A progressive’s liberal’s answer on why we don’t do shareholder Activism

Nob Akimoto

Nob Akimoto

Nob Akimoto is a policy analyst and part-time dungeon master. When not talking endlessly about matters of public policy, he is a dungeon master on the NWN World of Avlis

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118 Responses

  1. Avatar Dave
    Ignored
    says:

    I’ll address your points –

    1. The coordination problems you speak of should be addressed through the partnership structures under which funds are raised. The general partner should be calling the shots with the limited partners having limited say-so in most matters. This sounds like a bigger deal that it really is since it’s the GP that has the expertise the LPs won’t have.

    The real problems that I see are 1) finding the right fund manager, 2) finding one with a track record of the sort of shareholder activism that we’re discussing here and 3) finding enough capital willing to risk their capital for a return that is far below the risk it will take, which brings me to…

    2. Your example is simplistic, but it works. There’s no reason to get overly technical about it. There’s no money in it. I think the more likely way that this will be unsuccessful is that the shares are purchased, the activist shareholder fails and then gets out of the investment by selling the shares at a price that’s roughly at or equal to the initial price paid (I’m assuming that the investor’s share purchases are done in a way to not move the market up or down).

    3. I can’t say I’m convinced but I don’t have a strong enough counterargument to belabor the point. Personally, I don’t see most major corporations changing behavior unless it’s pursuant to regulations. I could be wrong though.Report

    • Avatar Jason Kuznicki in reply to Dave
      Ignored
      says:

      I like this approach. A mutual fund might say, “Invest with us, and we do two things. First, we make the most profit we know how. Second, we vote all our shares for these progressive causes…”

      Sure, those two goals might at times conflict. But often they won’t: Hiring the best people around, regardless of sexual orientation, is both a good idea and a profitable one.Report

      • Avatar Russell M in reply to Jason Kuznicki
        Ignored
        says:

        I would invest in that.Report

      • Avatar Dave in reply to Jason Kuznicki
        Ignored
        says:

        Jason,

        I would have answered you this way in the last post, but things got a bit messy. I’ll leave it at that.

        The structure of a partnership like this is straight forward, at least if it’s like any funds I’ve dealt with in my professional life. Feasibility is an issue.

        Mark Thompson,

        If you’re reading this, please email me. I think you have my info.Report

      • Avatar Tod Kelly in reply to Jason Kuznicki
        Ignored
        says:

        The last few times I sat in a 401k investment meeting, the guy from the investment firm always had a few of these options available – if memory serves, there were always one or two that invested in socially “good” companies, and one or two that invested in “green companies only.”

        This seemed to get some investing done in these companies. (When I say “some,” I mean that a few people would say, “I like that idea, I’m going to have 15% of what I have taken out of my paycheck go to that fund.”)

        I love this concept, but the cynical part of me looks at how the stock market works and wonders, is the money I invested in that fund going to socially responsible companies, or is it going to companies that hired a PR firm to make brochures to convince me to to invest in them because they are socially responsible?

        Because at the end of the day, with so many layers of people between me and Mr. X, Regional VP of ABC Corp., I really have no fishing idea of where my money goes. They could be a month away from being caught by the feds for dumping toxic sludge in the main waterways for all I know.

        I only know that I’m either doing well compared to competing fund of I’m not, and if not I’m moving my money.Report

        • Avatar Kim in reply to Tod Kelly
          Ignored
          says:

          Da-yum, so they let you bet on the Presidency?
          Nice company. Better than mine.Report

        • Avatar Jason Kuznicki in reply to Tod Kelly
          Ignored
          says:

          Again, I’m not talking about investing in “good” companies. I’m not talking about investing in “green” companies.

          I’m talking about investing in profitable companies, regardless of their goodness or badness, and in using shareholder activism to make them better.

          Perhaps the single biggest obstacle to this strategy is that no one is able to hold it in their minds for very long without the idea morphing unbidden into something that it was never intended to be.Report

          • Avatar Kim in reply to Jason Kuznicki
            Ignored
            says:

            So, nu, you get stock in a company. You suggest that they actually pay their damn fines, rather than shooting the people suing them. What’s to stop them from saying “that never happened,” and “get the crazy guy out of here?”

            [note: feel free to assume we’re talking about Nigeria and not backwoods USA if it makes you feel better.]

            Corporations have much more incentive to cover up wrongdoing, than they do to actually address it.

            And there, I’ve actually suggested something that we can argue “isn’t really much about profit, but is mark-ed bad behavior”Report

          • Avatar BlaiseP in reply to Jason Kuznicki
            Ignored
            says:

            We must distinguish between the various sorts of Goodness and Badness. If a dairy company is putting melamine in the milk, say, the Do Gooder Shareholder Activist could say “you are damaging the brand by your immoral pursuit of profit.”

            But really, all he’d need to say was “You’re damaging the brand.” The immoral pursuit of profit is irrelevant. Be he ever so Activist, his goal is to increase the value of the brand and increase his profits.

