I’ve gone on record saying that I don’t think divestment is the way to address our reliance on fossil fuels. Someone will buy up those divested stocks and they may not be as conscientious as the people who sold them. I just don’t see how this brings about change. Still, large scale divestement could have value. There has been a flurry of news stories about
seventeen foundations banding together to divest from fossil fuels. This action, combined with the continued effort of students pushing for universities to divest, may raise consciousness enough that public pressure will grow and we will finally see alternatives come to market.
With all this in mind, I’ve been mulling over just what happens when a shareholder divests or when they are activist. I’ve created the chart below to show what happens to the shareholder, the company, the economy and society. I expect there to be some debate — and I look forward to discussing it.
| Divesting Shareholder | Engaged shareholder | Passive Shareholder |
Impact on Shareholder | - Public impression that action has been taken;
- Sense of empowerment
- Makes political statement about issue;
- May decrease value of portfolio because of forced sale.
| - Commitment of resources & reputation that involve costs & exposure;
- Potential for adding value
- Potential to establish accountability.
| - Enables management has to enrich themselves at shareholder expense & to operate without effective accountability;
- Enables society-threatening conduct of corporations;
- Enables unlimited diversity of investment.
|
Impact on focus company | - Some potential p.r. issues;
- If a significant percentage of investors divest it could affect market price.
| - Potential for adding value;
- More accountability and responsibility to shareholders & to society as a whole;
- Potential for oversight of CEO pay;
- Potential for better adherence to law and taxation;
- More transparency in political donations & lobbying;
- Potential for fewer fines & settlements due to negligence and corporate crime;
| - Passive shareholders confirm entrenchment of management power;
- Likely to see less accountability and growth in power of management.
|
Impact on Economy | | - Involved owners will incline toward a new system of accounting whereby externalities are factored into the balance sheet;
- Potential that risky behavior that caused the financial crisis would be curbed.
| - With no accountability, corporations are free to move jobs/money offshore and avoid taxes.
|
Impact on Society | - Over time, divestment campaigns may serve to raise consciousness around an issue and even change behavior or policy;
- Little immediate impact except for some media coverage and use in marketing to the sector of consumers and investors interested in divestment.
| - With full accountability in place, corporate taxes would be paid bringing in money to support government programs and services;
- Potential that less money and fewer job moved offshore;
- Potential for less corporate crime and negligence resulting in personal and societal injury;
- Potential for accountability and transparency regarding political donations would mean less corporate influence in government.
| - With no accountability, corporations are free to move jobs/money offshore, avoid taxes & influence the policies that oversee pollution, labor laws, political contributions, etc.
|
Glossary of terms as used in this chart:
Divesting Shareholder: stockholder proposing to sell shares for political reason.
Engaged Shareholder: stockholder who monitors corporate conduct and actively holds management and directors accountable.
Passive Shareholder: stockholder who willfully or otherwise ignores corporate conduct.
Focus Company: corporation that is the target of action – divestiture, activism, etc.
