Thank you for this contribution. I agree that shareholder activism is potentially highly impactful and is currently neglected by EA.
Some specific comments:
You allude to the possibility that the financial system is currently very focused on climate change. I agree with this. If a plan involved getting lots of mainstream investors involved with an action on something non-climate-related (e.g. animal welfare with no climate component), I’d deem it borderline unrealistic in the short- to medium-term
Note that a more ambitious, longer term plan to change the fundamental nature of finance as an epistemic institution could make this possible.
The Engine No 1 case study is definitely worth highlighting. Note that Engine No 1 succeeded by liaising with other larger investors and persuading them of their position using hard, profit/returns-based arguments.
You mention that fiduciary duty is not a meaningful barrier to shareholder activism. Let’s make sure we’re clear on this point:
If we’re talking about the wealth of an Ultra High Net Worth Individual, and the individual chose to perform shareholder activism, fiduciary issues wouldn’t come up at all
If we’re talking about mainstream finance (e.g. pension schemes) then fiduciary duty is a meaningful issue—firstly, under my understanding, I don’t think it’s clear that there is enough latitude in the law to allow for the actions of the New York City Pension fund, although I can’t imagine many people would have incentives to pursue this in court. Secondly even if the law were clear on this, this is not sufficient. Those with actual practical experience of dealing with pension scheme trustees will tell you that some trustees will use the law as an excuse to argue against impactful actions, others will be nervous because they’re unsure whether they are acting legally.
On your point about activism on issues other than climate change: When you say “short to medium term”, what kind of time scale are you thinking of? I would guess that you mean “the next ten years or so”, but I want to make sure. Sometimes around here people use “medium term” to mean the next hundred years.
On fiduciary duty: good to hear your thoughts on this. It looks like I drew the wrong conclusion from the evidence. Would you agree with the following statement instead:
Fiduciary duty seems to be an obstacle, and could be significantly raising the costs of shareholder activism. That said, it doesn’t seem to make the costs prohibitively high. Significant shareholder activism still seems to be possible under current laws and norms, at least on climate change.
That seems right to me given the evidence. I should say that it’s not just the New York City Pension Fund who has been active on climate change. They were joined in their activism campaign by CALPERS and CALSTRS, two of the largest public pension funds in the world.
Sorry for the slow reply. I agree with this version of the statement in italics:
Fiduciary duty seems to be an obstacle, and could be significantly raising the costs of shareholder activism in some circumstances. That said, it needn’t make the costs prohibitively high in the right circumstances. Significant shareholder activism still seems to be possible under current laws and norms, at least on climate change.
Indeed, I’d go further and argue that at least for some actions, it can be not only consistent with fiduciary duties (or even a requirement of fiduciary duties; at least according some lawyers). I think it’s useful to distinguish between different types of investor/asset owner. If the asset owner is (say) a high net worth individual in the EA movement, or a pension scheme which is culturally particularly interested in impact, then I’d agree with what you said in the original post, at least according to some reports from law firms. However in practice, for most other asset owners (i.e. ~all of the financial system) fiducary duties are a real issue because (a) some trustees will be uncertain about whether impactful actions could contradict fiduciary duties (b) others will have animosity to impactful actions, and will use fiduciary duties as an excuse to oppose them.
Thank you for this contribution. I agree that shareholder activism is potentially highly impactful and is currently neglected by EA.
Some specific comments:
You allude to the possibility that the financial system is currently very focused on climate change. I agree with this. If a plan involved getting lots of mainstream investors involved with an action on something non-climate-related (e.g. animal welfare with no climate component), I’d deem it borderline unrealistic in the short- to medium-term
Note that a more ambitious, longer term plan to change the fundamental nature of finance as an epistemic institution could make this possible.
The Engine No 1 case study is definitely worth highlighting. Note that Engine No 1 succeeded by liaising with other larger investors and persuading them of their position using hard, profit/returns-based arguments.
You mention that fiduciary duty is not a meaningful barrier to shareholder activism. Let’s make sure we’re clear on this point:
If we’re talking about the wealth of an Ultra High Net Worth Individual, and the individual chose to perform shareholder activism, fiduciary issues wouldn’t come up at all
If we’re talking about mainstream finance (e.g. pension schemes) then fiduciary duty is a meaningful issue—firstly, under my understanding, I don’t think it’s clear that there is enough latitude in the law to allow for the actions of the New York City Pension fund, although I can’t imagine many people would have incentives to pursue this in court. Secondly even if the law were clear on this, this is not sufficient. Those with actual practical experience of dealing with pension scheme trustees will tell you that some trustees will use the law as an excuse to argue against impactful actions, others will be nervous because they’re unsure whether they are acting legally.
On your point about activism on issues other than climate change: When you say “short to medium term”, what kind of time scale are you thinking of? I would guess that you mean “the next ten years or so”, but I want to make sure. Sometimes around here people use “medium term” to mean the next hundred years.
Hi Sanjay, thanks for the comments.
On fiduciary duty: good to hear your thoughts on this. It looks like I drew the wrong conclusion from the evidence. Would you agree with the following statement instead:
Fiduciary duty seems to be an obstacle, and could be significantly raising the costs of shareholder activism. That said, it doesn’t seem to make the costs prohibitively high. Significant shareholder activism still seems to be possible under current laws and norms, at least on climate change.
That seems right to me given the evidence. I should say that it’s not just the New York City Pension Fund who has been active on climate change. They were joined in their activism campaign by CALPERS and CALSTRS, two of the largest public pension funds in the world.
Sorry for the slow reply. I agree with this version of the statement in italics:
Fiduciary duty seems to be an obstacle, and could be significantly raising the costs of shareholder activism in some circumstances. That said, it needn’t make the costs prohibitively high in the right circumstances. Significant shareholder activism still seems to be possible under current laws and norms, at least on climate change.
Indeed, I’d go further and argue that at least for some actions, it can be not only consistent with fiduciary duties (or even a requirement of fiduciary duties; at least according some lawyers). I think it’s useful to distinguish between different types of investor/asset owner. If the asset owner is (say) a high net worth individual in the EA movement, or a pension scheme which is culturally particularly interested in impact, then I’d agree with what you said in the original post, at least according to some reports from law firms. However in practice, for most other asset owners (i.e. ~all of the financial system) fiducary duties are a real issue because (a) some trustees will be uncertain about whether impactful actions could contradict fiduciary duties (b) others will have animosity to impactful actions, and will use fiduciary duties as an excuse to oppose them.