            There is no conflict between Doing Good and Doing Well. Poor Richard’s Almanack:

            Let no Pleasure tempt thee, no Profit allure thee, no Ambition corrupt thee,
            no Example sway thee, no Persuasion move thee,
            to do any thing which thou knowest to be Evil;
            So shalt thou always jollily: for a good Conscience is a continual Christmas.
            Report

          • Avatar Tod Kelly in reply to Jason Kuznicki
            Ignored
            says:

            I love the spirit of the idea, but I have my doubts it can be done for the two reasons I expressed above:

            1. I suspect that instead of having investors fundamentally changing companies for the better socially, I think you’d have investors put their money behind those companies that made no real fundamental changes, but were really good at making it look like they had.

            2. At the end of the day, people are going to invest in those companies or funds where the rate of return is the largest. Often times, that will be with those companies that are willing to cut corners we wish they wouldn’t to get short-term gains.

            I suspect this will appeal to you less, but I might prefer that the state make some way to ensure that negative consequences to illegal gains from executives are potable. From my vantage point, the reason there is so much malfeasance is because under our current system those individuals that commit it are almost always rewarded and almost never punished for it. (And yes, I can see where such a solution might end up being abused to disastrous consequences.)

            But I think gaming the carrot may be too difficult, and so I might be in favor of gaming the stick.Report

  2. Avatar North
    Ignored
    says:

    I remain somewhat skeptical about the assertion about shareholders controlling large corporations. I mean sure in a strict legal and idealistic understanding they do but in the practical world shareholders control corporations even less than voters control government. Admissibly I’m an amateur when it comes to the subject of corporate governance but as far as I understand it in the real world corporations are controlled by their managers first, their board of directors second and their shareholders a very very distant third.

    Management, as I understand it, focuses primarily on advancing their own positions and welfare first and the position and welfare of the company/shareholder value second. Often they can align those incentives and productive win/win outcomes result but the examples of management screwing their shareholders sideways abound. Also, as a practical matter, management usually responds to shareholders trying to take control of corporations very poorly; often by poisoning shareholder value or otherwise seeking to entrench their control often at the expense of their shareholders. So the base question Jason presented struck me as “why don’t progressives try and change corporations behavior in a way that’ll cost them a fortune and probably won’t work?”

    Also, of course, I’m not a progressive so I’d note that I’m not convinced that large publicly traded corporations have massive astonishing profits that one can easily tap into simply by buying stocks. The higher a corporation’s annual profit the higher the stock price is so that your return on investment is close to that of the market as a whole. Though if progressives possess some ability to identify companies that have unusually or unpredictably high profits before this is known to the market as a whole then maybe more progressives are needed in the stock buying game.Report

    • Avatar Morat20 in reply to North
      Ignored
      says:

      I think that’s a very good and totally overlooked point. Given the politics and idealogies of most progressives, they — more than conservatives — are likely to be of the mind that shareholders really DON’T have an ounce of pull unless they have a large enough block to replace the Board or CEO on their lonesome.

      Shareholders are, bluntly, neutered.

      Honestly, I view Wall Street and the stock market as basically being a giant casino — sure there’s an actual ‘invest in a company’ mechanism down in the weeds, but 95% of the activity is wild bets unrelated to the companies in question — bets that are entirely about what people think other people thing about stock prices, not company performance.Report

      • Avatar Dave in reply to Morat20
        Ignored
        says:

        Shareholders are, bluntly, neutered.

        You and North said basically the same thing and I agree. However, that’s not a viewpoint that is predominant based on one’s political affiliation. That’s universal.Report

        • Avatar Jason Kuznicki in reply to Dave
          Ignored
          says:

          Shareholders are, bluntly, neutered.

          It’s interesting to see this in the context of corporations. In the context of government, I hear so often that Every Vote Counts, and that even suggesting otherwise makes me a very bad person.

          I freely grant that companies often have controlling interests that are unlikely ever to change. But in what way is that at all different from the Big Two political parties, when viewed from the perspective of someone who finds them both really bad?Report

          • Avatar Chris in reply to Jason Kuznicki
            Ignored
            says:

            I freely grant that companies often have controlling interests that are unlikely ever to change. But in what way is that at all different from the Big Two political parties, when viewed from the perspective of someone who finds them both really bad?

            None.

            It’s worth noting that progressives have spilled a ton of ink over the last 10-12 years trying to figure out how to influence the Democratic Party. So far, they haven’t figured it out how to do it very well, if that party’s behavior is any indication.

            Also, being closer to Chomsky than, say, Obama, I tend to think we’re all neutered all of the time.Report

          • Avatar Jaybird in reply to Jason Kuznicki
            Ignored
            says:

            I have witnessed a single motivated shareholder throw a quarterly company shareholder’s meeting into disarray by asking questions that demonstrated that he was keeping up with what the company was doing. It reached the point where people who normally did not care about such things as company shareholder’s meeting minutes were giving each other mp3s of the recordings of the meeting and telling each other “start listening at 35 minutes in!”

            Granted, the above was for a Professional Wrestling company… but are shareholder’s meetings so locked down in “real” companies that a motivated investor couldn’t ask “WHAT IN THE HELL???” at the next one?Report

            • Avatar Kim in reply to Jaybird
              Ignored
              says:

              No. They’re just likely to get ignored. This happens all the time at BNY Mellon, and places like that.Report

            • Avatar BlaiseP in reply to Jaybird
              Ignored
              says:

              Such outbursts don’t change anything, Jaybird. The only people whose troubled outbursts matter in such situations are on the boards of directors. That’s where change happens. That’s where bad policy is reined in, where executives are held to account for their actions.Report

          • Avatar Dave in reply to Jason Kuznicki
            Ignored
            says:

            It’s interesting to see this in the context of corporations.

