- [Narrator] Welcome to the Wisdom for Wealth for Life podcast. Let's bridge the gap between your faith and your finances. At Ronald Blue Trust, we apply biblical wisdom and technical expertise to help you make wise financial decisions. Our goal is to help you leave a lasting legacy. In this podcast here we hear inspiring stories, practical tips, and encouragement from the Ronald Blue Trust family with special guests along the way. Welcome to the "Wisdom for Wealth. For Life" podcast. The information in these podcasts is provided for general educational purposes only. It's not intended as specific individual advice. The client's experience may not be representative of the experience of other clients, and they're also not indicative of future performance or success. Opinions expressed, may not be those of Ronald Blue Trust. In this episode, Ronald Blue Trust CEO and CIO, Nick Stonestreet visits with economist, author and media contributor, Jerry Bowyer, to discuss some of the trends we are seeing in America's corporate boardrooms around hot button issues and proxy voting. Listen in to hear more about where companies are today, how they got there, and what investors can do to engage with corporations to counter some of these concerning trends. Let's listen in now.
- Hello. Thanks for joining Ronald Blue Trust in this discussion. And I think it's an important one around corporate engagement. I'm joined today by my good friend Jerry Bowyer, to have this dialogue around corporations and where they're heading and a lot of the trends that we're seeing, and then looking at some action steps that we can take as investors to counter some of those trends. Jerry, welcome to the podcast.
- Great to be with you, my friend.
- Jerry, you've been busy, you've been doing quite a bit of work on corporate engagement and you've got a great kind of view into corporate boardrooms. Would you mind going through and telling us some of the trends you're seeing in boardrooms in American companies?
- Well, there's the long term trend, which is what I would call sort of the ideological capture of boardrooms, at least around certain issues through the proxy voting process. And we could talk about it in a moment about what that is and through the corporate engagement process. And so what's happened is over a period of decades, a small number of people who represent a certain political and ideological point of view showed up some, sometimes just one would show up or maybe a few, and maybe someone from like mainline church tradition or someone from a labor union or political activists. And little by little they started steering the conversation. And what became, what started out as just a small thing became the gigantic ESG industry and captured the giant proxy services, which are the companies who basically very much in kind of in general control the voting process, voting for boards of directors and voting on various issues at annual meetings. So there was a trend where say, evangelical Christians did not show up, conservatives did not show up, people who do not share those same worldviews did show up. And essentially over the past few years, things started happening with some major corporations which were coming out in boycotting estate because they passed a religious freedom restoration bill, which happened with a lot of companies, for instance, in Kansas. That happened, but you know, but other states as well. And then we found major corporations speaking out in favor of sexual identity curriculum for kindergartners or opposing legislation, which would forbid that. And a lot of people, I think, were shocked by what had happened. And it looked like it happened suddenly. But like given said about the fall of Rome, it happened very, very slowly. And then all at once. What happened now, what's happened in the past year or so is that we're waking up. We now know there's a problem. We're even outraged about it. But outrage is not very productive in and of itself. But what's happening is we are beginning to actually get in there and counter and represent the other point of view and force a debate on these issues, where before there wasn't a debate. And what I would say is evangelical Christians did not show up for the game and lose the game. We simply did not show up. And we forfeited. Every publicly traded company annual meeting for about 30 years, we didn't even know there was a game. We didn't show up. We forfeited, and then we, then we said, oh, things are terrible. Well, I agree, they are terrible. Maybe we need to start showing up.
- Yeah, I think it's a really good point, Jerry, because I don't think most of us had realized the power we were ceding through ceding our voice in proxy. And so this past year we saw repeatedly that, Vanguard was the largest shareholder of Twitter stock, right? This was just part of the news related to that transaction. But what they never really say is it's, it's not really Vanguard or certain fund company that's the largest shareholder of a certain stock. What they're really saying is that they're, they may be the largest holder in aggregate, but they're not the owners. So the owners of those shares have kind of ceded their voice to the large fund companies, so that they can appear to be the largest holders, and then they can act on that shareholder voice.
- Yes, right. And as you say, they're taking the shareholder's voice. It's our money as investors. I'm an investor in funds. Now, the funds I'm invested in, I'm happy with the way they're voting. But that's very much the exception. So when you invest in a fund, in essence, you're basically saying, not only am I investing in you for returns, I'm also delegating my vote to you. And I think people would be really shocked to find out what they voted for or what someone voted for in their name on issues like abortion, for example, where some of these large institutional shareholders, there was a state last year of proposals on the ballot, which were in essence pressuring the companies to divest from states with pro-life laws. And I'm not gonna mention the companies, I'm not gonna mention the funds, but there was, these were on the ballot, and some of them got pretty high votes. It's like, how could they get high votes? And then you look at the NPX report and you see large institutional investors that are allegedly just plain vanilla companies. That are just investment companies. We're voting for pro-abortion proposals on these ballots, and the Christians even know that those votes were happening. So yeah, there's a lot that goes on where people are voting the opposite way of the way you would want them to vote, and they're doing it with your money. And I think it's egregious, to be honest with you.
