Conservative Investors Tell Proxy Agents They Want Their Voices Heard in Corporate Votes

Proxy advisers Institutional Shareholder Services and Glass Lewis challenged over alleged leftwing agenda.
Conservative Investors Tell Proxy Agents They Want Their Voices Heard in Corporate Votes
ESG stands for environmental, social, and governance. (Deemerwha studio/Shutterstock)
Kevin Stocklin
A coalition of more than 100 conservative asset managers has penned a letter to proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis, which together represent an estimated 97 percent of the proxy voting industry, asking them to stop pushing a leftwing agenda in shareholder votes. 
The letter charges that ISS and Glass Lewis “leverage their monopoly positions to support politicized shareholder proposals on topics like so-called diversity, equity, and inclusion, climate change, and abortion—all while opposing shareholder proposals that ask firms to stop pushing divisive political agendas.”

Proxy advisory companies such as Glass Lewis and ISS advise investors or vote on their behalf on any particular issue that’s put to a shareholder vote.

Shareholder voting and proxy voting have been key components of the progressive environmental, social, and governance (ESG) movement because a small number of firms have an outsized ability to influence private companies. Many of these firms have supported ESG goals, which have also come under the euphemisms “stakeholder capitalism,” “sustainable investing,” and most recently, “conscientious capitalism.” 
Institutional asset managers control voting rights to the shares they purchase on behalf of end investors. The end investors are usually people saving for retirement, home purchases, or other large expenses, and they, not fund managers, ultimately take the risk regarding how company stocks perform. 
A 2017 study by Pensions and Investments found that 80 percent of U.S. equities are held by institutional investors who manage pension funds, mutual funds, index funds, and ETFs.
The largest asset managers, BlackRock, Vanguard, and State Street, often called the “Big Three,” together have more than $20 trillion in assets under management.
According to a 2019 study by the Harvard Business Review, “one of either Blackrock, Vanguard, or State Street is the largest shareholder in 88% of S&P 500 companies.” This places tremendous power in the hands of a short list of Wall Street players.

Requesting ‘Right-of-Center’ Options for Corporate Voting

Asset managers, who are often unable to analyze the hundreds or thousands of corporate issues that come up for shareholder votes each year across their portfolios, can choose among a number of “off-the-shelf” voting policies provided by proxy advisers. These include an ESG option, which could then signal to ISS and Glass Lewis to vote that fund’s shares in favor of, for example, reducing fossil fuels or implementing racial-equity policies among employees. 

But Robert Netzly, CEO of Inspire Investing, argues that these proxy agents don’t offer standardized options for conservative shareholders.

“It’s a rigged system,” he said. “Imagine if on a ballot, you had only Democrats and you had to write in any Republican, that’s basically what you get with ISS and Glass Lewis. 

“So we’re asking them to change that and just give us and all investors that use their services some actual right-of-center options that don’t take a PhD in proxy voting to figure out how to use.”

The asset managers’ letter asks that the proxy advisers “provide off-the-shelf specialty proxy voting policies for investors who do not subscribe to central ESG provisions (who instead favor proposals ... against illegal discrimination against anyone; oppose restriction of services on ideological grounds; prefer to see market forces determine appropriate energy sources), and make it as accessible as the various ESG-aligned options.”

Glass Lewis and ISS “control pretty much all the proxy voting, in the U.S. at least, because most of the asset management firms don’t do that in house, they basically outsource it off to them,” Tim Schwarzenberger, portfolio manager at Inspire Investing, told The Epoch Times. “So we’re asking them to provide an off-the-shelf option that’s truly fiduciary-aligned, pro-shareholder aligned.”

We Don’t Push an ESG Agenda, ISS Says

However, ISS stated that it offers “a wide array of house policies” and denied that its services and offerings are exclusively left-leaning. Responding to a request for comment, the company cited this June 13 statement from Gary Retelny, president and CEO: “Our proprietary benchmark policy, which often garners media attention, is developed with market input and takes a case-by-case approach to evaluating shareholder proposals, including those seen as ESG.

“In 2022, a record year for environmental and social shareholder resolutions in the U.S., and for S&P500 constituents, ISS’ benchmark policy supported just 52 percent of all shareholder proposals characterized as ‘environmental’ or ‘social’ while supporting more than 96 percent of management resolutions. This is hardly the track record of an activist or advocacy organization pushing an ESG agenda.”

However, Jeremy Tedesco, senior vice president of the Alliance Defending Freedom, told The Epoch Times: “When publicly traded companies are called out for embracing ESG, they claim they are just listening to their shareholders, but because of the vast influence [proxy agents] exercise over how shares are voted, ISS and Glass Lewis’s biased voting standards result in a one-way conversation.

“These firms support a vast majority of left-of-center, pro-ESG shareholder proposals and effectively block proposals from conservative shareholders seeking to hold companies accountable for the anti-free speech and anti-religious behavior that ESG demands.”

In October, state financial officers from 18 conservative-leaning states wrote to Glass Lewis and ISS, expressing their concerns that the proxy agents were biased against shareholder proposals put forward by conservative organizations.

Risks of Political Causes

In their letter, conservative fund managers asked the proxy agents to “begin the process of restoring trust” by supporting investors’ efforts to “ask companies about the risks of taking political stands on contentious social issues” such as “politicized debanking, decarbonization, or brand politicization as was recently the case with JPMorgan Chase, Target and Bud Light.”
Shareholders in companies such as Target, Anheuser-Busch, and Disney have taken a significant hit this year as those companies aligned their brands with left-wing causes and have seen sales and stock values decline as a result. And once companies wade into political causes, they often find it difficult to get out. 
“When you displease the right and there’s backlash and then you change like Target did, you’re actually in the worst of both worlds,” Mr. Schwarzenberger said. 

“You’ve alienated the left and you’ve alienated the right at the same time, so you’re left with a boycott from both sides. Our view is just stay out of these politically divisive issues.”

The asset managers who signed the letter said they’re optimistic that their voices will be heard. 

“I don’t think ISS and Glass Lewis really see themselves as activists,” Mr. Netzly said. “I think they believe their own rhetoric that they’re being passive ... but their version of centrist and unbiased is definitely not what most people would define as centrist and unbiased.”

He said he believes that there’s demand for conservative options for shareholder voting.

“If and when we get these options from ISS and Glass Lewis for conservatively oriented viewpoints that are just a menu item that you can select, I think they’re going to be overwhelmed, completely taken by surprise, by the flood of their client base using those voting guidelines,” Mr. Netzly said. “I think it’s going to be a landslide, and they’re totally clueless about how large of a landslide that’s going to be.”

Representatives for Glass Lewis were asked to comment for this article but didn’t respond.

Kevin Stocklin is a business reporter, film producer and former Wall Street banker. He wrote and produced "We All Fall Down: The American Mortgage Crisis," a 2008 documentary on the collapse of the mortgage finance system. His most recent documentary is "The Shadow State," an investigation of the ESG industry.