure of plans to fill the pay gap between male and female employees. Six giant tech companies agreed to report on pay equity, and most other pay equity resolutions were withdrawn after company management came to terms with shareholders.
Investors large and small – asset managers State Street, BlackRock and Fidelity among the largest – are demanding reports on sustainability, renewable energy and environmental impact issues as a low-carbon economy will likely disrupts a host of industries. This year’s proxy season also reflected shareholder awareness that, over the long term, environmental sustainability is a critical component of risk management. Support for shareholder proposals that companies report on climate risks jumped from 7% in 2011 to 43% this year, with proposals at two major energy companies gaining more than 60% support.
Embracing inclusion and promoting climate leadership are good business. They also make financial sense.
Forbes recently reported that companies that are more diverse see an increase in return on investment—of 35% for ethnically diverse companies and 15% for gender-diverse companies. Not only are more diverse companies better able to win top talent; they also benefit from greater employee satisfaction.
And more and more company leaders are united in their understanding of the urgency to act on climate as a moral and economic imperative. They are speaking with one voice – and funding clean energy investments – like never before.
The shareholder’s role is indispensable in driving positive social and environmental change.
We strongly believe – and our research indicates – that one’s investment portfolio can be successfully aligned with his or her core convictions without sacrificing diversification or financial performance. For each of its values-based investment clients, Marc J. Lane Investment Management, Inc.’s proprietary Advocacy Investing® strategy identifies companies which not only exhibit sound business fundamentals and solid governance, but also whose policies and practices reflect and promote the client’s deeply held beliefs or, in the case of an institutional investor, its mission. In that way Advocacy Investing empowers the client investor to back only those companies that are doing the “right thing,” converting the investor’s “passive” assets into “active” assets that actually help drive positive social and environmental change.