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ARTICLE: What’s Behind a Pitch for the Little-Guy Investor? Big Money Interests

Updated: Sep 27, 2018

This piece originally appeared on July 24, 2018 on New York Times and was written by Andrew Ross Sorkin.

The group calls itself the Main Street Investors Coalition.

It is a Washington organization that purports to represent the little guy — the retail investor that it says has no voice in corporate America. The group has been not-so-quietly circulating a white paper and various studies in hopes of influencing an examination by the Securities and Exchange Commission of regulations that affect investors. The group has been quoted in the news media and had op-eds published in The Hill, The Washington Examiner and elsewhere.

And yet the Main Street Investors Coalition has nothing to do with mom-and-pop investors.

The group is actually funded by big business interests that want to diminish the ability of pension funds and large 401(k) plans — where most little guys keep their money — to influence certain corporate governance issues.

The coalition popped up in the past two months and is positioning itself against firms like BlackRock and Vanguard, which manage trillions of dollars of Americans’ retirement savings and have been using the shareholder votes that come with those investments to take activist positions against corporate boards. The group is incensed that such firms are increasingly promoting environmental, social and governance causes on issues like climate change, gun control and employee diversity. Investors such as BlackRock contend that corporations need to consider such issues for the long-term health of the businesses.

“As the size and influence of these massive institutional holders has grown, so, too, has their power, influence and share of voice — drowning out the voices and interests of Main Street investors who, despite controlling the single largest pool of equity capital in the world, have almost no ability today to influence the decisions these funds make on their behalf, with their money,” the Main Street Investors Coalition says on its website.

But the Main Street group knows full well that individual investors rarely mount proxy contests, let alone vote on them. So while empowering individual investors while diminishing the influence of large funds may sound noble, it would simply hand more power back to the managers and boards of directors of the public companies.

Why would the Main Street Investors Coalition want to do this? Because it should probably be called the National Association of Manufacturers — after all, that’s the name of the industry group that helped start it and is among its largest funders. (Clearly, “National Association of Manufacturers” wouldn’t sound as good to the man on the street.)

Mindy Lubber, president of Ceres, a sustainability nonprofit organization, described the Main Street Investors Coalition as “a thinly veiled effort to protect those corporations that are unwilling and unprepared to adapt to a changing world — worsening risks for their employees and investors alike.”

Among the organization’s goals is a way for retail investors to provide voting instructions to the firms that hold their investments. In effect, rather than voting on behalf of all the investors in a given fund, BlackRock would have to parcel out the votes based on each investor’s wishes. That sounds good theoretically, but it could erode the ability of the fund’s managers to push for big-picture changes on behalf of the many investors who are unlikely to take a position — or, frankly, aren’t steeped enough in the issues to make an informed decision.

Nell Minow, a longtime advocate for retail investors and a corporate governance expert who originally brought the group to my attention, wrote in a letter to the Securities and Exchange Commission that the group illustrated how companies were using shareholder money to fight shareholder interests.

“This is yet another reason that we need more transparency on political and lobbying expenditures, especially dark money,” wrote Ms. Minow, who is the vice chairwoman of ValueEdge Advisors, a corporate governance consulting firm.

At the moment, there are two important prongs to the coalition’s efforts.

The Securities and Exchange Commission is in the middle of examining regulations to protect investors and companies, particularly the role of activist shareholders in proxy battles with companies. The Main Street Investors Coalition has drafted a letter to the commission laying out the group’s positions.

And the group supports a piece of legislation winding its way through Congress that would, among other things, require independent proxy advisers to preview their reports on companies with the companies themselves — ostensibly to allow the companies to “fact-check” them, but really providing the companies more power to shape their own narrative.

I asked the organization’s executive director, George David Banks, what the connection was between his organization and retail investors. “I’m an individual investor,” he said with a laugh.

Mr. Banks said he was aware of the “optics” of his group’s backing by the National Association of Manufacturers, whose board includes executives from Exxon Mobil, Goodyear, Dow Chemical, Cargill, Toyota and Pfizer.

“I have gotten that question before. I totally get it,” said Mr. Banks, who most recently served as a special assistant to President Trump at the National Economic Council. “We do expect to add a few other groups here that would broaden it out.”

Chris Netram, vice president of tax and domestic economic policy for the National Association of Manufacturers, said his organization supported “empowering shareholders.” He also said his organization was the “voice of 12.2 million workers” — although he later acknowledged that its members were the corporations, not their employees.

“We are doing this on behalf on manufacturers and manufacturing workers,” Mr. Netram said. When I pointed out that the group’s positions would most likely benefit companies over their investors, he said, “You’re viewing this as a zero-sum game.”

The truth of the Main Street Investors Coalition is that it is an organization aimed at preventing investment firms from raising issues like climate change. Mr. Banks said as much when explaining how he had decided to start the group.

“It flowed from the shift in institutional investors’ move into the political activism,” he said. He pointed to executives like Larry Fink, the chief executive of BlackRock, who said this year that his firm would hold companies accountable if they didn’t have a way to articulate their contribution to society.

The only goal of investment funds, Mr. Banks said, should be to increase returns. Anything that gets in the way of that is a breach of fiduciary responsibility. His organization said proxy contests over issues like climate change were costly for the companies and didn’t improve their bottom line.

“Such heavy-handed activism creates real burdens for targeted companies, uncertainty for other public companies that may one day be their targets and reduced opportunities for retail investors to invest in the growing number of private companies who avoid or delay going public because of such activism,” Mr. Banks wrote in a white paper for policymakers with Bernard Sharfman, a visiting assistant professor at the University of Maryland law school and the chairman of the group’s advisory council.

The group pointed to a recent study that found among public pensioners, “75 percent of members indicated that the most important issue for fund managers should be to focus on maximizing returns and getting the pension fully funded, while just 14 percent want fund managers to focus first and foremost on advancing social and political causes.”

In Mr. Banks’s view, then, the companies that make up the National Association of Manufacturers aren’t looking out for just themselves.

“The research clearly shows that the overwhelming priority of retail investors is value maximization — the exact same goal of the companies who make up the members of our partners,” he said.

That’s an interesting position to take on investor oversight. It’s almost as if Mr. Banks didn’t think investors needed any say at all.


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