- Well, you know, Jerry, the thing that we really thought about here was we saw large fund companies that would have proxy. And for years and years nobody really cared that much. Like you said, people were just absent, they didn't really care because for the most part, the large fund companies would vote their proxy with management. And there was this idea that companies worked for their owners, they worked for the shareholders, but really there's been an accelerated, kind of a veering from that core kind of principle that companies work for shareholders. And that's that I idea has really kind of gotten diluted. So you start to see large fund companies taking these shareholder's votes, our clients votes and pushing them towards social agenda. You mentioned one with abortion. There's many, many, many other agendas that are being pressed. And our view is always, why are they doing this? This doesn't really relate to giving the shareholder a return. Can you talk a little bit about shareholder primacy and where you think this idea of harvesting our clients' voices for social engineering purposes, where that's gone wrong?
- Well, I think it's gone wrong on a lot of levels. I think it's gone wrong in the sense of what is investing for and what are these companies, what is their duty? To whom do they owe fiduciary duty? And going back to the parables of the New Testament, stewards owe loyalty to owners. In the Corinthians, Paul says, first of all, it's required of stewards that they be found faithful. So if you are a CEO of a large asset manager and you feel deep in your heart that you're here to save the world from whatever, carbon or red state politics or anti-abortion legislation, whatever you think you know is your mission in life, that you're gonna save the world, well do it on your own time and with your own dime. It's not your money. And it is non fiduciary to use your client's money to fulfill your own spiritual ambitions or your own psychological need. I mean, that's just a misuse of shareholder resources. So it's wrong to steal people's voices, but also there are investment implications because sometimes the companies are told to do things that don't seem to be profitable. I can tell you, I can talk, I talked to one company, this is an insurance company that I had a meeting with, and they said, well, there are some things that aren't in our portfolio. Like for instance, gun manufacturers are not in our portfolio. And I said, well, okay, did you do data which says that, handgun manufacturers or whatever, that you know that they're inferior performers? No, we didn't. We just don't want them in the portfolio. Well, but wait a minute, if they're a profitable company, that's not your call. Now, as a consumer, you want a boycott, that's fine. But saying that they're not gonna be in your portfolio or companies that say, we're not gonna invest in any coal companies or oil companies. Well, wait a minute, these aren't privately held companies. You are working for shareholders. Energy companies did relatively well last year, and energy prices were up. People who invested in commodity funds, which are mostly energy, did much better than the rest of the market last year. And by the way, when you start screening out these companies using these political considerations, you don't just screen out carbon, you have to put that money someplace else. So you're not just underweighting energy, you are overweighting, maybe tech. Well, and tech was a very bad performer. So what happened last year is some of the un, some of the performance issues, there had been a lot of claims about how this kind of investing is helpful to investors. And last year blew that notion up. So you're stealing people's political and cultural voices. The other thing is you're taking a risk, if a large company comes out with a politically unpopular view, for instance, in a conservative state, maybe they get tax benefits that are above and beyond normal tax treatment. Like, hey, we're not gonna tax you, or we're gonna give you copyright protections that are greater than you would normally get. We're gonna let you run your own city, have your own private police force and your own private fire company. Other companies don't get that. Well, guess what, if you start going against the values of that state, they're liable to start taking those favors away. So it has actual bottom line implications.
- Yeah, and we've seen that, as you mentioned in the energy sector, if you invested heavily in an ESG fund that screened out the E and ESG is environmental and they screened out all oil companies, your fund probably underperformed last year. I can bet it did. And this ESG, environmental, social, and governmental, there's aspects of all of that that we don't disagree with in the sense that environmental, of course, we want a clean environment, of course we want clean water and clean air, and we don't want to kill off species, of course. And there's an approach to it that makes sense, and there's an approach to it that doesn't make sense. Same with social, and same with governmental. So when you look at ESG, there's aspects of it that could sound quite reasonable, but then when you combine some reasonable thoughts with a very driven agenda where only certain people show up to push that agenda to a place that's hard to even invest in, you end up with something that we wouldn't recommend for our clients to invest in. And that's been kind of the taint on ESG, is that it's pushing an agenda and it's not an agenda that's looking at portfolio outcomes, the best portfolio outcomes for our clients. And that's that fiduciary dilemma that these investment managers have put themselves in now.
