The Intimidation Game (24 page)

But he acknowledges that it is “really hard to fight.” He circles back to the campaigns against the chamber by Obama and leading Democrats. “What do you do when you are on the wrong side of demagoguery? How do I knock down a completely untruthful statement, when it is the president of the United States saying it? These are people with a title. People that, rightly or wrongly, the public holds in some respect. We are so very small compared to that. And yet, to listen to them, we're the one that needs silencing.”

If you've
never been to a corporate shareholder meeting, you've likely never heard of Justin Danhof. If you ever have been to one, you'll likely never forget him.

Danhof runs something called the Free Enterprise Project, part of the National Center for Public Policy Research. NCPPR was founded in 1982 by Amy Ridenour, and its mission, as Danhof describes it, is to “build up the conservative free-market voice wherever we see it most quiet.” That's how the think tank came to run Project 21, a black political outreach group. It's why NCPPR formed a health care reform task force, after witnessing just how lazy so many Republicans were on health policy. (“That's how we got Obamacare,” quips Danhof.) And it is how it came to own the Free Enterprise Project (FEP), which by self-description “exposes efforts by left-wing interest groups to divert businesses away from best practices and into left-wing advocacy.”

It's a big mandate, and FEP over the years has done everything from exposing corporations that partner with left-wing activists in favor of bad regulation to publicly demanding that companies hold true to free-market principles. Danhof's job in recent years has nonetheless come to center on just one issue: shareholder proxies.

Those proxies are today, alongside public pressure campaigns against the Chamber of Commerce and CEOs, the left's favorite means of intimidating corporations into silence or submission. A sophisticated left-wing infrastructure exists to run the project, a sprawling collection of social investment funds, unions, public pension funds, online activists, and liberal brain trusts. Perhaps nobody in the universe knows more about this network and its tactics than Danhof, a thirty-three-year-old dynamo who took over FEP about four years ago, not long out of law school. Every spring proxy season, he's a one-man proxy watchdog, jetting from corporate headquarters to corporate headquarters, trying to hold back the intimidation tide.

The left's interest in proxies dates back at least fifteen years, and was spearheaded by the labor movement and some Soros-funded outfits. The strategy went on turbodrive after
Citizens United
. The idea is to seize control of the corporate proxy process, using public pressure, shareholder sentiment, and the fear of bad publicity to force companies to bow out of politics.

Activists manage this by abusing Securities and Exchange Commission rules on corporate governance. The SEC requires every public company to annually hold a meeting for shareholders—the true owners of companies. In the olden days, a company's few shareholders would attend in person, voice their concerns, and vote on changes. Today's shareholders are spread across the globe, so in-person voting is impossible. Shareholders instead vote by “proxy.” Think of it as absentee voting. Prior to the annual meeting, a shareholder is sent a list of proposals to be considered at the annual meeting; the shareholder votes the proxy ballot and returns it to the company.

Here's the rub: According to SEC rules, any shareholder who has held at least $2,000 in stock for a year can introduce a proxy proposal. These proposals go through an SEC vetting process to ensure that they are relevant to corporate governance. The SEC has an incredibly indulgent view of “relevant.” This has allowed a slew of so-called social investment funds—organizations like Walden Asset Management, NorthStar Asset Management, and Trillium Asset Management—to buy a minimum of stock in targeted companies for the sole purpose of standing up proxy proposals that embarrass the companies out of politics or force them into liberal positions. These groups are supported by and tied to liberal outfits like As You Sow, a nonprofit that supports “corporate social responsibility.”

Most of the proposals are aimed at forcing disclosure, with the goal of creating more Target-like situations and pushing companies out of politics altogether. A successful disclosure proxy forces a company to be open about any donations to any politically active nonprofits (like Minnesota Forward). Employing the Media Matters strategy, the left then follows that money to politicians, and highlights the giving as a corporate “endorsement of everything that given politician has said or done.” PR nightmares, boycotts, and falling share prices ensue. Companies stop giving money.