            The small shareholders don’t have enough sway to enact changes. For the large institutional investors, so long as the shares prices are rising or the companies are performing in accordance with expectations, they have little reason to pay attention to anything else. Large institutions are bureaucratic by nature. Decisionmaking is done in a committee process, with more major decisions taking that much longer to make.

            Also, if the share price is high and not undervalued, most activist shareholders, at least the ones that I know of, probably would not be interested because their kind of shareholder activism has the goal of increasing the share price. That won’t work with fully-priced shares.

            The situation has agency conflict written all over it. On a more macro level, the relationships between senior management and the board of directors is typically too cozy. There’s not much anyone can do unless a company’s situation deteriorates to a point where people need to start paying attention, something that does not happen when firms meet their earnings estimates and the share prices rise.

            In the context of government, I hear so often that Every Vote Counts, and that even suggesting otherwise makes me a very bad person.

            You get those attacks too? It’s a no-win situation with some people. Every four years, I brace myself for the “a non-vote for X is a vote for Y”. I’m not completely skeptical about voting though. One of the speakers we had at a conference was Stuart Rothenberg, and he convinced me that my vote does matter so long as I live in a battleground state. However, since I live in NJ, I guess I don’t qualify.

            I am going to have to think about that question, especially since I find both political parties equally obnoxious. In a way, I tend to believe that shareholder activism as it is practiced today by the hedge funds is almost akin to political campaigning seeing as you need a lot of money, firepower and a name to pull it off. I’m just thinking out loud.Report

          • Avatar Morat20 in reply to Jason Kuznicki
            Ignored
            says:

            You are aware that unlike voting for President, in voting for CEO you get as many votes as you have shares, right?

            Which means that a less than 1% of the people present might have 90% of the vote, which means the votes of the other 99% might as well not exist — their shares are meaningless except in, perhaps, the occasional fringe case.

            So “every vote counts” doesn’t even APPLY in a shareholder’s meeting. It’s a statement meant for situations in which every participant has an equal vote.Report

            • Avatar Jason Kuznicki in reply to Morat20
              Ignored
              says:

              I’m sorry, but I’m not replying to comments that evince a clear failure to have read before typing.

              First sentence of the second paragraph, if you’re interested in having a real discussion.Report

              • Avatar Morat20 in reply to Jason Kuznicki
                Ignored
                says:

                So you’re not interested in having a real discussion. Gotcha.Report

              • Avatar Chris in reply to Morat20
                Ignored
                says:

                Aaaaaand here we go again.Report

              • Avatar James Hanley in reply to Chris
                Ignored
                says:

                99? 😉Report

              • Avatar Jason Kuznicki in reply to James Hanley
                Ignored
                says:

                Me: “Of course, there is this problem X, and…”

                Him: “You appear to be unaware of problem X. Well here, let me tell you all about it.”

                Me: “No, I talked about it, you just failed to read.”

                Him: “So you’re not interested in having a real discussion.”

                I’m fed up with the condescension. What am I even supposed to do?Report

              • Avatar Patrick Cahalan in reply to James Hanley
                Ignored
                says:

                Look at the post you got from Nob in response to the post you made and realize that that’s a worthy tradeoff even if all of the comments on both posts were garbage?

                Spitballing, here.Report

              • Avatar James Hanley in reply to James Hanley
                Ignored
                says:

                I don’t know, Jason. I feel your pain. Seems to me that the guy who refuses to acknowledge that you made the point he’s making is the one who’s not interested in a real discussion.

                It would have been really easy for him to just say, “OK, I see that now. But I don’t think you really dealt with the significance of that point, which is…….”

                Maybe I’m wrong, maybe I’m too sensitive, but I do feel like this place has gone from being infamously libertarian friendly to a place where a certain (small, but active) subset of the audience would like to drive libertarians out, or at least is willing to treat them as though their very presence, and absolutely anything they say, is illegitimate by definition.Report

              • Avatar Recovered Republican in reply to James Hanley
                Ignored
                says:

                “I’m fed up with the condescension. What am I even supposed to do?”

                Stop condescending for starters.Report

              • Avatar Patrick Cahalan in reply to James Hanley
                Ignored
                says:

                I think you need to stop assuming that how you’re reading things is how they are intended.Report

              • Avatar Tod Kelly in reply to James Hanley
                Ignored
                says:

                James, I see the same thing you see. I would add, however, that I don’t see that as a libertarian phenomena; pick a post from any political point of view and there are certain people who will always respond to it with some amount of anger and an argument that betrays they didn’t caferully read what their railing against.

                My explanation for this phenomena has evolved into this:

                Some people are really mad at X argument they read or heard some guy in the media make. The internet allows them to have a voice and respond. So when they come across someone who self-identifies with the same tribal moniker as the guy who argued X, they get to finally unload on that person. That the person they found on the Internet never argued X, and in fact might disagree with X, is somewhat immaterial.

                (I should probably add that I am not talking about Morat20 here.)Report

              • Avatar Dave in reply to James Hanley
                Ignored
                says:

                Perhaps everyone should take a step or two back and take a deep breath.

