An interview with Paul Chesser, Corporate Integrity Project director at the National Legal and Policy Center (NLPC).

Founded in 1991 and based in the U.S., NLPC is a conservative non-profit group that engages with U.S. issuers highlighting the risks it perceives around ESG investing.

How has the rise of ESG impacted corporate governance and long-term shareholder value creation?

We believe the rise of ESG has distorted the judgment of those in corporate governance, both with C-suites and boards of directors, and we believe it has negatively impacted shareholder value creation. This was the outcome of the political left taking over and becoming an outsized mouthpiece in the shareholder proposal and engagement process over many years, while there was no countervailing conservative engagement.

Liberal activist shareholders have dominated this process for many years and now “own the battlefield,” which should not be a “battlefield” — it should be a process in which shareholder proponents engage to try to help improve governance, leading to better company performance and returns.

This is why you are now seeing conservative activist shareholders increasingly engage, and you are seeing the pendulum swing back in the other direction, as evidenced by high-profile backlashes against companies like AB InBev, Target, Walt Disney, etc.

The goal is not for companies to start to embrace conservative policy positions on issues, but to convince them to return to prioritize their fiduciary duties without regard for divisive political positions, and to serve all potential clients and shareholders, and to get them “back to neutral.” One example of this shift is the departure of several diversity, equity, and inclusion (DEI) executives from media and entertainment companies recently, and also why we have seen huge employee cutbacks among major companies.

This year, NLPC’s shareholder proposals covered a variety of topics, ranging from the risks inherent in content censorship, operations in Communist China, and government takedown requests. What makes these topics particularly important for boards to address?

We believe in increased transparency on such issues for shareholders (as with lobbying expenditures) and that companies like to give the impression that they are transparent, but really aren’t.

Doing business in Communist China is extremely risky and presents a unique threat to shareholder value — one that warrants special transparency beyond the standard, boilerplate risk disclosures that companies provide in their annual reports. China’s human rights record, threats to Taiwan, genocide, oppression in places like Tibet and Hong Kong, etc., are all reasons to be especially concerned about the degree that companies are dependent on supply chains and revenue generation in China. U.S.-based multinationals all bailed out of Russia when Vladimir Putin invaded Ukraine — but what would they do if China did the same to Taiwan, as President Xi Jinping has repeatedly threatened?

On government takedown requests, companies like Alphabet, Amazon, Meta Platforms and Verizon have already shown to have colluded with governments to illegally censor citizens’ speech, at least in the U.S. This causes great reputational risk to these companies, who have shown they are untrustworthy on this matter. Greater transparency about the government’s actions is needed to begin the restoration of trust in these companies.

Are companies receptive to your concerns?

Not really. The ones who bother to meet with us are courteous, and like to point out their (insufficient) actions to address our concerns, but in the end they either don’t agree and thus don’t comply, or just don’t go far enough.

There are numerous regulations from international policymakers asking companies to enhance their ESG reporting. How do you feel American multinational companies should navigate this?

Resist! I believe this whole situation is the result of regulatory capture and a widespread willingness to go along, because both the regulators and the corporations’ governance leaders agree on ESG. So, until leadership and therefore ideology with regard to ESG is changed, there isn’t much point to giving them any advice.

The pressure to move away from ESG has to come from grassroots efforts, litigative threats from attorneys general and defunding from state treasurers and perhaps shareholder lawsuits. Until the pain for adherence to ESG reaches their tolerance threshold, I think policymakers will stick with it.

This year has played host to leading fund managers exiting ESG-focused investor coalitions and supporting fewer ESG proposals. Do you expect this trend to continue?

BlackRock CEO Larry Fink just came to the realization that he can’t use the term ESG anymore because it now has a negative connotation, but his approach is no less favorable to ESG. He will try to get away with it using other terms, because BlackRock rakes in too much revenue from the fees these funds generate. Same goes for other fund managers.

We had a meeting earlier this year with another major fund management team about our Starbucks proposal, and they tried to deny that they embraced ESG and that they consider and review each proposal on its “individual merits” and in the context of the company’s overall performance and situation. It was laughable. I think fund managers will continue to fake that they are abandoning ESG until they are politically or financially forced to really abandon ESG.

Could you share with us what you consider to be some of your recent success stories?

Our chairman, Peter Flaherty, got arrested at Berkshire Hathaway’s May 6 annual meeting in Omaha, because he brought up Warren Buffett’s support for Bill Gates, and Gates’ ties to Jeffrey Epstein. Our proposal was for an independent chair policy, and our point was that unlike other major companies, Berkshire’s identity is inextricably tied to Buffett’s, and therefore anything he does brings reputational risk to shareholders. The incident went viral.

Our successes thus far are not found in shareholder vote results or companies’ compliance with our wishes. Aside from the work done by the National Center for Public Policy Research (NCPPR), Steve Milloy and ourselves, conservative shareholder activism — as far as significant numbers go — is still in its infancy.

First you have to show up. In the coming years, you will see more of them coming into the process to counter the activities and progress of left-leaning shareholders. I am sure it is all making directors and executives miserable to have to deal with the shareholder process as an even deeper political quagmire, but they are mostly the ones who deserve the blame for it. If they had stuck with their fiduciary duties as their priorities, rather than shortsightedly getting bogged down in the leftist political agenda, they wouldn’t find themselves here. Now they are reaping the consequences.