“Social” investor groups like NorthStar justify their proxy work with the usual guff about a broader need for “transparency.” But since the SEC requires proxy proposals to have at least
some
relevance to actual business practices, Danhof explains that the most popular form of liberal proxy is what he's nicknamed “political incongruency” proposals.

He explains, “So they start with some opening salvo about how awful
Citizens United
is, the floodgates are open, blah, blah. And then they say, ‘We want a list of all your political donations and political activity over the past year. And we need an annual report of this so that we can identify any of those donations or activities that are “incongruent” with your stated corporate policy.'

“What do they do then?” Danhof continues. “They get the disclosure information and then they go to the corporate site and say, ‘Hey, look here. You claim to be an environmental steward. However, in 2008, you gave $5 to an organization that supported this Republican senator, who voted against cap-and-trade legislation. Therefore you are “misaligned,” and you need to stop such donations.'”

Danhof finds the entire process insane. “It really is that attenuated. And the amazing thing is that the SEC accepts that bullshit. The activists argue that these proposals are somehow relevant, because the company is lying to shareholders, lying to the public. And it's all about making companies go quiet.”

Danhof spends his day riffling through mountains of these proxies, and since
Citizens United
the mountains have grown taller. Activists in 2011—the first year after the Supreme Court ruling—filed a record number of shareholder proposals on political spending. According to the Manhattan Institute's Proxy Monitor, 92 percent of these were sponsored by social investment funds or labor union pension funds.

The phoniest argument the activists use is that companies need to adopt disclosure policies in order to minimize their “risk.” One 2011 proxy fight came courtesy of Boston's NorthStar, which was bitter that Home Depot and Procter & Gamble had given money to the reelection efforts of Ohio Republican senator Rob Portman and Ohio Republican representative Steve Chabot. As with Target, P&G's donation made sense. The company's headquarters is in Cincinnati, and it has an interest in economic policies that would help shareholder value and employment.

Home Depot isn't based in Ohio, but it also cares about free-market policies. In its demand for new rules, NorthStar told Home Depot that it was necessary the company adopt disclosure to reduce the “risk to the firm's reputation and brand through possible future missteps in corporate electioneering.” Left unsaid was that the only groups ever likely to try to hurt Home Depot's brand over politics would be NorthStar and its left-wing allies in the union and environmental and Democratic political movement. NorthStar wanted Home Depot to adopt NorthStar policies to save it from NorthStar.

Or take it from that same 2010 Media Matters memo, which laid out the exact strategy for the proxy battles. “The data in [our database on corporations] may also be used to launch shareholder resolution campaigns to prevent corporations from making these types of expenditures,” it read. “Working with partner organizations such as yours, we will help to make the case that political spending is not within the fiduciary interest of publicly traded corporations and therefore should be limited. In fact, our efforts to expose spending will enable us to make the case that a corporation's political efforts have the potential to irreparably damage its brand and bottom line.” Media Matters made clear that its goal was to entirely shut down the opposing argument: “Over time, we believe these efforts will dissuade corporations from interfering in our democracy.”

The groups the left rely on to really make progress with proxies are union pension funds. Groups like Walden and NorthStar keep raising the bar for what they want from companies, but they lack clout. Walden's senior vice president in September 2011 sent a form letter to corporations laying out his group's ultimate wish list. It wanted not just the names and amounts of donations, but details of “direct or indirect lobbying,” as well as the “decision making and oversight processes related to direct, indirect and grassroots lobbying activity.” Yet these activist investment firms often hold the minimum number of shares necessary to participate, which makes them easier to ignore.

The unions are a different story. Groups like the California Public Employees' Retirement System (CalPERS) or the California State Teachers' Retirement System (CalSTRS) are investment giants, with hundreds of billions of dollars under management. These groups are also usually overseen by liberal state politicians, who are on board with the activists' strategy and have the pension-fund money and proxy votes to force change.