                There is no need for another pissing contest.Report

              • Avatar Tod Kelly in reply to James Hanley
                Ignored
                says:

                RR – Not exactly calling him a liar this time, but close enough. Knock it off or I’ll rescind privileges.Report

              • Avatar Kim in reply to James Hanley
                Ignored
                says:

                Tod,
                uhhuh. It doesn’t exactly help when the person i’m unloading on, actually collects a paycheck from the person I’m mad at.Report

              • Avatar Chris in reply to James Hanley
                Ignored
                says:

                Jason, I think you brought much of this on yourself, given the way you framed the question in your post (seriously, you’ve been around long enough to know where that post, particularly with the title, would take people), but in this case, I was siding with you. It was clear to me that all Morato was doing was responding to the Jason he perceived in your post, and ignoring the Jason who wrote this comment.Report

            • Avatar Dave in reply to Morat20
              Ignored
              says:

              Morat,

              To me…

              Which means that a less than 1% of the people present might have 90% of the vote, which means the votes of the other 99% might as well not exist — their shares are meaningless except in, perhaps, the occasional fringe case.

              is equal to…

              I freely grant that companies often have controlling interests that are unlikely ever to change.

              You both made the same point. Maybe my bias is acting up again.Report

          • Avatar North in reply to Jason Kuznicki
            Ignored
            says:

            I am confused Jason. You’ve previously said that voting is meaningless due to weaker versions of the problems I am pointing out here but you’re puzzling as to why progressives don’t embark in a program that is, in essence, even more pointless than voting and moreover unlike voting would involve them risking and quite possibly losing enormous amounts of their own money?

            With voting everyone has one vote. With shareholder voting you have votes in accordance with your shares. Perhaps, you suggest, progressives could attempt to obtain more shares to get more votes. I observe that management has a history of responding to attempts to gain control of their companies by actively poisoning shareholder value to prevent it so hostile takeovers of corporations by sheer force of money is pointless.

            You have asserted pretty emphatically that voting is, individually, pointless. I would note that it is also very low cost. The progressive activity, by your own reasoning, would have the problem of being not only pointless but also potentially extremely costly. By your own reasoning then the answer to your question would be “Progressives don’t do this because it would accomplish nothing and likely cost them a fortune.”

            If this is so then why ask the original question? Am I missing something?Report

            • Avatar Jason Kuznicki in reply to North
              Ignored
              says:

              There are a lot more progressive dollars than there are libertarian votes.

              Beyond that, two other facts are relevant: There are already well-established progressive networks into which an idea like this one could be channeled, which helps to obviate the “it’s just one investor” problem. And even if it were just one (or a few) investors, they would often be able to earn money — quite unlike voting, where all you do is put in some time, lose that time, and the result’s the same either way.Report

              • Avatar Kim in reply to Jason Kuznicki
                Ignored
                says:

                You are naturally missing the opportunities of participating in a civil event, and what sort of signaling that carries. Also the opportunity to meet your neighbors (or see the local school).Report

              • Avatar Tod Kelly in reply to Jason Kuznicki
                Ignored
                says:

                Here’s a question: Could it backfire and effectively achieve the opposite outcome as the intended goal?

                For example, let’s say you have a $1 billion dollar bank, and they are caught laundering money for terrorists. A progressive group gathers $300 million and invests in the company in an attempt to redirect them. It’s not enough for a majority, but the sudden purchase drive the stock price up and makes it worth considerably more. Executives in charge are given larger contractual bonuses, and the rise in stock price makes the Board less likely to terminate them. Competing companies see that companies stock skyrocket after being caught, and they are less likely to refrain from ethically dubious practices in the near future.

                I am spitballing, so this could be total crap. But it feels pretty damn possible.Report

              • Avatar BlaiseP in reply to Jason Kuznicki
                Ignored
                says:

                Look, here’s the way it really works, Jason. Shareholder activism is pointless. At best it’s second-hand leverage. If you want to change a corporation’s behaviour, you must control its board of directors.

                Surely this is not lost on you with what transpired at Cato. How was this situation resolved? Cato stopped being a stock corporation and went to a membership structure. The board’s composition was changed. Ed Crane left. But who ultimately arbitrated the end of the Crane Era? Levy, the chairman of the board.

                Here’s what’s right about your position: control of shares does give you a voice. But who hears that voice and makes changes? The board of directors. It’s a question of control: ultimately it’s the board which combed out this tangle. Mere control of shares means nothing if you can’t shape the composition of the leadership.Report

              • Avatar North in reply to Jason Kuznicki
                Ignored
                says:

                I am concerned that I’m missing your point. My point is not that progressives could not raise enough money to try and execute the moves you’re talking about ; my point is that it would be pointless, that it would not achieve progressive ends.

                First off, not being a progressive myself I don’t think the market has a significant proportion of amazingly profitable but unscrupulous companies*. I’d be fascinated to be proven wrong but my understanding is that super profitable companies are very expensive to buy thus your ROI would be the same if you invested in cheaper but less profitable companies . So that side of your suggestion I’m setting aside.

