High Impact, Top Down Corporate Activism

High Impact, Top Down Corporate Activism

March 27 2023

According to the Harvard Business School publication “Working Knowledge”:

“There’s a lot of investment money that would like to have a positive impact through public equities, and it doesn’t have any place to go.”

The solution should be for those with the means and intention to impactfully invest to amass, not divest, shares in public companies that won’t get their businesses profitably aligned with a low carbon world. Using the talents of a corporate activist campaign manager, they can use proxy contests to elect forward-thinking members to the board of directors of these companies. The boards control what these companies do, as they can fire the CEO.

We’ve seen this approach work when Engine No. 1 put new directors on the board of Exxon and when Michael Cannon-Brooks, the founder of Atlassian, used his shares in AGL, the largest Australian electric utility, to change leadership and shut down its coal fired power plants years ahead of time. Despite these successes, we’ve not seen many other examples. Many ESG investors get corporate promises to do better, but without pressure coming from the C suite, their progress is modest. And using ESG metrics to allocate capitol to good companies and away from problematic companies is counterproductive to this strategy.

A first step is to drive change at the public electric utility companies, where 30% of US emissions are generated. They need to rapidly and profitably shift from coal and natural gas to renewable/clean energy. The same goes for businesses reliant on steel, aluminum, concrete and plastic production (like Coca Cola and Pepsico). Just a few campaigns will have ripple effects across entire industries, the kind of IMPACT that investors are seeking.

There’s a smattering of investment firms on the right track doing this work, but tens of billions of dollars invested in multiple campaigns will be far more potent. It needs the backing of folks like Laurene Powell Jobs, Yvon Chouinard of Patagonia, the Walton family, etc. There are in fact 2,600 billionaires on the planet and Forbes estimates their aggregate net worth at $12 Trillion. Many want to make a difference. Even a 10% or $1.2 Trillion chunk of that money invested (not donated) dwarfs the $350 Billion under the heralded US climate change law, the Inflation Reduction Act. And you don’t have to have billions to invest to push the needle with your $$ and your voice.

There’s a well-developed activist investor industry with firms and lots of talented execs to do this work, for example: Nelson Peltz of Trian, Carl Icahn, Charlie Penner and Chris James who did the Exxon campaign with Engine No. 1, Bill Ackman of Pershing Square and Dan Loeb of Third Point. They take stakes in public companies and press for value creating strategies on threat of a proxy contest. They hope to get a stock price bump and a quick profit. Positioning companies for success five and ten years from now is not their present priority. Shareholders across the board are increasingly realizing the power of ownership and the new SEC Universal Proxy Rule will be a big help.

Some of the traditional activist strategies are applicable here. There are dozens of utility companies run by old school coal/gas execs unwilling and without the skill set to aggressively shift to renewables. They need board talent and pressure to change. Or they could be merged into renewable energy leaders like Nextera. Many of the domestic oil/gas producers could produce greater returns by returning their fossil fuel profits to shareholders with special dividends and stock buy backs, rather than investing those profits back into new fossil fuel production. Or they could invest those profits back into new low carbon businesses, much like Ford is using its gas/diesel vehicle profits to invest in its EV business.

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