Shareholder revolution

Greetings from the UK, where I am spending a few days. Some of you may have seen that I am moving into a new role at the end of this year (Provost of King’s College, Cambridge). However, I will still be penning columns for the Financial Times beyond this, waving the flag for Moral Money — and engaging in the debate about the future of sustainability. (King’s is a keen champion of this, having just decided to put solar panels on the iconic chapel roof). And the Moral Money team will be driving the mission forward after I move to Cambridge.

But between now and October there will be a welter of issues for me, and the rest of the Moral Money team, to watch. One big issue for 2023, in my view, is the battle to channel more finance into developing markets to cope with climate change, either via blended finance, or private sector flows or public funds from entities such as the World Bank. There is now frenetic behind the scenes debate around this, which will accelerate ahead of a French-hosted meeting on this subject in June. It is very contentious, judging from events I have participated in. So we will be tracking this closely; please share any tips you may have.

Meanwhile, in today’s newsletter we have an important story about a new form of shareholder activism in the UK — and the little-noticed Californian ESG wrinkle in the Activision takeover story that could set a new trend for the future. — Gillian Tett

With rising scrutiny from consumers and investors, and new regulations coming down the tracks, ethical issues in supply chains are attracting growing attention. What are the most pressing challenges here — and how can companies and investors navigate them? Our next FT Moral Money Forum report will explore these questions. We want to hear your views. Please share your thoughts through this short survey.

Power to the shareholders

There’s a revolution coming down the road for shareholder activism, according to London-based ethical activist investor platform Tulipshare.

Retail investors in the UK can buy as little as £6 worth of shares through its mobile phone application, in order to vote on resolutions that Tulipshare puts forward at shareholder meetings of corporate giants in the US.

The platform works by channelling activist retail investors towards hot-button issues it is working on. It draws up campaigns for better governance, environment and social action, and buys enough shares to submit a proposal. Customers are then encouraged to buy the stock and vote through its platform, and can suggest issues for Tulipshare to bring forward at annual meetings.

The app’s recent wins against corporates have allowed it to punch above the weight of its 28,000 users — part of a wider redrawing of the relationship between end investors and company directors that both institutional investors and non-governmental organisations are watching closely.

Tulipshare won big in a battle with Johnson & Johnson last year when it pressured the company to stop selling allegedly toxic talcum powder that customers said was linked to cancer cases, and, as I reported with San Francisco-based colleague Patrick McGee, last month convinced Apple to disclose its relationships with foreign entities more transparently.

In 2023 it wants to use its own shares and those held by its customers to convince Coca-Cola to cut its plastic usage, JPMorgan to stop investing in fossil fuels and Tesla to link Elon Musk’s pay to ESG issues.

These are all issues with obvious appeal for young investors (most of its users are between 21 and 30-years-old) or anyone too busy to attend general meetings or fill in proxy voting forms.

“We’re providing access not only to change, but to dialogue and progress that individual retail investors haven’t seen or experienced before,” Constance Ricketts, head of shareholder activism at Tulipshare, told Moral Money, describing the app’s behind the scenes engagement with company directors as a “bridge” between large companies and investors.

In the European Union or the UK, filing a resolution usually requires holding 5 per cent of a business, rather than the minimum $25,000 of shares required by the Securities and Exchange Commission — one of the reasons Tulipshare focuses on corporate activism in the US. 

New guidance from the SEC in 2021, making it harder to exclude ESG proposals from the ballot in the US, was an instance of “our stars aligning”, Ricketts said.

For Simon Rawson, director of corporate engagement at the long-established NGO ShareAction, it’s still crucial to focus on corralling the institutional investors who control the vast majority of global company stock.

“We are in the foothills of what’s going to happen [with shareholder democracy], in the early days of disruption,” Rawson told Moral Money. “At the moment ownership is mediated through so many steps that it’s impossible for most beneficiaries to have their voice heard.”

The NGO has had considerable success in efforts to stop HSBC funding fossil fuel projects, and persuading retailer Sainsbury’s to increase staff pay, by corralling institutional investors like Candriam and Amundi to back its campaigns behind the scenes.

In parallel with these campaigning organisations, institutional investors like BlackRock have brought in “voting choice” measures that make it easier for end investors to vote on routine issues. This is leading to a slow but globalised “trickle down of voting power to the end investor”, Ali Saribas, a corporate governance specialist at shareholder consultancy SquareWell, told me.

But the culmination this week of activist investor Nelson Peltz’s fight against Disney following the company’s decision to cut 7,000 jobs was a reminder that most activism by shareholders who wield the majority of power is still aimed at “value first”, not “values”, Saribas added.

On matters of pay and costs, this can run into direct competition with the philosophy of groups like Tulipshare, which focus on “the board’s modern fiduciary duty to wider stakeholder groups”, and matters of public interest, rather than a business’s bottom line.

“These campaigns are generally ignorant to the prevailing opinion of shareholders as they try to win the court of public opinion, not a shareholder vote,” Saribas concluded. (Kenza Bryan)

On ESG ‘social’ issues, California regulator poses emerging risk for companies

Activision Blizzard was in the news last week when the UK’s Competition and Markets Authority warned that Microsoft’s bid to buy the video game maker was anti-competitive.

But lingering in the background for Activision are sexual misconduct claims that are still being fought out in court. And its fight with California regulators over social concerns offers a warning to other big companies operating in the US’s most populous state.

In 2021, California regulators alleged that women working at Activision received lower pay than male employees and struggled to reach the upper ranks of the company. Many were “subjected to constant sexual harassment”, they said. Chief executive Bobby Kotick admitted the company’s initial response was “quite frankly, tone deaf”. The company fired 20 employees in an attempt to clean up its culture following the allegations of widespread gender-based discrimination and harassment.

In March 2022, the US Equal Employment Opportunity Commission (EEOC), reached an $18mn settlement with Activision. But California was not finished with the company. The state’s civil rights department said the EEOC’s settlement with Activision awarded “insufficient funds” to women allegedly harmed by the company.

Activision has dug in for the fight. In December, the company alleged California’s civil rights department leaked information to the media and “deliberately unleashed a hurricane of hostile media coverage against the company.”

The agency’s litigation “harms the citizens and companies of California by abusing the public trust [and] driving business out of state,” Activision said.

Other big companies have warred with this California agency. The civil rights department in 2022 sued Tesla, alleging that the car company discriminated against Black workers in California.

“This agency is not afraid to get ahead of the rest of the country,” Peter Stockburger, a partner at Dentons in California, told me. He said the civil rights department is currently writing rules aimed at artificial intelligence and potential biases in selecting job candidates.

“I would not be surprised if this agency continues to push the regulatory envelope and to be at the leading edge at some of these emergent discriminatory issues,” he said.

We have written before about the climate litigation risks companies are increasingly facing (see Simon’s piece from Friday about Shell). But the social concerns of ESG are equally litigious. For businesses operating in California, the world’s fifth-largest economy, discrimination and other workplace culture concerns pose mounting risks for global companies. (Patrick Temple-West)

Smart read

Don’t miss John Burn-Murdoch’s searing analysis of how the UK’s thousands of “conservation areas”, protected by special planning rules, are holding back residents’ efforts to make their homes more energy efficient.