                This leaves your suggestion that progressives should buy shares, take control of unscrupulous companies and make them behave in a way progressives would approve of. To this I respond that I do not believe this is a feasible proposal. Assume that progressives followed your suggested course, raised a huge bundle of money and go after a large publicly traded company and commence an attempted hostile takeover. I submit management would get wind of this pretty quickly and, with their jobs and independence potentially on the line, begin deploying many of the various strategies that management typically uses to beat back a hostile takeover action (typically at the expense of their shareholders). Having concluded the fight either the progressives have acquired controlling interest of said company at a terrific financial cost to themselves and then can try and figure out how to run the company more ethically (note that failure means even more terrific cost to themselves) or they fail to acquire control again at a terrific financial cost.

                I admit readily I’m a business neophyte. Am I missing an element here because from where I’m sitting your proposed activity seems like a terrible waste of progressive attention and resources?

                So I guess to boil it down the answer to your question is: progressives get a better ROI by putting their resources into political advocacy than they would by flailing at unscrupulous corporations in the manner you suggest.

                *I’m not saying companies never behave unscrupulously, but that scrupulous or no the market piles onto profitable companies.Report

              • Avatar Shazbot5 in reply to North
                Ignored
                says:

                More generally, there is a market for companies that perform certain bad actions, e.g. pollution or paying non-living wages, because people spend most of their lives not thinking morally, only egoistically, including many (though not all) liberals.

                If you buy one company that saves money by not paying a decent wage to make it begin acting equitably, your price will go up, and you’ll get outcompeted by so and so, amd capital will fly to your competitor. In order to solve the problem of some companies cutting costs by paying crap wages, you need to require all companies to pay at a certain level, which then results in more spending, which results in each company increasing sales so that they don’t need to make profit by cutting wages.

                This is why many economists are in favor of increasing the minimum wage, up to a point. And they are not in favor of the proposal of asking liberal minded people to get together, then step 2 happens, and liberals use their ownership (based on how they organized in step 2) to make each company pay a good minimum wage.

                Of course, how step 2 coordinated tens of millions of liberals of various stripes and intensity in their actions, often involving their life savings, is a magical mystey. And how step 2 prevented egoistic free riders, liberals or pretending to be liberals, from coming along and not paying the minimum wage is kind of a mystery, too. And how step 2 got all liberals, including weak-kneed liberals, to be altruistic and pay for their conscience is a mystery.

                No, step 2 is pie in the sky stuff. Better to raise the minimum wage and pass a carbon tax than try something with so many conceptual problems and no evidence that it could ever work.

                Crazy liberals.Report

  3. Avatar zic
    Ignored
    says:

    Here’s the executive summary from SSIF’s report on socially-responsible investing:
    http://ussif.org/resources/pubs/documents/USSIFTrends2012ES.pdf

    A summary paragraph of activity from the introduction:

    The US SIF Foundation survey indentified 272 management firms and more than 1000 community investing institutions that incorporate ESG issues into their investment decision-making. Their combined $1.41 trillion in assets under management reflects nearly a doubling from the corresponding figure for year-end 2009. The growth in these ESG assets reflects several factors, including a dramatic increase in the number of mutual funds that consider corporate governance criteria or avoid companies doing business in the Sudan, the rise of alternative investment funds that consider ESG criteria, and the growth in assets of banks, credit unions and loan funds with an explicit mission of community development.

    Report

    • Avatar Jason Kuznicki in reply to zic
      Ignored
      says:

      Ah, so a big increase in doing exactly the opposite of what I propose.Report

      • Avatar zic in reply to Jason Kuznicki
        Ignored
        says:

        I think on the other post someone compared techniques (perhaps Nob?) suggesting one was akin to creating incentives for many countries to behave better, the other invading a single country.

        I think many people also pointed out that what you suggest would often destroy the value of the offending company, and result is simply throwing the investment away; something to do if you want to create a capital loss, but generally not a good investment or social-change strategy.

        I agree with both, and I think that ‘opposite’ of what you suggest a very good thing.

        My investments include some funds, some publicly-traded stocks, some options, some start-ups. And as I said yesterday, it’s the start-ups where you make money. That’s also where you loose money.Report

        • Avatar Dave in reply to zic
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          says:

          This was of interest to me as well:

          The sustainable investment community has engaged in the federal regulatory and legislative arenas as another avenue through which to create the conditions for a low carbon, resource efficient, and socially accountable economy. The work we have undertaken in addressing the financial crisis, corporate disclosure, greenhouse gas emissions, integrated reporting, political contributions and consumer financial protection helps create a national framework in which environmental, social and governance considerations in investing are able to become the norm.

          The numbers they are throwing out in this report are high since it appears they are using a total assets measurement (as opposed to assets invested in these kinds of initiatives). I don’t think it matters though since there the trend is positive and more institutional investors are trying to put weight behind it both in terms of investing and the legislative process.Report

      • Avatar Troublesome Frog in reply to Jason Kuznicki
        Ignored
        says:

        That probably makes more sense. It’s likely easier to amass a large enough position that threatening to leave causes change than it is to amass a large enough position that you can affect policy by voting you shares. That may well be the best way to maximize influence per dollar.Report

  4. Avatar kenB
    Ignored
    says:

    If you go in and end these practices, at the very least in the short-medium term the value and profitability of the firm is likely to suffer immensely and your own investment return on the capital you threw into acquisition (which would pretty substantial) would lose value.

