Shareholder Values

by | Apr 19, 2003

As the season for annual meetings begins, activists are presenting shareholders with resolutions seeking social change and better corporate governance. A few of the proposals have merit; most are obnoxious but harmless. And nearly all will be rejected – mainly because shareholders who don’t trust management have a more efficient means to register their disapproval: […]

As the season for annual meetings begins, activists are presenting shareholders with resolutions seeking social change and better corporate governance. A few of the proposals have merit; most are obnoxious but harmless. And nearly all will be rejected – mainly because shareholders who don’t trust management have a more efficient means to register their disapproval: they can sell the stock.

The danger, however, is that in their zeal to promote a radical environmental agenda, some activists are pushing resolutions that could severely damage the corporations they’re targeting – even if the proposals themselves fail.

That is the case with a measure that tries to shine a spotlight on the costs that businesses face from climate change – and to shame those businesses into doing something about their emissions of greenhouse gases, like carbon dioxide, which can heat the atmosphere.

What the activists really want, of course, is for companies to spend hundreds of billions of dollars to reduce emissions – the prescription of the Kyoto Protocol, which President Bush and the entire U.S. Senate rejected long ago. To embrace Kyoto, or something like it, would be a disaster for the world economy – and it would be particularly foolish right now, when new research is showing that scientists, politicians and environmentalists may have vastly exaggerated the problem.

In an article about the new shareholder resolutions, Jeffrey Ball reported in the Wall Street Journal, “The trend reflects a push by environmental activists to prompt companies to start viewing global warming as a threat to their bottom lines.” But the real threat to profits and stock prices is the extreme agenda these same activists are advocating to restrict carbon-dioxide emissions.

Energy costs, for example, would soar. A study by the Clinton administration’s own Energy Department estimated the cost to the U.S. economy would be about $400 billion per year. The effect on stocks would be devastating – by conservative reckoning, a loss of about one-third of the market capitalization of a typical company.

It’s not hard to see why some misguided environmentalists want businesses to take Kyoto-style action, whatever the price. But the outrage is that the proxy measures are being offered by large financial institutions, including pension plans. The political and religious officials who run these plans are putting their own ideology ahead of the interests of pensioners and shareholders. If the measures are successful – and perhaps even if they simply raise fears in the minds of other investors – they will lead to a significant decline in shareholder value.

The main target this proxy season is American Electric Power Co., the largest generator of electricity in the country and, ironically, an environmentally conscious firm that just won an award from Harvard University for a project to sequester carbon by retiring the logging rights to 2 million acres of Bolivian forest.

AEP, based in Columbus, Ohio, gets two-thirds of its power from coal, the most abundant energy resource in the United States. Burning coal (or any fossil fuel) produces carbon dioxide, a molecule that is harmless to humans and essential to plants but that has been implicated in the one degree Fahrenheit rise in global surface temperatures over the past century.

Two AEP shareholders, the Connecticut Retirement Plans and Trust Funds and the Christian Brothers Investment Services, offered a resolution for the company’s shareholders’ meeting next Wednesday that would force AEP to disclose the “economic risks associated with the company’s past, present and future emissions of carbon dioxide.”

The risks are well-known. If the Bush administration, Congress or even state governments cave in to pressure from radical environmentalists, AEP and other utilities might not be allowed to burn coal anymore. The company would have to spend billions of dollars to retrofit its plants, many of its 22,000 employees would have to find other jobs, and its 330,000 shareholders would find the value of their holdings slaughtered.

There’s another risk, too, and it was highlighted – in an act of breathtaking irresponsibility – by state treasurer Denise Nappier, the fiduciary for thousands of Connecticut retirees in a plan that owns more than $3 million in AEP stock.

In a press release last week, Nappier cited a report by Institutional Shareholder Services (ISS) that derided AEP’s response to the resolution: “The company suggests it should only rely on such sound science for its decision-making processes. It is worthy noting that arguments promoting ‘sound science’ over otherwise ‘junk science’ was a tactic first adopted by the tobacco industry

Ambassador Glassman has had a long career in media. He was host of three weekly public-affairs programs, editor-in-chief and co-owner of Roll Call, the congressional newspaper, and publisher of the Atlantic Monthly and the New Republic. For 11 years, he was both an investment and op-ed columnist for the Washington Post.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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