- Yes and look, I've looked at thousands of these proposals on the ballots. I helped vote something like 20,000 proposals in the past year. Now most of 'em are just board member, the auditor, etcetera. But about four or 5,000 thousand of them are sort of shareholder proposals. And the line that they draw between these factors and performance is very tangential. I've had ongoing dialogue with the largest proxy advisor. Several years ago, I said, I noticed that whenever you talk about reputational risk, it is that people on the left might be upset or people with sort of a gender sexual orientation agenda might be upset. But if you looked at the reputational risk of the backlash from Mid-America, well, they didn't. I had a follow up meeting with that same gentleman last week, and they now are aware that reputational risk goes both ways. But of course, in some sense it was rational. We didn't show up, so they thought they only had to worry about one side.
- Yeah and you know, we saw that more and more with our clients and years ago, we started to really think through carefully what we could do to provide a platform for our clients so that they wouldn't have their voices harvested for social agendas that they probably or may not agree with. And we really came up, I think, with a great solution. We started a program with something we call access portfolios. And this is a way to directly own the shares, instead of owning the shares in a fund, the client directly owns the shares. And there's a couple of technology innovations that have allowed this. Number one is no cost trading and the ability to even use fractional shares. So for a limited amount of money, you could actually replicate the S&P 500 without any costs. And Jerry, maybe you could talk about the difference between owning within a a fund and owning your individual shares, because I think this is an important point and a real foundation for access portfolios.
- If you own shares in a fund, you have given away your voice. That's it, bottom line. You have no recourse when it comes to how they vote. And let me tell you, if it's a large institution, if I'm talking to the typical Ronald Blue Trust client right now, I can assure you the large institutions are not voting in general the way you would want them to vote. They're voting in the opposite probably of your worldview. And there's nothing you can do about it. I mean, you can complain. And some of these companies have said, well, we'll allow in institutional investors to vote their own shares. But that's big institutional investors, like a Red State pension fund or something like that. By the way, they're not saying you're gonna control the lobbying, the corporate engagement. You're not gonna control the negotiation because by the time it gets to a vote, most of the work has already been done. Most of what the big institutions are doing is sitting down with these companies saying, this is what we want you to do. And the companies give in. So most of what's happening isn't the vote. So giving the vote back is only giving back a small amount of the power. But if you own the shares, you have a legal right, what do you have a legal right to do? You have a legal right to vote, you have a legal right to attend the shareholder meeting, either in person or logged on. If you're there, you can ask a question. And although they can kind of block it a little bit, you can still put the question in there. You can talk to investor relations as a shareholder. Now, if you're a small shareholder, I admit you don't have as much clout, but you can go to invest. You're not just going to the complaint department, you're going to the investor relations department as a shareholder and you can say to a company, we don't like the direction you're going in, or, which is nice sometimes. we do like the direction you're going in. You can do both. What else can you do? Well, you can join let's, you can, if you have enough shares, you can actually put your own proposal on the ballot. So instead of reacting to somebody else's proposal, you can put your own proposal. It's like initiative and referendum, like you put in a referendum on the state. You can do that. Now, you have to earn own a certain amount. And you can't be anonymous anymore. You have to sign, I own a certain amount and I want a proposal on the ballot. And then that can go on the ballot. And now you're forcing the debate and the company's gonna say to the SEC, we don't really think this is a shareholder concern. We think this is just business. And the SEC is probably gonna say, no, it's a shareholder concern. Put it on the ballot. And now the debate is forced. You have a right to actually speak or to record a message supporting your point of view. What else can you do? You can join together as a group of people and put forward that proposal, not just as one shareholder, but as a group of shareholders. Let's say someone already did one and you agree with it, you can kind of, you co-profile, you can put your own forward, your own paperwork, which says, I am also a shareholder and I agree with X, Y, Z on their proposal and I support it. There's something else you can do, which is you can put something forward to the company and to EDGAR, which is the SEC website, where you can basically say, I agree, or I disagree with such and such proposal that's on the ballot. And the company has to list it on their websites. So there's an amazing number of tools. The other side knows how to use them. We don't know how to use them. Now, some of them, you're basically anonymous. Some of them you have to use your name, you have to sign saying, I'm the shareholder. 'Cause you have to prove that you're the shareholder. So some of them are a little bit more commitment than others, but you can, there's a tremendous amount that you can do. And what I've, as I've talked to Christian shareholders who come forward and say, I don't like such and such company because they're boycotting Georgia because it's a heartbeat state, heartbeat Bill State. When you tell them the tools that are at their disposal, pretty much every time they say, I didn't know I could do that. And that's what I want to do. I mean, think about it. If I don't like something in my country, politically, I don't unregister to vote. If I don't like something in my city, I don't say, well, I'm gonna tear up my voter registration. No, if there's something that you're concerned about, you vote. For some reason our response as Christians is to withdraw rather than to engage. But I think that's, I think once people know that they can engage or they can ask somebody to engage on their behalf, as you mentioned, access portfolios, where the individual shareholder isn't doing all this work on their own. They're basically saying, we want you to do this work. I think it's empowering and people feel like they're actually making progress.