    Hmm… if you’re asking a given company to change its practices in a way that will hurt its profitability, but you’re not willing to put your own money on the line for your proposed standard, is it fair to ask the people who’re already invested in the company to lose their money based on your standard?Report

    • Avatar Shannon's Mouse in reply to kenB
      Ignored
      says:

      Activist shareholders that demand their firm cease the profitable practice of puppy-kicking still leaves other firms free to exploit puppy-kicking-enhanced profit margins. Lawmakers passing a law that bans puppy-kicking levels the playing field for all firms.Report

    • Avatar Alan Scott in reply to kenB
      Ignored
      says:

      If they’re engaging in practices that are unethical or illegal and profiting off of them, then yeah. If a company’s value is created by polluting the environment or cheating their customers or cheating their employees, It’s perfectly reasonable to say that those investors should be on the hook for a resulting loss. If you spent 20 years getting big checks because you saved money by dumping sludge in a river instead of cleaning it up, you don’t get to whine when your company goes bankrupt.Report

      • Avatar Dave in reply to Alan Scott
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        says:

        If a company’s value is created by polluting the environment or cheating their customers or cheating their employees, It’s perfectly reasonable to say that those investors should be on the hook for a resulting loss.

        Investors will not be on the hook if the company is structured as a limited liability corporation.Report

        • Avatar BlaiseP in reply to Dave
          Ignored
          says:

          An LLC is just a pass-through. It doesn’t issue stock. Furthermore an LLC is not immune from civil procedure.Report

          • Avatar Burt Likko in reply to BlaiseP
            Ignored
            says:

            This varies depending on a variety of decisions made by the organizer and members of the LLC. I have LLC clients that are run very similarly to close corporations. I also have LLC clients similar to those BlaiseP contemplates which are run very similarly to informal partnerships. Blaise is absolutely correct to point out that the LLC is susceptible to mandatory civil process.Report

  5. Avatar Recovered Republican
    Ignored
    says:

    Here’s something else to consider, the number of people who aren’t rich.

    Some people have an extra few thousand dollars a month or more to throw into some stock account. They are making six figures.

    There are a lot more people who are working paycheck to paycheck and trying to put enough away on the side at 50 to 100 dollars per month to get a little into an emergency fund or put aside for college for their kids.

    When I do this I look at my money and I look at safety. If I was rich I could throw $500 into a dozen stocks each month, set them all to sell at a loss of $50 or so, and make a decent upwards average between the stocks that went down and the stocks that made money. But I’m not rich. I have to pick the one spot for my money to go or else I have to funnel it into a mutual fund of some sort where I lose voting control anyways and accept a lower interest rate. If I invest in individual companies and they tank, I lose my shirt and there’s no way for me to get it back.

    Oh and for that mutual fund thing, the really good mutual funds, the ones that are beating inflation? They won’t even take my money. I have to have somewhere between $5,000 to $25,000 seed to get into the lower ones and the higher ones want a lot more or want me to be affiliated with certain companies and certain 401(k) plans only. I looked it up.

    I can’t participate in the hedging crap, I can’t participate in the loss insurance crap, I can’t get the sort of sweetheart deals that the rich get that ensure they have no real risk. I’m the guy sitting at the poker table trying to decide whether to go all-in when the cards haven’t even been dealt yet while the rich get to not just see the river but get to force everyone to show their cards and THEN decide once they’ve seen my hand how much they were willing to bet.

    The system is rigged. It’s rigged so badly that participating like Jason K says to do, at my level of income, is not going to give me the kind of money he claims. All it’s going to do is throw my money away.Report

    • Avatar Roger in reply to Recovered Republican
      Ignored
      says:

      It doesn’t have to be rigged to be ineffective. It can be spontaneously ineffective. As I have stated before, products have been suggested to address this gap, and have yet to be built NOT due to rigging, but because the economics did not play out. I suspect they will be built in the future. This may be the best the world has ever been, but we still have a long way to improve.Report

      • Avatar Kim in reply to Roger
        Ignored
        says:

        Your products, sir, do not address bear raids. Unless I am misinformed.
        You invest, you put a stop in if you aren’t ready to lose your shirt.
        They know you put a stop in, so they deliberately lower the stock based on the percentages. 5%. 10%. Get people to sell at a deliberate loss, then let the stock rebound to a better price.

        Voila! instant money.

        The only way your small time investor can survive in this market is by watching it all the time.

        Jason, this means $500 per week outlay (assuming $20 per hour).

        And you think someone can make a profit doing this????Report

        • Avatar Jason Kuznicki in reply to Kim
          Ignored
          says:

          The law addresses bear raids, which are illegal. If your complaint is that the law should investigate and prosecute them more thoroughly, well, that’s great. But that’s also a different subject.

          As to the demonstration, I have no idea where you got your numbers from.Report

          • Avatar Kim in reply to Jason Kuznicki
            Ignored
            says:

            You have to watch your money for the entire time that the stock market is open.
            (I’m not certain if that’s only bear raids in the strict sense, with folks spreading rumors, or if simply buying low to catch stops is actually illegal.)
            Nonetheless, until the SEC actually does its job, you’re giving terrible advice.Report

        • Avatar Dave in reply to Kim
          Ignored
          says:

          They know you put a stop in, so they deliberately lower the stock based on the percentages. 5%. 10%. Get people to sell at a deliberate loss, then let the stock rebound to a better price.

