Why executives should always listen to unreasonable activists

Andrew Edgecliffe-Johnson in The FT

When Christabel Pankhurst argued the case for women’s suffrage to members of the London Stock Exchange in 1909, the Financial Times reported that her address excited “a few remonstrative ‘Oh, ohs!’ [but] was punctuated throughout by genuine applause, as well as a good deal of merriment at her humorous sallies”. 

After three years of failing to convert such applause into voting rights, however, the movement led by Pankhurst and her mother Emmeline adopted less amusing tactics, and the business pages’ view of it darkened. Arson attacks on post boxes in the City of London in 1912 left the FT fulminating about the need for “drastic measures . . . to protect the community as a whole from the mischievous intentions of a small and insubordinate section”. 

Why dredge this history up now? Because today’s business leaders are being confronted by a new generation of agitators whose aims they consider unrealistic, whose methods they consider unreasonable but whose message will probably prove worth heeding in the long run.  

This year’s annual meeting season has seen protests over executive pay at companies from AstraZeneca to GE. Nuns have harangued Amazon over its facial recognition technology and taken on Boeing over its lobbying. Diversity advocates have castigated boards for moving too slowly to achieve racial and — a century after the suffragettes — gender equality.  

No subject has attracted more militancy of late, however, than companies’ contributions to climate change. And no clash has defined this shareholder spring more clearly than the revolt at ExxonMobil, in which Engine No 1, an activist investor with a minute stake and an aversion to fossil fuels, fought its way on to the $250bn oil major’s board.  

“This is like the shot heard around the world,” says Robert Eccles, a Saïd Business School professor. Other companies and investors are realising that “if this little hedge fund can do this to ExxonMobil then, oh, things are different”.  

Shareholders’ views of Big Oil were already shifting faster than Exxon had changed its business model, Eccles notes, but like Pankhurst’s troublemakers: “You needed the spark: they blew up the mailbox.”  

Before Engine No 1, there was the civil disobedience of Extinction Rebellion, which has dumped fake coal outside Lloyd’s of London and blockaded News Corp printing sites in the past year. Environmental campaigners had targeted the offices of JPMorgan Chase in New York and BlackRock in Paris. And Greta Thunberg had shown up at the World Economic Forum last year and rubbished Davos-goers’ tree-planting incrementalism.  

Such zealous tactics seem guaranteed to generate more irritation than applause. As Eccles puts it, “here are people who . . . don’t hold any of the cards. Unless you’re breaking the rules or using the rules really aggressively, as Engine No 1 did, you can’t get attention.” 

That makes them easy to dismiss. People on both extremes of the fossil fuels debate “are a little nuts”, Warren Buffett told Berkshire Hathaway’s annual meeting last month.  

Maybe, but from street style to fashions on Wall Street, new ideas tend to start on the fringes. The examples of the Pankhursts and successive campaigners for causes ranging from civil rights to gay rights suggest that the most powerful ideas become mainstream in the end.  

That rarely happens overnight: it took until 1928 for British women to gain electoral equality with men. But today’s irritants can serve as harbingers of tomorrow’s consensus.  

That should make them valuable to any company wanting to understand the risks and opportunities in the years ahead. Every CEO knows that society’s expectations of business are constantly changing, but few have worked out that their harshest critics might help them position themselves for those shifts. 

Society’s expectations still matter most to boards when expressed through their shareholders’ votes, and the continued growth of socially conscious investing suggests that the agendas of provocateurs and portfolio managers are converging.  

This week, for example, a UBS survey of rich investors found 90 per cent of them claimed that the pandemic had made them more determined to align their investments with their values.  

That report again underscored how younger capitalists are driving this process: almost 80 per cent of investors under 50 said Covid-19 had made them want to make a bigger difference in the world, compared with just half of the over-50s. It is worth executives asking themselves which of those demographics they are spending more time with.  

Exxon’s unreasonable activists showed it that the world had changed and it had not. The question for other companies is whether they can learn such lessons less painfully.  

Does this mean that boards should bend to every crank who berates them at an annual meeting? No, but companies should avoid dismissing every critic as a crank, and study the agitators for early warning signs of what may become groundswells.  

Executives love to talk about innovation and “first-mover advantage”. If they are serious, they should spend more time thinking about where today’s fringes suggest tomorrow’s mainstream will be. Sometimes a small and insubordinate section points the way for the community as a whole. 