- Yeah, and I think this is, it's such a great new avenue for us, just the democratization of shareholder having individual holdings rather than being pulled together in a fund where they lose their voice. So this is what I love about the access portfolios is one, you have all of the individual names that you own, and there's a few things that come with that that's really great if let's, pick any index and you want to really kind of mirror that index, you can own all of the names in that index, but then if there's a few names that are objectionable that you say, I really don't like these, I don't feel great about it as a believer, my conscience isn't gonna let me own DraftKings. And if you adjust the portfolio by taking things that really, your own conscious conscience you object to, that's no problem. That's easy to do in access portfolios. And then, you can reoptimize the portfolio. I know that's fancy word around the index. So you keep index like performance, but you've removed some names. What else can you do when you own the individual shares? Go ahead Jerry.
- Yeah, just want to double double down on that. It's your conscience.
- [Nick] Correct?
- So maybe DraftKings is an issue for you, but maybe a company that is beer distillery isn't an issue for you, but with some of these other funds that, they're gonna oppose their screen on you, right? So you go and you and you say, well, I wanna invest biblically. And they say, okay, well there won't be any beer distilleries. Well, wait a minute. I don't happen to disagree with beer. A lot of people don't, right? I know that some Christians have disagreement, but like it all gets imposed. The fund manager's conscience gets imposed on you, the same way that ESG does it from one worldview. Christians can do it from another worldview as opposed to the Holy Spirit speaking to your conscience. It's your conscience not the fund manager's conscience that's being represented.
- That's right. No, no, it's, it's fine because you, if you want to remove objectionable names, that's according to your conscience. That's not someone bullying you or pressuring you or telling you you're owning the wrong stock for some reason. It's what you, and there's a list with access portfolios to go through to kind of say, maybe I don't want these things in my portfolio. Then there's some other great aspects of access portfolios that I really love too, and that's tax management. And so let's just talk about money. You're able to sell the losers and pull them out of the portfolio and reoptimize around the index. So you're trying not to give up index like performance, but you've just harvested tax losses. And many of our clients, most all of our clients are generous. So then you're able to gift the winners and then you harvest the ones that have gone down in value and you gift the ones that have gone up the most and then you reoptimize around the index. So you're keeping in that same band of investment performance, but you've just generated, many times significant tax alpha by giving the winners and selling the ones that have gone down in value. So this is another advantage of owning your own shares. If you've ever had a mutual fund and at the end of the year when the fund was down, you got gains passed to you after the fund had lost money the previous year because they sold some of the shares in the fund that still had gains in them. It's so confusing that how did I just lose money and I've gotta pay taxes. So in the access portfolios, you completely control your tax situation with your equities. But then the part that Jerry and I have been talking about that extends beyond that is the ability to have the company that we work with Vidant Financial to, they have a proxy policy, which we've worked on with them. The voting of proxies can go according to a proxy policy that most of our clients would agree with. Or you can vote individually and vote your own proxy. And instead of ceding that to a large fund company, that may or may not, many cases may not share your values. And then lastly, the kind of the last benefit that I really love with this is if you choose as a client that has access portfolios with Ronald Blue Trust, you're able to engage Boyer Research or another firm that can actually work with you and your family to put in corporate resolutions to do the work that Jerry's talking about. Jerry, why don't you talk about some of those engagements, aside from all of the benefits of access portfolios and owning your own equities and the tax loss harvesting and avoiding objectionable names and a more consistent proxy policy, what's it like on the engagement front? What's kind of the day-to-day with you when you go into these corporate boardrooms?
- Well, it's interesting and it's typically phone calls, right?
- But it's all driven, it's all driven by our clients. It's not Ronald Blue Trust requesting Jerry to go to x, y, z company. We provide a platform. So our clients own the shares and say, Jerry, can you go to X, Y, Z company?
