<![CDATA[Grist - Comment Feed for Study claims shareholder and climate activism are bad for stock prices]]> Grist Comment Feed en Comment #1 by Sean Casten http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 05:43:42 -0700 http://www.grist.org/article/chamber-cheap-shot/1 I'm not sure it matters

It's always seemed to me that shareholder activism is righteous anger directed at the wrong place.  The price of a stock is a function of thousands of people making bets about it's value.  Ergo, if righteous shareholders cause lots of folks to sell the stock and lower the price, it is simply creating a good buying opportunity for less moral investors, giving us a wealth transfer from the good to the amoral.  

Moreover, if the activism encourages a company to divest some profitable but ethically questionable line of business, it could have the effect of making a company both more moral and less profitable, thereby making it appear to be a fiscally band idea to do the right ethical thing, driving other companies away from the ethical space  (As an example, think of Phillip Morris when they owned Kraft.  The big profit margins weren't in the cheese...)

All of which is simply to say that while investors certainly have the right to demand certain standards from the managers of the companies they invest in, one needs to be careful mixing non-financial goals with financial metrics, as the impact can be the opposite of what one is looking for.

]]> I'm not sure it matters

It's always seemed to me that shareholder activism is righteous anger directed at the wrong place.  The price of a stock is a function of thousands of people making bets about it's value.  Ergo, if righteous shareholders cause lots of folks to sell the stock and lower the price, it is simply creating a good buying opportunity for less moral investors, giving us a wealth transfer from the good to the amoral.  

Moreover, if the activism encourages a company to divest some profitable but ethically questionable line of business, it could have the effect of making a company both more moral and less profitable, thereby making it appear to be a fiscally band idea to do the right ethical thing, driving other companies away from the ethical space  (As an example, think of Phillip Morris when they owned Kraft.  The big profit margins weren't in the cheese...)

All of which is simply to say that while investors certainly have the right to demand certain standards from the managers of the companies they invest in, one needs to be careful mixing non-financial goals with financial metrics, as the impact can be the opposite of what one is looking for.

]]> Comment #2 by Erik Hoffner http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 06:48:15 -0700 http://www.grist.org/article/chamber-cheap-shot/2 fair enough

"one needs to be careful mixing non-financial goals with financial metrics, as the impact can be the opposite of what one is looking for."

Fair enough, Sean, but if the woman from CII is right, shareholder activism is just as likely to be beneficial to the bottom line, while improving the practices and profile of the company in question. Sounds like a win win to me.

Erik

The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more

]]> fair enough

"one needs to be careful mixing non-financial goals with financial metrics, as the impact can be the opposite of what one is looking for."

Fair enough, Sean, but if the woman from CII is right, shareholder activism is just as likely to be beneficial to the bottom line, while improving the practices and profile of the company in question. Sounds like a win win to me.

Erik

The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more

]]> Comment #3 by corpgov http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 08:09:18 -0700 http://www.grist.org/article/chamber-cheap-shot/3 methodology

One flaw, among many, not mentioned in the article is the fact that the 10 companies studies by the academics were hand picked by the Chamber. Even if they weren't, ten is too few for a valid sample. However, having them picked by the Chamber is the height of absurdity. Would you have the drug companies pick patients out of thousands who took their medicine to represent them all? Of course not.

]]> methodology

One flaw, among many, not mentioned in the article is the fact that the 10 companies studies by the academics were hand picked by the Chamber. Even if they weren't, ten is too few for a valid sample. However, having them picked by the Chamber is the height of absurdity. Would you have the drug companies pick patients out of thousands who took their medicine to represent them all? Of course not.

]]> Comment #4 by Erik Hoffner http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 10:06:41 -0700 http://www.grist.org/article/chamber-cheap-shot/4 dodgy

This link to a news story about the study ought to have been in the original post but it got lost somewhere:

http://www.efinancialnews.com/usedition/people/content/24 ...

Yes, the sample size is really small - that doesn't always make a bad study, but also picking the 10 and then saying that in every case shareholder activism is bad for share price is definitely questionable.

Erik

The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more

]]> dodgy

This link to a news story about the study ought to have been in the original post but it got lost somewhere:

http://www.efinancialnews.com/usedition/people/content/24 ...

