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Is Shareholder Activism Just a Mafia Shakedown? (Spoiler: Yes)

Is Shareholder Activism Just a Mafia Shakedown? (Spoiler: Yes)
David Swensen (Getty Images)

By Thursday, 29 October 2020 12:24 PM Current | Bio | Archive

David Swensen is on a mission to save the world — no matter how much publicity he has to get or how much of his billions he has to keep.

The investment manager of Yale University's staggering $31.2 billion endowment, Swensen has announced Yale won't invest in public companies unless they surrender to his demands about gender and racial diversity. Swensen is fighting for the underprivileged — by exploiting his position with an Ivy League system designed to reinforce inter-generational social status: He could split that $31 billion up and give it to every community college in the country, but he'd rather do this.

Alas Swensen is not alone.

The super-rich social justice warrior is not quite as repulsive as a mega-millionaire actor who lectures Americans about climate change and income inequality, but fund managers like Swensen have more muscle to put behind their extortionary tactics.

The king of this is proxy advisory firm Institutional Shareholder Services Inc. (ISS) — a company that started to help shareholders cast their ballots on day-to-day matters of corporate governance that has evolved into the self-appointed Nurse Ratched of corporate America. This month ISS announced its goals for shareholder proposals for 2021, which include a disturbing number of authoritarian dictates masquerading as "corporate governance and responsible investment solutions."

ISS has become the kingmaker in proxy contests among hedge fund activists who virtue signal with your investment portfolio. With nice-sounding words like "diversity," ISS extracts pretending to be virtuous while grabbing power. Much like a mafia shakedown, ISS wants to continue demanding money from companies so they can enjoy their "protection."

Just like Swensen, the premiere dictate ISS has come up with for 2021 is arbitrary standards of ethnic and gender diversity on corporate boards. At best, a program like this will spur an explosion of applicants lying about bogus Indian heritage like Elizabeth Warren. At worst, this kind of nonsense just throws gasoline on the fire of America's already unmanageable ethnic strife.

As was said by Vijay Chokal-Ingam — the Indian-American who pretended to be black to get into medical school — affirmative action programs "promote racial resentment" from groups they hurt while furthering "negative stereotypes about the professionalism and competency" from groups they help.

It's immaterial. Diversity standards to signal wokeness is always a misdirect: slap a couple rainbow flags on your company logo in June and people will shut up about your sweatshops in Malaysia.

Substantive issues like that go ignored, and no one can hold ISS accountable for that oversight because there is no one watching the watcher. Proxy advisers are an industry that demands accountability, oversight and transparency but volunteers none from itself.

And ISS desperately needs oversight.

The worst kind of corporate behavior happens under a monopoly or duopoly, which is what we have in the proxy advisory firm market: ISS owns 61% while Glass Lewis owns 37%. That kind of concentration demands government intervention, according to the Herfindahl-Hirschman index of market competitiveness. If ISS were conceyrned about corporate governance, they would voluntarily split up into four new firms — but it seems like they'd rather continue serving as judge, jur and executioner.

It would be terrible if an unshackled, second-term President Trump were to sick some well-deserved anti-trust policy on ISS.

The purpose of publicly traded companies is not to engage in "responsible investment solutions" — it's to add value to their shareholders. If companies want to dedicate their profits to charitable causes, they need to stay private. When public companies knowingly sacrifice profitability, they hurt retail investors trying to save for a house or retirement. Activist groups lie that "worthy causes" lead to better profitability long term, but there is no evidence of that. Insistence on social or environmental goals are really just a door for asset managers to charge higher fees or excuse poor financial performance.

The way to deal with woke mafia thugs is to stand up to them. Mizuho Financial Group Inc. investors rejected a self-destructive climate resolution this summer, and one hopes other companies will follow their example. And if the children of wealthy Mizuho execs want to go to Yale, one imagines David Swensen would be happy to cash their check.

Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. Read Jared Whitley's reports — More Here.

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David Swensen is on a mission to save the world — no matter how much publicity he has to get or how much of his billions he has to keep.
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2020-24-29
Thursday, 29 October 2020 12:24 PM
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