Attack on Shareholder Rights is a Red Herring Concealing Power Grab by Asset Managers, Private Equity, and Oligarchs

By Natalia Renta

The Business Roundtable’s most recent diatribe against a modest shareholder check on the power of corporate boards and executives came just in time for Tuesday’s House Financial Services Committee hearing on proxy advisors — firms that provide research and proxy voting recommendations to shareholders. Public company shareholders have the right to vote on company ballot items, including director elections, executive pay packages, and proposals brought by fellow shareholders. Some investors (especially institutional investors like pension funds and asset managers that manage retirement accounts of millions of families) hire proxy advisors to help them make voting decisions. The Business Roundtable, the fossil fuel industry, and other powerful players want to infringe on these shareholder rights and prevent shareholders from considering important issues that affect their investments.

For years, entities representing corporate management interests have railed against shareholders who file proposals — and the proxy advisors who sometimes recommend votes in their favor. They allege that these proposals seek to further supposedly niche agendas of the proponents at the expense of other shareholders and are a resource drain for companies.

But most shareholder proposals are not about niche issues; they are about important risks related to unsound governance practices, climate change, union busting, racial discrimination, worker health and safety issues, lobbying activities, and more that affect corporate performance and shareholder returns. Corporate boards and executives just don’t want to hear from shareholders concerned about the long-term sustainability of their investments, especially if it interferes with short-term, risky corporate practices. 

Corporate management endlessly complains that proxy advisors are too sympathetic to shareholder proponents and not supportive enough of management proposals. They levy these complaints even though proxy advisors’ voting recommendations overwhelmingly align with corporate management recommendations and they’re just that — recommendations investors can take or leave.

In reality, shareholder proposals strengthen corporate governance by identifying, raising awareness, and addressing both company-level and systemic risks. And it is worth noting the substantial limitations on shareholder proposals: defeated proposals cannot be refiled in subsequent years if they do not receive sufficient votes; shareholders are limited in the types of proposals they can make; and companies can ignore the results even if they are successful, because proposals are non-binding.

The real threat to corporate governance is not shareholders exercising their rights, but the large investors that are wielding substantial power that furthers their own narrow interests and puts retirees’ and retail investors’ interests at risk: large asset managers that own significant stakes in most public companies and rubber stamp corporate management’s decisions regardless of the risks; and venture capital, other private equity firms, and Big Tech oligarchs like Elon Musk and Mark Zuckerberg who want to consolidate and wield unchecked corporate decision-making power. 

The four largest asset managers — BlackRock, Vanguard, State Street, and Fidelity — now have de facto regulatory power over public companies. Instead of using this power to compel public companies to address important risks, they use it to further their own private, short-term interests in retaining and gaining assets under management and avoiding government regulation. These incentives have come to the fore in the last few years, as large asset managers have responded to political pressure by increasingly siding with management in their votes, instead of with minority shareholders pushing them to address important risks. 

Meanwhile, over the past two years, venture capital, other private equity firms, and Big Tech oligarchs have won drastic changes to Delaware corporate law, which governs about two thirds of the publicly traded companies on the S&P 500. In 2024, Delaware passed a law that gave venture capital and other large, early investors rights that allow them to second guess and effectively direct boards of directors.

This year, tech oligarchs and big businesses successfully overhauled Delaware corporate law to make it much more difficult for regular shareholders to hold corporate insiders (controlling shareholders, directors, and executives) accountable for self-dealing. The law benefits private equity firms, as they will face less scrutiny in their take-private, take-public, and conflicted transactions, since even when their portfolio firms are re-listed on public markets the private equity owners still retain significant stakes. It also benefits Big Tech oligarchs like Elon Musk and Mark Zuckerberg who both hold significant stakes in their companies and are their head executive. Musk launched an attack on Delaware corporate law after shareholders successfully sued to claw-back his preposterously high $56 billion 2018 pay package.

The expected grandstanding at this week’s House hearing on the purported evils of the proxy advisors is a ham-fisted solution in search of a problem. Proxy advisors overwhelmingly support management recommendations and the biggest asset managers almost never buck management recommendations. What the Business Roundtable and other corporate stooges are really demanding is that shareholders always support management and never exercise their shareholder rights to propose improvements to strengthen corporate governance, curb excessive executive pay, or address the very real financial risks from climate change, worker exploitation, or racial and economic inequality. 

What Congress should do is regulate and hold accountable the actors behind the true corporate governance coup: large asset managers, venture capital, private equity, and Big Tech oligarchs.

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