Yes, the sample size is really small - that doesn't always make a bad study, but also picking the 10 and then saying that in every case shareholder activism is bad for share price is definitely questionable.

Erik

The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more

]]> Comment #5 by Wolverine http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 10:38:40 -0700 http://www.grist.org/article/chamber-cheap-shot/5 Wrong Question, Change Framing

Shareholder activism is not meant to increase stock prices.  It's meant to get attention and eventually action on whatever issue is being protested.  Don't let the enemy frame the issue by debating an illegitimate question such as this one.  Instead, just point out the illegitimacy of the question.

]]> Wrong Question, Change Framing

Shareholder activism is not meant to increase stock prices.  It's meant to get attention and eventually action on whatever issue is being protested.  Don't let the enemy frame the issue by debating an illegitimate question such as this one.  Instead, just point out the illegitimacy of the question.

]]> Comment #6 by SanfordLewis http://www.grist.org/article/chamber-cheap-shot/ Mon, 18 Aug 2008 22:58:00 -0700 http://www.grist.org/article/chamber-cheap-shot/6 Consider the Hidden Liabilities

The Chamber's report is most misleading in its failure to consider the reality that shareholder advocacy flags corporate liabilities. When shareholders raise issues on environment or human rights, it is often intended to get a company to engage in preventive or remedial efforts to solve an under-attended liability. By bringing serious concerns and weaknesses to light, a resolution may indeed yield a lower stock price - that's not a bad outcome, it's the market responding to better information.

An underlying problem is that Securities regulators aren't policing corporate disclosures on these issues; it is left up to shareholders to press the issue through shareholder resolutions.

The Investor Environmental Health Network published a report, Toxic Stock Syndrome, earlier this year demonstrating how poorly companies disclose their liability risks regarding toxic products. (I'm the author). See http://iehn.org/publications.reports.toxicstock.php also see my discussion of related issues at  http://www.youtube.com/watch?v=0TjikdMoW-Y

]]> Consider the Hidden Liabilities

The Chamber's report is most misleading in its failure to consider the reality that shareholder advocacy flags corporate liabilities. When shareholders raise issues on environment or human rights, it is often intended to get a company to engage in preventive or remedial efforts to solve an under-attended liability. By bringing serious concerns and weaknesses to light, a resolution may indeed yield a lower stock price - that's not a bad outcome, it's the market responding to better information.

An underlying problem is that Securities regulators aren't policing corporate disclosures on these issues; it is left up to shareholders to press the issue through shareholder resolutions.

The Investor Environmental Health Network published a report, Toxic Stock Syndrome, earlier this year demonstrating how poorly companies disclose their liability risks regarding toxic products. (I'm the author). See http://iehn.org/publications.reports.toxicstock.php also see my discussion of related issues at  http://www.youtube.com/watch?v=0TjikdMoW-Y

]]> Comment #7 by Sean Casten http://www.grist.org/article/chamber-cheap-shot/ Fri, 22 Aug 2008 11:51:27 -0700 http://www.grist.org/article/chamber-cheap-shot/7 Erik

There have been a lot of studies over the years about whether there are such benefits, and the general consensus seems to be a bit of a shrug.  Some yes, some no, and they average out to not much.

Which at core isn't really all that surprising.  If shareholders are active about managers who aren't delivering sufficient cash to investors, it would be expected to have an impact.  But if they are active about non-financial social issues, there's no natural reason why such activism would cause a given stock to be a better investment.  Not to say that other good things wouldn't happen, but then we're right back into the trap.

Don't get me wrong - I'm not in disagreement about the motive.  I've simply not seen any clear, consensus data that suggests that SA leads to better investments, unless it is specifically targeted towards investment returns.

]]> Erik

There have been a lot of studies over the years about whether there are such benefits, and the general consensus seems to be a bit of a shrug.  Some yes, some no, and they average out to not much.

Which at core isn't really all that surprising.  If shareholders are active about managers who aren't delivering sufficient cash to investors, it would be expected to have an impact.  But if they are active about non-financial social issues, there's no natural reason why such activism would cause a given stock to be a better investment.  Not to say that other good things wouldn't happen, but then we're right back into the trap.

Don't get me wrong - I'm not in disagreement about the motive.  I've simply not seen any clear, consensus data that suggests that SA leads to better investments, unless it is specifically targeted towards investment returns.

]]>