- Right, if we're talking about precisely, they opt in, right? They say, we want this to happen, and if they don't, then I'm not talking on their behalf. So what it means is you have a, let's say company recently said something in public that indicated that if they, if a state has pro-life laws, we don't wanna do business in your state. Well, it means talking to that company and it means going back like the importunate widow over and over again and then getting them eventually to commit. No, we don't have any plans to make decisions like that. Yes, the CEO said something like that, but no, we're not going to do that. It means talking to a large telecommunications company that used to be a company that used to be a donor to Planned Parenthood, friend of mine convinced them to not be a donor to Planned Parenthood. And then I followed up last year, five years later saying, I wanna know, have you started giving to Planned Parenthood? No, we didn't. We checked, we worked together on that. It means talking to a company that endorsed the Equality Act, which weakens the Religious Freedom Restoration Act, at an annual meeting and saying, listen, did you really mean you're a large hotel chain? Do you not like religious people? You really mean to weaken religious liberty? And the answer is, oh, we didn't know that part of the bill. We want there to be equality, but we don't want that. Well, we supported it in the House, in the Senate we're gonna treat this differently because we weren't aware that it was religious liberty. Means spending time, a long time on the phone with the corporate council of one of the largest banks in America that had just debanked an ambassador for religious liberty without giving explanation, canceling his account and saying, let's talk about this. Why did you do this? How do you make these decisions? It means talking to the largest proxy advisory service in the world just last week. And finding out that even though in the past they had automatically endorsed these pro-abortion resolutions, they are now no longer going to do that. And then seeing that they now, there's one coming up on a ballot in a few weeks, they recommended a no vote on this pro-abortion resolution. So it means talking to people, not confronting them. I mean, sometimes you have to, when they're not cooperative, you have to take it up a little bit. But it means trying to reason with them and over the long term, have influence with them. And it also means, there's a lot of details here. This is not designed to be easy. It means the client doesn't have to do all that paperwork. They don't have to know where the IR department is. They don't have to know all those things. They're delegating that and there's an economy of scale.
- And we're, and Jerry, we really want to make it easy for our clients to engage. And that's one of the real benefits of using these services. And clients can kind of stop wherever they wanna stop. If they just want to have their assets managed and be able to tax loss harvest and gift, and that's all they want to do, that's fine. If they wanna move on into the proxy area, that's great. If they wanna move on into engagement, that's great too. The thing that I would say that's so crucial in what we're doing and what we've had many clients express satisfaction with is that they feel like their voice has been given back to them and that they're able to make a difference, that they do feel like they're able to engage. And for so long, the Christian community would disengage. You mentioned it at the very beginning of this podcast. It was kind of, we don't like this company because X, Y, Z, we're gonna pick up our marbles and go home. No, this is not a long-term sustainable strategy, this Essings type of a strategy. And you know, the Essings, we know what eventually happened to them, it just took longer. So this strategy of disengagement is an avoidance and boycott. We don't think, unless it's something that really bothers your conscience, we think an engagement strategy, dialogue, reasonable people reasoning together there, this idea of truth over tribe, getting away from tribalism and fights and arguments, but being going forward and expressing your point of view in a corporate setting. The one big learning I had, Jerry, as we did this, is to see the relief from CEOs and CFOs that we talked to, because many of them said, I don't have anybody else on this side of the discussion. Nobody ever comes to me. And there are, there are CEOs that you read about that are pressing their agenda, but there's other CEOs that are just focused day in and day out of running a quality business and providing value to their shareholders. There's some great CEOs out there that don't want the distraction of all of the noise of getting pulled into every social issue. They just wanna make widgets and do it really, really well. And when they meet us first, they think, well, are these gonna be religious people throwing fire and brimstone at us? And then they find out we're just reasonable. We want you to be able to do your job. We want you to take care of shareholders. We want you to take care of your company. And these are some suggestions. What a difference in dialogue.
- Preach it.
- It's usually a relief to a CEO. We're here to get some, we're here to get politics off your back.
- Right.
- We're here to liberate you from politics.
- Yeah.
- Well, Jerry, we love the good work that you're doing and we just appreciate the partnership we have with you and talk to your financial advisor to see if access portfolios are something that'd be right for you, because there's just so many benefits and we're grateful that we could have and bring this discussion on corporate engagement to you today, thank you.
- [Narrator] Thank you so much for listening to the Wisdom for Wealth. For Life podcast. If you're looking for financial advice, please contact us. Please visit ronblue.com. That's ronblue.com. Thank you for listening, and please subscribe to wherever you listen to your podcasts. Trust and investment management accounts and services offered by Ronald Blue Trust incorporated are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, nor guaranteed by any bank or bank affiliate and are subject to investment risk, including possible loss of the principle amount invested.