C.R.E.A.M.

Some variations on a theme this week.

First, the Delaware legislature has now passed the amendments to the DGCL, which means that as of August 1, it will be legal for a company like Tesla, say, to contract with a shareholder like Elon Musk, say, to give him power to veto or demand specific AI initiatives, regardless of his particular financial stake in the company.  By contrast, at least as I read Texas law, such a contract would not be possible for Texas-organized entities, because Texas only permits agreements to restrict board discretion in nonpublic corporations.

Do you suppose this means Tesla will reincorporate back to Delaware?

Second, the Senate raked Boeing CEO Dave Calhoun over the coals this week.  Sen. Josh Hawley said: “I think you’re focused on exactly what you were hired to do.  You’re trying to squeeze every piece of profit out of this company. You’re strip mining it.”  He also posted to Twitter, “Boeing’s planes are falling out of the sky in pieces, but the CEO makes $33 million a year. What exactly is he getting paid to do?”  Meanwhile, at the hearing, Sen. Richard Blumenthal said, “Boeing needs to stop thinking about the next earnings call and start thinking about the next generation.”

So I, for one, am very glad to see in this polarized age that Democrats and Republicans can come together to endorse ESG.

I kid, I kid, of course they’re not endorsing ESG – they’re just endorsing a reduced focus on profit seeking in favor of corporate social responsibility.

For real, it reminds me of this clip of Katie Porter, that I like to show to my students.  In the clip, she establishes that a drug company executive would increase his bonus by increasing drug prices.  Which sounds bad, until you look at the results of the shareholder vote overwhelmingly approving his compensation package – which shareholders are required to approve due to – let me check this – ah right, congressional legislation and (federal) stock exchange listing rules.   Not to mention the pay-for-performance disclosures that, wait let me see – Congress also mandates.  If members of Congress are unhappy with how that’s worked out, they have some tools in the box beyond jawboning executives.

And third, Exxon.  Exxon, Exxon.  Exxon bypassed the SEC and sued its own shareholders to avoid putting another climate change shareholder proposal on the ballot – ironically, even though Engine No. 1’s purportedly climate-transition-focused directors are still right there on the board – and even after it got everything it wanted, still tried to press the case until Judge Pittman concluded there was no remaining controversy to adjudicate.  

In response, some institutional shareholders, including various state pension plans, organized a “vote no” campaign against Exxon’s directors.  They varied as to which directors – some urged voting no for all of them, and there were some who focused on Joseph Hooley and Darren Woods, while Glass Lewis urged voting no for Joseph Hooley alone.  Their argument was less about the merits of this specific climate change proposal than about the importance of preserving shareholder voice.  There was no possibility that these directors would lose their seats, but a strong protest vote against them might have indicated that shareholders supported the principle of being free to bring items to a vote.

And, well ….   There does seem to have been a slight dip in support for Woods and Hooley as compared to last year, but not by a whole lot.

All of which suggests that large institutional investors may mouth words about stewardship or whatever but they actually don’t want these kinds of public votes, and that’s partly because it puts them on record as taking positions (that can then become controversial), and partly because the largest investors don’t need formal avenues of input; they can simply make phone calls, and partly, perhaps, because many large investors have their own shareholders they want to fight off.

Which takes us right back to the DGCL amendments and the muted response from investor advocates.  As I mentioned before in “Take Three” of my Takes on the Tesla vote, investors do seem to be sending a signal, and it’s that they don’t really place much value on governance rights; let’s not forget they only started exercising them seriously after the SEC and the DOL largely required them to.