Activist investing is no longer the preserve of hedge-fund sharks

Listen to this story. Enjoy more audio and podcasts on iOS or Android Your browser does not support the <audio> element.T rade unions rarely look to corporate raiders for inspiration. Yet the Strategic Organising Centre ( SOC ), a coalition of North American workers groups, is mounting the sort of campaign normally associated with hedge funds. The group’s target is Starbucks, a coffee-shop chain with a market capitalisation of $107bn. Whereas traditional activist investors take a chunk of a company and pressure its management to change strategy, hoping to gain from a bump in the share price, the SOC owns a mere $16,000-worth of Starbucks shares, and ultimately wants to improve the lot of the firm’s workers.Its pitch is that the interests of shareholders and workers are, in fact, aligned. Starbucks is wasting money and alienating customers with its approach to “human-capital management”, the group argues. Productivity would be higher, and spending on consultants lower, should Starbucks follow its workplace advice. Therefore it wants three of its candidates appointed to Starbucks’s 11-person board. The hot-drinks behemoth is less convinced. The board is already stocked with “world-class business leaders”, says a representative, who adds that in the last fiscal year a fifth of profits went towards wage increases, training and new equipment.Five years after the Business Roundtable, a 200-strong group of chief executives at some of America’s biggest companies, embraced stakeholder capitalism, the mood is now rather different. Most bosses would prefer to leave politics to the politicians and avoid the boycotts and bad

publicity that come with wading into culture wars. They are content to focus on shareholder returns, rather than trying to improve society at large. But although chief executives have mostly abandoned their flirtation with stakeholder capitalism, they are still living with its consequences.This year’s proxy season, which gets under way in the spring, will probably surpass even 2023’s for proposals of non-binding resolutions. That year marked a record for environmental, social and governance ( ESG ) motions. At the large and small American companies that comprise the Russell 3000 index, 513 of the 836 proposals put to shareholders focused on such questions, according to the Conference Board, a think-tank. The increase reflected a legal shift. In 2021 the Securities and Exchange Commission ( SEC ), a regulator, said that it would no longer allow companies to exclude measures as irrelevant if they focused on a “significant social policy”.Conservatives are also mobilising. Last year’s proxy season included 92 anti- ESG proposals, up from 54 the year before. On February 28th at the annual meeting of Apple, a tech giant, shareholders were asked to consider five such proposals, including one asking the firm to report on the risks of failing to consider “viewpoints” in its equal-opportunities policies. The supporting statement says there is evidence that conservatives may be discriminated against in Silicon Valley. Another two, submitted by conservative pressure groups, asked the company to report on how it arbitrates between government and consumer interests, in particular in its dealings with China. For their part, liberals offered

only one resolution: asking Apple to change how it reports on racial pay gaps. The company recommended that shareholders reject every one, which they did.Politics by other meansWill other campaigns find more success? In 2023 the average environmental proposal received the support of just a fifth of shareholders, down from a third the year before. Shareholders are being more disciplined, says Lindsey Stewart of Morningstar, a research outfit, only backing climate-change resolutions that are focused on the emissions over which companies have direct control or that they will have to disclose to satisfy regulators, rather than those in their supply chains. Financiers have realised that it is not their job to set energy or industrial policy, he explains. Meanwhile, anti- ESG proposals fare even worse: on average they receive the support of only 5% of shareholders.Although such campaigns are rarely successful, they do matter. ExxonMobil, an oil supermajor, is taking the unusual step of suing its own shareholders who have put forward green proposals. Arjuna Capital, a hedge fund, and Follow This, a campaign group, used a stake of less than $4,000 to advance a non-binding proposal to accelerate greenhouse-gas reductions with targets and timelines. The proposal has been withdrawn, but Exxon is still pursuing the case. It says the underlying issue with the SEC ’s approach is still unresolved: clarity is needed about proxy-voting rules that “are increasingly being infringed by activists masquerading as shareholders”. Many companies quietly agree.And as the Starbucks case suggests, crusades are becoming increasingly ambitious. More sha