          Do you have any links that show a real world example of this? Given how shares are priced in an open market (based on the activity of buyers and sellers as well as market makers if they need to step in to make a market), I don’t see how anyone can deliberately set a price and force a deliberate loss, especially in larger companies where it would take a sizable amount of capital and effort to move a share price down that much. Rumors about WMT? Not gonna work.

          I suppose this is more likely with thinly-traded OTC stocks. That seems to be where most pumping and dumping or attempts at manipulation take place. Small investors with limited capital have no business being in that market unless they have money they want to burn IMO.Report

    • Some people have an extra few thousand dollars a month or more to throw into some stock account. They are making six figures.

      There are a lot more people who are working paycheck to paycheck and trying to put enough away on the side at 50 to 100 dollars per month to get a little into an emergency fund or put aside for college for their kids.

      …and I wasn’t talking about either of these. As I wrote in the post, I was suggesting this strategy to the sort of people who could afford several restaurant meals per month, and who are using that money on relatively expensive food eaten outside the home. “For the price of just one or two restaurant meals a month,” I wrote.

      Individually, that’s nothing. Collectively, it’s a lot.

      As to mutual funds, what you say is simply false. Get into an index fund. The minimums are often tiny or nonexistent. The overhead expenses are virtually nil. And your high-powered hedge fund managers only sometimes manage to do much better anyway.Report

  6. Avatar NewDealer
    Ignored
    says:

    Another issues is that liberals would be doomed to in-fighting about what practices are or are not ethical.

    Because we always are.

    As an example, divesting from Israel. This is not to say one side is right and the other is wrong on the issue but it is a classic issue of liberal infighting.Report

  7. Avatar Roger
    Ignored
    says:

    I like Nob’s response. Though the prior thread got messy, I learned a lot from it. By the time it ended, I had changed my mind or at least expanded it on the topic. Nob hit on several examples.

    I will add though that you don’t need controlling influence to affect corporate actions. Brand is the most valuable asset of many companies. Different special interest groups attempt to influence consumers and regulators and investors opinions in a company. Management balances these interests along with the pursuit of profit.

    I think progressives are more influential than any other special interest group in making their demands critical. As a one time officer of a corporation, I spent a hundred times more energy and time on pleasing liberal interests than conservative ones. Diversity. Green energy. Recycling. Giving back to poor neighborhoods.

    Note that I am speaking to efforts directed in these areas above what made strict economic sense for the company. Recycling and a diverse workforce often can make economic sense. Corporations go beyond economic self interest though to please influential groups due to the economic impacts to their brand.

    This is not only fair baseball, it is smart baseball.Report

  8. Avatar BlaiseP
    Ignored
    says:

    Although nature commences with reason and ends in experience it is necessary for us to do the opposite, that is to commence with experience and from this to proceed to investigate the reason. -da Vinci

    The answers to Why Questions will never arise from hypotheticals. Some firms do behave abominably, profiting on human degredation and addiction. But we must distinguish between Amorality and Immorality. Those who would cast aspersions on various aspects of unethical supply should know such suppliers are servicing the needs of equally unethical demanders. This blind spot is most clearly seen in the idiocy of our War on Drugs.

    When the war in Afghanistan began, I proposed a scheme to purchase as much of the Afghan opium as possible: the Taliban were and still are dependent on the heroin trade to continue their opposition to the Afghan government. My scheme was somewhat perverse: the poppies of Afghanistan don’t produce high enough quality morphine. I would have given better seeds to the opium farmers and preached this sermon as I did.

    Opium farmers of Afghanistan. You call yourselves good Muslims. You are fully aware it is turned into heroin. It reduces untold thousands of addicts to lives of misery and prostitution. The injection of heroin leads to terrible diseases: hepatitis and HIV. Heroin is un-Islamic and you know this to be true. The Holy Qu’ran clearly states:

    “O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination of Satan’s handiwork: reject such (abomination) that ye may prosper. Satan’s plan is (but) to excite enmity and hatred between you, with intoxicants and gambling, and hinder you from the remembrance of Allaah and from prayer: will ye not then abstain?” (Al-Maa’idah : 90-91).

    But you are also poor men. Poppies put bread in the mouths of your children. We cannot merely tell you, “Oh, poppies are haram, you must not grow them.” Such fine talk will not feed your children. Such talk is arrogant, we who come from far away, our children fed, our water clean, we who live in great luxury must not presume to lord it over you.

    There is another way. You could sell your opium to us. We will turn it into clean morphine to relieve the suffering of millions, entirely halal, entirely Islamic. And quite profitable for you. We would give that morphine to every hospital and clinic which wanted it, everywhere in the world. Millions would bless your name. Is not Allaah himself called “The Merciful” ? What more merciful act could there be than the relieving of suffering?

    And why should we wage war upon you? And why should you tolerate these heroin peddlers? How can these criminals call themselves good Muslims? They extort your opium paste, they will not even pay you what it is worth

    Coulda won that war in six months if I had been turned loose on that situation.

    Be not merely Good. Be good for something, dammit.Report

  9. Avatar James Hanley
    Ignored
    says:

    Jeez, Nob, I was the first one in the other thread to mention collective action problems, and not even a call out? Man, do I feel dissed.

    But seriously, this is a good post, a great response. I’m pretty sure I’m in agreement with just about all of it.Report

  10. Avatar zic
    Ignored
    says:

    I think there is one other thing to Jason’s point that seems difficult to liberals.