Transatlantic Trade and Investment Partnership: Wake up people, we’re being shafted

A global ban on left wing politics

George Monbiot

Remember that referendum about whether we should create a single market with the United States? You know, the one that asked whether corporations should have the power to strike down our laws? No, I don’t either. Mind you, I spent ten minutes looking for my watch the other day, before I realised I was wearing it. Forgetting about the referendum is another sign of ageing. Because there must have been one, mustn’t there? After all that agonising over whether or not we should stay in the European Union(1), the government wouldn’t cede our sovereignty to some shadowy, undemocratic body without consulting us. Would it?

The purpose of the Transatlantic Trade and Investment Partnership is to remove the regulatory differences between the US and European nations. I mentioned it a couple of weeks ago(2). But I left out the most important issue: the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. Yet the defenders of our sovereignty say nothing.

The mechanism is called investor-state dispute settlement. It’s already being used in many parts of the world to kill regulations protecting people and the living planet.

The Australian government, after massive debates in and out of parliament, decided that cigarettes should be sold in plain packets, marked only with shocking health warnings. The decision was validated by the Australian supreme court. But, using a trade agreement Australia struck with Hong Kong, the tobacco company Philip Morris has asked an offshore tribunal to award it a vast sum in compensation for the loss of what it calls its intellectual property(3).

During its financial crisis, and in response to public anger over rocketing charges, Argentina imposed a freeze on people’s energy and water bills (does this sound familiar?). It was sued by the international utility companies whose vast bills had prompted the government to act. For this and other such crimes, it has been forced to pay out over a billion dollars in compensation(4).

In El Salvador, local communities managed at great cost (three campaigners were murdered) to persuade the government to refuse permission for a vast gold mine which threatened to contaminate their water supplies. A victory for democracy? Not for long perhaps. The Canadian company which sought to dig the mine is now suing El Salvador for $315m – for the loss of its anticipated future profits(5).

In Canada, the courts revoked two patents owned by the US drugs firm Eli Lilly, on the grounds that the company had not produced enough evidence that they had the beneficial effects it claimed. Eli Lilly is now suing the Canadian government for $500m, and demanding that Canada’s patent laws are changed(6).

These companies (and hundreds of others) are using the investor-state dispute rules embedded in trade treaties signed by the countries they are suing. The rules are enforced by panels which have none of the safeguards we expect in our own courts(7,8). The hearings are held in secret. The judges are corporate lawyers, many of whom work for corporations of the kind whose cases they hear. Citizens and communities affected by their decisions have no legal standing. There is no right of appeal on the merits of the case. Yet they can overthrow the sovereignty of parliaments and the rulings of supreme courts.

You don’t believe it? Here’s what one of the judges on these tribunals says about his work. “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all … Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”(9)

There are no corresponding rights for citizens. We can’t use these tribunals to demand better protections from corporate greed. As the Democracy Centre says, this is “a privatised justice system for global corporations.”(10)

Even if these suits don’t succeed, they can exert a powerful chilling effect on legislation. One Canadian government official, speaking about the rules introduced by the North American Free Trade Agreement, remarked, “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.”(11) Democracy, as a meaningful proposition, is impossible under these circumstances.
This is the system to which we will be subject if the transatlantic treaty goes ahead. The US and the European Commission, both of which have been captured by the corporations they are supposed to regulate, are pressing for investor-state dispute resolution to be included in the agreement.

The Commission justifies this policy by claiming that domestic courts don’t offer corporations sufficient protection because they “might be biased or lack independence.”(12) Which courts is it talking about? Those of the US? Its own member states? It doesn’t say. In fact it fails to produce a single concrete example demonstrating the need for a new, extra-judicial system. It is precisely because our courts are generally not biased or lacking independence that the corporations want to bypass them. The EC seeks to replace open, accountable, sovereign courts with a closed, corrupt system riddled with conflicts of interest and arbitrary powers.
Investor-state rules could be used to smash any attempt to save the NHS from corporate control, to re-regulate the banks, to curb the greed of the energy companies, to renationalise the railways, to leave fossil fuels in the ground. These rules shut down democratic alternatives. They outlaw left-wing politics.

This is why there has been no attempt by our government to inform us about this monstrous assault on democracy, let alone consult us. This is why the Conservatives who huff and puff about sovereignty are silent. Wake up people, we’re being shafted.