The touch
An activist who leads with the business will get the attention
This past week, I was fortunate enough to speak at a summit and the UN on sustainability and technology. If you know me, I’m a benevolent troublemaker, so my side conversations were mainly about ESG and a range of other topics.
For example, someone asked me this:
“What do we do about Robby Starbuck?”
If you aren’t familiar, Starbuck is an activist who is attempting ‘to push corporate America to be politically neutral,’ per an interview in the Financial Times. He’s apparently pretty good at it since several companies have recently rolled back their DEI policies based on his pressure.
I am not a fan of his work or his approach, as it aligns with a political agenda targeted to generate outrage. ESG is not a political movement, yet he is effective.
The way he operates appears to be three things:
Research the company’s efforts.
Connect those efforts to polarized political opinions.
Create near-truths and spin up his conservative followers on social media.
This doesn’t appear to be much different than the previous anti-ESG campaigns against Bud Light or Target; it’s just better organized. Starbuck recognizes his power vs. shareholder activists in this Financial Times article:
The truth is, they don’t know how to communicate in the same way we do.
Yep. It’s true. He has manifested action from pressure without reliance on proxy resolutions or direct board influence.
Still, many companies aren’t getting their ESG efforts right, making them easy targets.
In the above Financial Times article, Emma Obanye, a DEI advocate and CEO of OneTech, said, "Starbuck is testing the robustness of these policies and we’re seeing which companies have just paid lip service to these real issues.”
Yep. Also true. Let’s get into it.
Shareholder activism
There’s a bit of level-setting I need to do before we go further.
One of the benefits of owning stock is the ability to vote your shares in favor of or against board members and proxy resolutions. Despite the rise of ‘proxy voting choice’ programs from institutional investors, giving investors the right to vote how they choose, we have yet to see a significant increase in activist voting despite the rise in activist proposals.
If you doubt what I’m saying, I recommend listening to any random Friday episode of the Business Pants podcast, where you will hear Matt Moscardi call out investors repeatedly for preserving the status quo and being utterly disinterested in their power, especially in material director changes that could drive progress.
Here are some numbers per a Morningstar article last month:
“…the number of ESG shareholder resolutions voted on at US companies grew by 21, or 3%, in the 2024 proxy year.” However, it is worth noting that anti-ESG proposals, which only got about 2% support, helped that slight increase.
“Average support for environmental and social resolutions as a whole fell to 16% in the proxy-year 2024, down from 19% last year and 28% in 2022, and having halved from a peak of 33% in 2021.”
It is critical to note that Morningstar doesn’t make a judgment call between ACTUAL material ESG proposals and shareholder activism. These numbers appear to represent the entire universe of Environmental, Social, and Governance proposals, material or otherwise.
Proxy resolutions are the preferred approach for pro-ESG investors and sustainability/DEI activists: Own the stock, launch a proposal, and bring it to a vote. Still, despite one-off use cases, it doesn’t appear to be working well, and the gradual increase will take too many AGM cycles to drive change.
This week, a panelist at the UN summit mentioned we need more pro-ESG lobbying. Eh, I’m not convinced that should happen, at least not with traditional lobbying. As I’ve written previously, anti-ESG proposals typically get under 4% support, yet Starbuck persuades boards to change through social media attention. Lobbying companies, board members, or investors directly doesn’t get attention. We need more direct pressure, but that’s not all.
To Obanye’s point, the company efforts that were shut down were likely lip service. Lip service, when backed with non-material action, doesn’t make it any less lip service; it only makes for an easy target that falls over in the slightest breeze. We need companies that create material and meaningful programs to withstand a storm.
So, is Starbuck’s approach one that could be replicated by pro-ESG or existing shareholder activists?
Well, not exactly, but it does offer a helpful framework for anyone interested in fighting against his efforts if you embraced, you guessed it, an ESG mindset.
Research the company’s efforts
Starbuck spends time doing his research. He not only reads the company’s financials and ESG-related reports but digs deeper into where those paths lead, connecting the dots between things to the point where he just about stretches the truth. It works like this:
Company A ran an event with/donated to XYZ organization. That organization believes in ABC and promotes 123, so Company A supports those things.
Ergo, Company A is doing something outside of its business and is values-driven.
Those values are not ‘our’ values.
From here, he builds a compelling connection and story. Let’s look at the research aspect from an ESG perspective and see how we could learn from this.
For example, I have argued that the recent proposal to Jack-in-the-box (JACK) to disclose its emissions is not very material. Proposal Four this past year was listed as:
Shareholders ask Jack in the Box (JACK) to determine and disclose its current greenhouse gas (“GHG”) emissions (for at least Scopes 1 and 2) as well as short-, medium- and long-term goals for reducing its emissions. Progress meeting the goals should then be disclosed annually.
This resolution passed, possibly because every company should be doing this now. Yet, the argument wasn’t much for materiality, although that is mentioned. The argument was more around JACK’s competitive disadvantage and customer preference. These things are reputational risks. Admittedly, brand is a highly valuable intangible, yet there is no mention of what JACK’s brand is worth. The dots were not connected well.
The company’s materiality matrix lists emissions as one of its most minor material issues (page 6 in the PDF here). They list two other Environmental issues as their top material issues: Energy Management and Sustainable Packaging. Targeting their efforts in this space may be more impactful than going after an area the company believes is less material.
