The Shareholder Commons has filed or otherwise supported 19 shareholder proposals in 2022 that focus on systematic risks, including mis/disinformation, climate change, and antimicrobial resistance. The common thread running through these proposals is how a company’s externalized costs affect shareholders by reducing the value of other assets in their portfolios. For instance, our proposal at BlackRock asks that it adopt stewardship practices aimed at curtailing corporate activities that externalize social and environmental costs likely to decrease diversified portfolios’ return, even if such curtailment could decrease returns at the externalizing company.

Our proposals aim to buttress shareholder advocacy that moves beyond arguments based on “ESG integration,” or how ESG concerns will affect a company’s financial returns. While an ESG-integration strategy is adequate to support change when company value and improved impact converge, it cannot address the many situations in which companies optimize their internal returns by externalizing costs. Those costs derail economic growth, the long-term value of diversified portfolios directly correlates with the economy’s health, and profit from cost externalization is a bad trade for companies’ diversified investors.

Our proposals at Tractor Supply and Marriott International regarding poverty wages and associated racial inequality illustrate our point. Tractor Supply bills itself a leader in employee treatment, yet its starting wage is more than 32 percent less than a 2019 calculation of living wage, which predates recent inflation. Similarly, Marriott’s starting wage for a housekeeper is $12.00 an hour, and the average wage for the position is $13.11. In comparison, the national wage adequate for a modest one-bedroom accommodation is $20.40, not accounting for recent inflation. In 2019, Marriott’s CEO received compensation worth $13,435,887, or 346 times that of its median worker. While Marriott’s U.S. workforce is 67 percent people of color, those groups make up only 21 percent of its executives.

Studies show that every unit of reduction in equality leads to a similar reduction in GDP. Economic Policy Institute research found income inequality slows U.S. economic growth by reducing demand by 2 percent to 4 percent. The Calvert Institute determined that a 1 percent increase in inequality leads to a 1.1 percent per capita GDP loss. Federal Reserve Bank of San Francisco researchers calculated that gender and racial gaps created $2.9 trillion in losses to U.S. GDP in 2019. And, Citi research concluded that eliminating racial disparity would add $5 trillion to the U.S. economy over the next five years.

Our proposals ask both companies to report on 1) whether they participate in compensation practices that prioritize their own financial performance over the economic and social costs created by inequality and racial and gender disparities and 2) how such costs threaten returns of diversified shareholders who rely on a stable and productive economy.

Essentially, we want companies to discuss the tradeoff they force on diversified shareholders when the companies increase their profit margins but lower GDP. Doing so will help investors evaluate when enterprise value diverges from shareholder value – and what to do about it.

Sara E. Murphy
Chief Strategy Officer, The Shareholder Commons