Federal charters and long-term ESG goals of the left

Recent indications suggest that support for environmental, social and governance (ESG) activism — sometimes referred to as “woke capitalism” — may be wavering within corporate America. Even BlackRock appears to be dropping its support for shareholder resolutions on climate change this year. At the same time, activists filed a record number of ESG resolutions in 2022 while talking about being “on the cusp of systemic economic transformation”.

This trend – if that’s what it turns out to be – can be significant. ESG activists typically need the buy-in from company management, voting rights from asset management giants, or both, to succeed. “Success” in this context is defined as bringing about changes in influential businesses that align with the particular (usually liberal) socio-political worldview of the activist. As others have pointed out, this process has troubling implications for capitalism and democracy.

Woke capitalism is incremental – its proponents would call it “progressive” – so if the business elite is in fact becoming collectively less receptive to the ever-increasing demands of center-left ESG activists, what happens next? Legislation and regulation are available options, with the Securities and Exchange Commission’s proposed climate change disclosure rule being a stark and controversial example of the latter, though it hardly represents an endgame for activists. It is therefore worth considering the direction that some members of the ESG-oriented left envision to ultimately lead.

An “American Company”

One proposal that constantly percolates is the idea of ​​federally chartering large US corporations. Corporations currently file their charters (also known as articles of incorporation) with state governments – classically Delaware – and are governed by state law. The articles state basic information about the company and are not particularly detailed. Most corporations, for example, define their purpose in the charter as simply to engage in lawful activities.

Some proponents propose federalizing this system and creating something akin to a “United States Corporation” chartered by a federal agency. Critically, they are considering using the terms of the charter to limit corporate activities in ways these activists believe are desirable. The idea has yet to gain significant political traction, even though the flame — such as it is — of federal charters has been burning for generations. Ralph Nader defended him in the 1976 book Taming the giant corporation.

A federal charter system was most recently included in a book-length compilation of policy proposals made for the new Obama administration by the left-wing think tank Institute for Policy Studies. The author of this section, Charlie Cray, promoted it as a means of controlling corporate size, operations and governance to the point where “whole industries could be restructured so that the profit motive be subordinated to a larger objective”.

At the time, Cray was director of the Center for Corporate Policy, a nonprofit 501(c)(3) Essential Information Project (incidentally, founded by Nader in 1982). He is now a senior research specialist at Greenpeace USA, one of the groups that backed the Responsible Capitalism Act (ACA) of 2018, the most high-profile proposal for a federal charter program in recent memory.

Introduced by Sen. Elizabeth Warren (D-MA) to considerable media attention, the ACA proposed that all U.S. corporations with more than $1 billion in annual revenue be required to obtain a federal charter. This charter would in turn require all such companies to operate for the “purpose of creating general public benefit”, taking into account the interests of shareholders, employees, customers, the environment and other “community and societal factors”. “. The bill would also have required that at least 40% of a company’s board be elected by employees, restricted stock sales by company insiders, and shareholder clearance thresholds. and directors for corporate political spending.

Conservatives rightly called the proposal socialist, and some socialists lukewarmly agreed. An article in Jacobin argued that while the bill was a “ruse” and obviously had no chance of becoming law, socialists should pass it nonetheless and thank Warren for elevating its provisions – especially regarding the election of directors by employees – to ‘the agenda of national political debate for the first time ever. Indeed, the author suggested that the far left should start demanding that Democratic politicians endorse it as a litmus test.

Traction at the Open Markets Institute?

Last year, Daniel A. Hanley of the liberal anti-monopoly group Open Markets Institute wrote a feature piece for the left-leaning newspaper Democracy, arguing that “lasting change aimed at reducing corporate power cannot be complete without” a federal charter system. Hanley suggested that such a charter could be used to restrict a company’s size and structure, limit the industries in which it is allowed to operate, expand required disclosures, or require its board of directors to be of a specific racial/ethnic composition.

Although relatively small (generating $2.6 million in revenue in 2020, up from $5 million in 2019), Policy noted that the Open Markets Institute was ahead of liberal policy proposals regarding Wall Street – influencing political debate by turning once niche ideas into mainstream left-wing talking points. In other words, it probably makes sense to pay attention to what the band is saying now.

This is especially true given some of the staff at the Open Markets Institute and their ties to the Biden administration. More importantly, its former chief legal officer Lina Khan now chairs the Federal Trade Commission. National Economic Council official Timothy Wu and now-retired controversial candidate for U.S. comptroller of the currency Saule Omarova are former members of its advisory board. Current members of the organization’s board of directors include former Missouri Lt. Gov. Joe Maxwell and Laura Quinn, president of major Democratic data company Catalist.

The Open Markets Institute operates as a 501(c)(3) non-profit organization, having acrimoniously spun off from New America in 2017. Its major funders include the Knight Foundation, Ford Foundation, Hewlett Foundation and the Nathan Cummings Foundation, all of which owe their founding and existence to companies that have generated (and continue to generate) tremendous value for their shareholders.

Integrate the radical

Ideas that initially seem quite radical can, if repeated often enough, begin to appear more plausible over time in the minds of politicians and the general public. This transition may accelerate if activists feel that other methods of achieving the desired results are not bearing fruit.

Part of the Responsible Capitalism Act, for example, was modeled specifically on the for-profit corporation, which is a structure through which a company can properly pursue goals other than creating shareholder value. A series of resolutions backed by a nonprofit organization called Shareholder Commons in 2021 aimed to get big companies like BlackRock, Alphabet (Google) and Amazon to reorganize into for-profit corporations for this purpose. These resolutions proved highly unpopular with shareholders – one filed at Apple only received 3.1% support – so the campaign was largely scrapped for 2022.

It remains to be seen whether the idea of ​​federally chartered corporations becomes a dedicated priority for the ESG-oriented left and whether it gains significant political traction. At the moment, this is certainly a marginal proposition. That said, it’s important to pay attention to exactly where activists are planting stakes on issues, if only to understand how far they might go if they had their setbacks.

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