The politicians who run those huge pension funds began in 2011 by exerting pressure on companies from the investment side. In June 2011, California state treasurer Bill Lockyer and New York City public advocate Bill de Blasio—both die-hard Democrats and both charged with overseeing the investment of pension-fund money—wrote letters to their respective pension funds calling on them to use their heft to demand corporate political spending disclosure. Both CalPERS and CalSTRS quickly moved to formally adopt policies to do just that.

De Blasio went even further, delving back into the Target fray. The pol was a trustee of the New York City Employee Retirement System, which owned shares in Target. The left had already forced Target to cease using money in campaigns via trade associations. Yet the retailer hadn't been able to shake the assault; activists sought to continue making an example of it. They scored a particular hit in 2011, when pop star Lady Gaga very publicly ended a deal with Target for her newest album due to its “continued political activity.” Target's share price kept dropping.

De Blasio skipped all the preamble about disclosure and went right to the Media Matters chase. He wanted Target—and all companies—out of politics altogether. And so he asked his $40 billion fund to directly vote against any Target director in the absence of Target's promise that it voluntarily cease all political donations. No more politics, period. The de Blasio demand came on the eve of Target's annual meeting, which was being held at a store in Pittsburgh. Common Cause, the United Steelworkers, and a pro-gay-rights group helped organize a rally outside, while activist shareholders mobbed the meeting, to demand more changes. The activists so overwhelmed the event that at one point Steinhafel asked, “Does anybody have a question relating to our business that is unrelated to political giving? I would love to hear any question related to something else.”

The unions also began to pressure support sectors in the financial industry, groups like Institutional Shareholder Services, an influential and otherwise well-respected firm that advises hedge funds and mutual funds on proxy resolutions. ISS usually evaluates proxies on a company-by-company basis. But in 2011, under torturous pressure from unions, it issued a general guideline recommending that shareholders vote in favor of proposals to disclose political activity. Having ISS out on the side of the activists only increased pressure on companies to make concessions.

Danhof's job is to halt the concessions, to fight the proxies—and to do it by beating the left at their own game. Through FEP, he also buys shares in companies that are under assault, thereby giving him a voice at shareholder meetings. FEP is tiny—it has nowhere near the funds of a Walden—and Danhof admits that sometimes his organization is forced to draw on the individual portfolios of its handful of NCPPR employees in order to meet the share requirement.

FEP then begins to educate. It distributes information designed to inform the board, shareholders, and consumers about the left's tactics. “We put out a press release, we alert investors. We explain that this has nothing to do with good governance. We explain what it is all about—silencing free speech. We're trying to change the narrative,” he says.

Every spring proxy season, Danhof is on airplanes crisscrossing the country to show up at annual meetings in person. At them, he tries to encourage corporate boards and shareholders to ignore the disclosure proxies and think about what does matter—public debate, good economic policy, a return on investment.

He takes special care trying to get through to the corporate executives. “Inside the FEP, we call it the Backbone Project. We're trying to get them to man up. You kind of feel for them. The left is always coming, saying that if you keep doing what you are doing, we'll be running ads against your board members. It nerves them out.” Danhof remembers one moment a few years ago when he got a phone call from an executive of a major company. Danhof had planned the next week to go to that company's annual meeting and applaud the leadership for sticking to its political guns. The executive thanked him, but also begged Danhof to stay away, stay quiet. “He basically said, ‘Please. We don't need the attention,'” and that if the firm received any more focus, it might have to cave.

Danhof feels for them, but only to a point. The free market is under assault. Organizations like his have worked tirelessly to uphold the constitutional right of these corporations to speak. To not do so is civic and business malpractice.

And a lack of corporate backbone isn't the only problem. Some companies perform a very simple, if cynical, cost-benefit analysis. Target will never know what benefits might have accrued to it had Emmer been elected governor (he lost). But it was able to look at its pummeled stock price and see very clearly the up-front cost of its donation. Companies also build into that cost-benefit analysis groups like Danhof's, or the chamber, or other free-market advocates. “They know that we won't stop, that we'll keep fighting for a free market, keep fighting on their behalf. And if they don't even have to put any money into us doing it, why take that risk? That's the tricky part. It's where our fight gets particularly hard,” he says.