Pulling at loose threads

The US Chamber of Commerce recently put out a report rubbishing the use of shareholder resolutions to achieve governance reforms. It argued that there was no evidence that such proposals are of benefit to shareholders, and the report itself even queries the amount that investors like CalPERS and TIAA-CREF spend on activism.

The US business community is currently lobbying on two fronts - against governance reform and against the Employee Free Choice Act, which would make it easier for US workers to unionise if they wish to. This report almost ties the two together by attacking trade union investor activism for governance reform.

But I can't help thinking that the general line that employers are taking here (and it is echoed by some of the loonier voices in the UK market) actually opens up some deeper questions that they probably don't want asked.

Let's be clear - most of the shareholder resolutions that US unions put up are on very mainstream governance issues - splitting chair and CEO roles, say on pay etc. That's why non-union investors vote for quite a lot of them, and why the US unions have a strong voice in corporate governance.

If we accept that these resolutions don't have a benefit for shareholders (a big IF, but let's take the report at face value for now) that implies that investor activism in general around governance is a waste of time. Again you do get people in the business community both in the US and here who take this view. And regular readers will know that I am myself a bit sceptical about how much investors can achieve.

But if we accept the broad shape of this argument it suggests we either decide that governance problems failures are pretty much unsolvable, or we find another way of addressing them. Let's assume for now that (though I have a little sympathy with it) the first view is pretty much unacceptable to most people. How else can we address these problems, or more explicitly who else should do it? The obvious answer is the state/regulators. If shareholders can't control the companies they are supposed to own, someone is going to have to do it for them. (And by the way this makes the instinctively anti-regulation stance of some of the investment industry lobby even less credible).

What's more, this also starts cutting away at the role of investors more generally. If they can't/won't perform the ownership role, then they really are just traders. That must affect how we view governance and who the key stakeholders are in it. What's more the professional traders we employ are taking a bigger chunk of our money through increasing fees (where's the competitive pressure here btw?) though returns to our pension funds aren't getting any better. And again the investors almost implicate themselves when they try and explain why they aren't more effective as owners - they can't know as much as the company, so how can we expect them to spot & address potential problems. True enough, but the same argument must surely lead us to question how they can forecast more generally. Put simply, can they even do the job we pay them to do?

I have no doubt that neither business or the investment community think they are making the arguments above, but the more they seek (for different reasons) to downplay the role of investors in governance the more they must lead people to question what the other options are.