    As a general rule, Liberal’s don’t think of enforcing their will on others, which is essentially what Jason’s suggestion is: a hostile takeover with enough power to redirect a perceived wrong. As a liberal, I could invest in company A, which has a history of environmental violations, or company B, which might not be quite as profitable but is without those violations. I’ll invest in B, and put political pressure on the system to hold A accountable for a level playing field before I’ll invest in A, hoping to remake it from within.

    He is suggesting something that seems alien to my liberal thought process; I don’t know how other liberals perceive it. But I’d rather nurture the potential of things I perceive of as good then dictate to something not-good; the nurturing parent vs. strict father-figure memes.Report

    • Avatar zic in reply to zic
      Ignored
      says:

      And to note: even without the investment in Company B, I’m likely to put pressure on the political system for a leveled playing field so that Company B isn’t at a disadvantage because of more ethical business practices.Report

    • Avatar LWA in reply to zic
      Ignored
      says:

      Actually, we DO enforce our will on others.
      The entire premise of contemporary liberalism is the establishment and enforcement of social and civil norms, designed to optimize the access to freedom and agency.

      Whether it is mandatory retirement savings (social security), norms on the externalities of our activies (pollution controls) or the enforcement of norms on family structures (marriage equality), liberalism does enforce these things on those who may or may not agree with them.

      I can’t really think of an area of liberalism that advocates unrestrained individual liberty, and it hasn’t been otherwise for at least 30 years.

      Which is kind of the point I and others have made about the proposal- altering the behavior of a single company doesn’t work; there has to be a uniform set of standards.Report

      • Avatar North in reply to LWA
        Ignored
        says:

        Agreed. Liberals are all about certain enforcements of norms. Conservatives too. Really it’s only classical liberals/libertarians who are focused on eliminating the ability of people to enforce their will (through government mind you, forcing your will any other way go nuts).Report

      • Avatar zic in reply to LWA
        Ignored
        says:

        I’m sorry LWA, but I don’t equate setting social norms through the political process as ‘forcing,’ it takes some consensus and a majority to get there.

        Jason’s point would be more along the lines of liberals registering as Republicans to skew their primary process, it’s not a matter of gaining consent and aligning incentives.Report

  11. Avatar Shazbot5
    Ignored
    says:

    I thought Jason’s orginal post was well beneath his regular level of excellence and I feel like I explained why well.

    But there’s more.

    One goal liberals have is to limit some bad behavior by corporations (and businesses more generally), e.g. exploitative labor practices, pollution, unsafe working conditions, sexist hiring practices, etc.

    Jason points put that this could, in theory, be achieved by liberals buying up stock in all the corporations acting badly and then voting to stop the bad bahavior. It’s not clear if he has an argument here, given that the rhetoric in his post was cutesy: “I’m curious…” But he seems to be saying liberals should be doing this, or given that they aren’t doing it en masse, liberals are hypocrites, or when it comes to brass tacks liberals prefer profit to their moral goals. Of course, none of those things come close to being valid arguments, which is perhaps why he used ghe cutesy rhetoric instead of making the argument.

    But I think his question shows how pie-in-the-sky libertarians are and how liberalism is more grounded in pragmatism and realism. The fact is, no one has even solved a country’s social and economic problems (like sexism, pollution, racism, inequality of opportunity) in the way Jason is suggesting that liberals favor. There is no empirical test that has ever been made where somebody tried and made this solution work. (The collective action problems in the solution would blow it up before it got off the ground, IMO, too.)

    But strong regulations, higher taxes, and more redistribution has worked in, for example, the Nordic countries. And it has worked in the US and Canada and Britain at various times in their histories, too. Liberals want more of what is proven to work to solve inequality, pollution, racism, sexism, povey, etc. They don’t want pie-in-the-sky, untested solutions.

    So, we’re in favor of instituting Finland’s educational system (unions are there), Canada’s socialist healthcare (much more cost efficient, even though not a market system), Northern European levels of social spending, along with northern European educational equality. Less prisons spending and viewing drug use as a health problem and not a war, lower levels of defense spending, stricter anti-pollution laws and a carbon tax, German level commitments to solar and wind, on and on.

    We re not in favor of the educational strategy of weak unions that they have in the Southern U.S., which is woefully awful. We are not in favor of the market-based health insurance system that Obama has tried to save through increased regulations. We are not in favor of allowing polluters to not pay for the externalities of their pollution.

    And we are generally not in favor of trying solutions to problems that, from an a priori perspective, appear to have massive problems (like the collective action problem that the “liberals should get rich, buy stock, and then make companies play nice” obviously faces), that have no a posteriori evidence of ever having worked on a large scale, especially when there are alternative solutions that have been tested that do work.Report

  12. Avatar Shazbot5
    Ignored
    says:

    A better question would have been, why don’t liberals use their purchasing power not to shop at immoral companies, e.g. why don’t they boycott Walmart.

    Some do, of course.

    But liberalism rests on the idea that left to our own devices, we fail to do what is moral and good (or sometimes what is in our own individual or collective interests) and so there are some regulations that we should pass that make life better by incentivizing or requiring us to behave morally. So, require Walmart (and all) to pay its employees a bit more, which in turn requires us to pay a bit more for consumer goods, which we might not choose to do in the moment, but we do choose to live under a rule of law that indirectly requires us to do so.Report

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