A senior figure at investment research giant Morningstar is the latest person to sharply attack the controversial Main Street Investors Coalition (MSIC) – a new Washington DC-based body seen by some as a front for big business wanting to curb shareholder challenges.
In a blog, published on online platform Medium, Jon Hale, Global Head of Sustainable Investing Research at Morningstar, describes MSIC as an “absolute swamp creature” that is opposed to shareholder engagement and proxy voting and has nothing to do with its purported aim of protecting retail investors.
However, MSIC says the piece includes “numerous errors and misrepresentations”.
Main Street Investors Coalition (MSIC), which launched in May, describes itself as an organisation seeking to protect the interests of US retail investors from the increasing politicisation of the investment system. Its Executive Director, George David Banks was recently in the Trump Administration working as the president’s Special Assistant for International Energy and Environment.
In a recent op-ed about MSIC, Banks said: “In recent years, there has been a systematic appropriation of funds by large institutional investors, public pensions, proxy advisory firms and others, to pursue political objectives that are entirely contrary to the average retail investor’s interests and his primary objective — to maximize the value of his or her holdings.”
But MSIC’s campaign has been challenged. Mindy Lubber, president of sustainability-focused NGO Ceres, said in the New York Times that MSIC was “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.”
On its website, its partners, who a spokesman says provides it with resources, include free-market think tank the American Council for Capital Formation and business lobby group the National Association of Manufacturers (NAM).
Corporate governance expert Nell Minow, former president of proxy firm ISS, said MSIC was a “corporate-funded group with no real ties to retail investors, and its advocacy is as fake as it name” in a Harvard Law School blog.
Hale, who makes it clear that his views may not reflect those of his employer, writes: “This ‘coalition’ purports to represent mom-and-pop investors against the institutions that invest money on their behalf – pension funds and mutual fund asset managers – because these elitist institutions are increasingly practicing… sustainable investing.
“The Main Street Investor Coalition has nothing to do with everyday investors nor does it even pretend to have actual members. Nor is it a coalition of anything other than corporate members of NAM. It is being financed by companies that give millions of shareholder dollars to NAM in order to make the argument that sustainable investors are costing them money by forcing them to consider and respond to shareholder resolutions (can quite possibly improve their businesses in the process).”However, Professor Bernard Sharman, chair of the MSIC Advisory Committee, says that it “has common cause with the retail investor”.
He says that in 1950, retail investors owned more than 90% of stocks issued by US companies while today the number is closer to 30%, with securities markets increasingly dominated by big, institutional and often passive holders. He adds: “We live in an era where retail investors who hold stock through brokerage accounts are voting shares in record low numbers”.
He says he expects the coalition to become a leader in the field of shareholder advocacy and argues, “we now live in an investing world that is dominated by institutional investors”, where for example “a public pension fund disregards the preferences of its beneficiaries and approaches shareholder advocacy and voting through the lens of shareholder empowerment, not wealth maximization”.
But, Hale – citing studies demonstrating retail interest – says that real-life ‘Main Street Investors’ actually support sustainable investing.
Morningstar made a big push into sustainability last year with a 40% acquisition and a board seat at ESG research firm Sustainalytics. Sustainalytics has tweeted in support of Hale’s blog on MSIC and refers to it on its website as “highly worth the read”.
Morningstar also made a big stamp on the ESG world in 2016 when it launched sustainability ratings for funds.
Responding to Hale’s blog, a Main Street Investor Coalition spokesperson said: “Mr. Hale’s piece includes numerous errors and misrepresentations and we fundamentally disagree with its conclusion. In particular, it’s simplistic and counterproductive to label the Coalition as anti-ESG; we’re not.
“But we do believe that political and socially minded investments should have to demonstrate that they will generate returns, just as in any other facet of the financial world.
“Research has shown time and again that when investors are given a choice between maximizing returns and pursuing other objectives for their investments, they choose the former. Our message to the author and others with a vested interest in the success of ESG, is that these investments don’t inherently hold value in themselves. They should remember their fiduciary duty to shareholders and prioritize returns over other considerations.
“It is still in the early stages of the Coalition, we’ve barely been stood up for two months. And as a Coalition it does take longer to ensure that all our members and our advisory council agree with a specific policy agenda. But we are starting to agree a set of initiatives. We strongly support HR 4015, which will address major issues in the proxy advisory industry and likewise expect to feed into the SEC’s forthcoming consultation on the subject. And we are investigating other specific proposals that would return power to shareholders – we’ll hopefully be able to make an announcement on that and other outreach to the SEC, before long.”