Most green and social proposals at American AGMs still fail, but they are gaining support. On average last year they won 34% of the vote, up from 19% a decade ago. Conservatives are worried. If managers decide their job is to pursue a long list of social goals, rather than to boost returns, capitalism will grow less efficient. Resistance is mounting. A new law in Texas bans that state from signing contracts with firms or investing in funds that shun fossil fuels. Other Republican-led states are considering bills to make it harder for pension funds for public workers to favour social goals over returns for pensioners.
Regardless of the merits of any individual proposal, it is reasonable to be uneasy that such a tiny group of asset managers exerts so much power over America’s companies and, by extension, its economy. Fortunately, there are hints of democratisation. Startups and fintech firms are devising tools to make it easier for retail investors to vote their shares. The Securities and Exchange Commission has drawn up new rules, which will take effect later this year, allowing shareholders to appoint directors individually rather than as a slate supported by either management or dissidents. Most important is a push to allow investors in index funds, who currently can neither sell their holding of a given firm within an index, nor influence that firm via the fund’s vote, to vote their shares directly. BlackRock has started letting some institutional clients do something similar already.
Such reforms are technically and legally fraught. Nonetheless, they are necessary. Firms should answer to all their shareholders, not just the well-organised few. Today most investors have little chance to turn ownership into a proportional share of influence. Efforts to make it easier for them to voice their priorities should be welcomed—and accelerated. ■