On the other hand, investors have zero idea about the company’s emissions, so it is a concern. Still, emissions aren’t universally material. Despite the market’s focus on it, if it isn’t material for the company, it represents an interest to a specific type of investor, a sustainable one. As a result, political activists could call out even a non-material carbon emissions effort too quickly. And so, a low-materiality carbon reporting metric could result in a transient carbon reduction goal that gets rolled back in a few years.
This is how even table stakes become an argument that Starbuck and the anti-ESG crowd can make, and the unfortunate thing is that this is the truth, well, part of it.
Pro-ESG activists also need to research what matters to the companies and what levers they can pull. This not only drives progress, it drives progress as only the company can.
Check out the new homepage for ESG Mindset, including chapter overviews and more!
Connect material efforts to the business
The only reasonable defense or path to success against these anti-ESG attacks is to keep the work relevant to the business or, if you are the business, do enough material work to make your efforts defensible. This is how you continually prove that you understand your business and stakeholders.
Please note that I didn’t write that JACK has no intersection with the Environment that needs attention. They most certainly do, and, in their estimation, there are other, more material issues. For example, on page 9 of the linked PDF, they state this about their Sustainable Packaging efforts.
In 2020, 8% of our packaging systemwide was made of virgin plastic. Our goal is to cut the use of virgin plastic by 20% in 2030, compared to our use in 2020. We are proud to share that as of June 2023, 85% of our fiber packaging is sourced from recycled or sustainable materials, mirroring our ambition to marry sustainability with responsible business growth.
Why not focus activism efforts here instead? Between Sustainable Packaging and Energy Management, I’d pick something related to packaging. Less waste lowers cost, and the Business Coalition for a Global Plastics Treaty seeks to formalize a UN stance on plastic waste. These are the types of concerns that connect materiality and impact.
JACK does not track its total waste or the percentage of renewable or recycled plastics despite having the above goal. This should be a pro-ESG activist topic to target. On the other hand, they don’t have a firm carbon commitment, so why ask them to measure it? Further, emissions aren’t included in JACK’s 10K, but packaging is. Under one of its risks, it lists:
Compliance with current and future laws and regulations in a number of areas, including with respect to ingredients, nutritional content of our products, and packaging and service ware may be costly and time-consuming.
Wow, there are a lot of material issues in that sentence, including way more material issues related to the health of their products. Product Quality and Safety just so happens to be the most material issue they list.
Still, I call this note out here for how it ends. The longer a company waits to transition, the more costly it is. While there are references to ‘future laws’ throughout the 10K, there isn’t much about how they plan to proactively address these brewing issues, so that is still a good question. For example, an activist could ask the company to split its “Food and Packaging” costs into two categories to track its commitment for packaging more effectively and ask for concrete plans around the goals.
Even if the argument for material action rested on competitive advantage and reputational management alone, wouldn’t the impact of tangible recycled plastics or lower waste be more visible to consumers than an annual emissions record? Getting visibility to the consumer and soliciting a reaction seems to drive swift board action.
Help companies get it right
Spinning up his followers through indirect board impact is what Starbuck is good at. However, Starbuck may falter eventually because, while he leads effectively with research, he aligns research with values, taking the same approach that he accuses others of doing. He also goes after reputational risk, which has value but may not be as high as a defensible material project. On the other hand, convincing a company to return to the status quo is easier than convincing them to do something, especially if it isn’t core to the business, so he may continue to be successful.
For pro-ESG or sustainability activists, starting with a material connection to the business makes an issue defensible and something the company will focus on. Even if you get lucky with shareholder support, like with JACK, a material issue will get attention, even if it is solely through the perspective of the reputational risk, the same lever that Starbuck pulls.
Look, there are global, systemic (and, in the US, national) issues around ESG topics. Still, companies have businesses to run, and some of this overfocuses on the regulations and carbon, which get in the way of what we want companies to do - create impact as only they can. Spinning them up around a material issue should be straightforward, and even Starbuck’s social media videos can be a template to do that, if needed. Engagement might be a more effective approach. Still, activists need to keep it material.
Let me put this another way. Would you rather Coca-Cola and Pepsi figure out how to reduce plastic waste and water usage or reduce their carbon emissions? We want them to do it all, but which has more impact? Our current approach is like asking a fossil fuel company to reduce plastic waste or asking a smoker to lose weight.
Many of the recent rounds of DEI program cutbacks, which Starbuck has taken credit for, appear to be way outside of the company’s remit, especially in the way he tells it. The question is whether companies are pivoting too far away from stakeholders. One might think that is the case based on the round of headlines, but the reality is much more nuanced.
What Starbuck is doing is forcing companies to look at these programs in the context of their business and adjust. I believe that this approach might make the remaining programs more effective.
For ESG practitioners, I hope you see where I’m going. This is an unintended consequence of Starbuck’s actions.
For example, Tractor Supply is backing away from its carbon goals and focusing on land and water use. The company’s fuel-based equipment suppliers should be highly concerned with the energy transition, and Tractor Supply should monitor that for customer preference, engaging suppliers accordingly. Meanwhile, conservation and adaptation through land and water use are more material for the company at the intersection of their consumer stakeholders instead of mitigation. Tractor Supply should localize climate change knowledge in its stores to engage customers on regional land and water use changes. Through a community effort like this, they can build their reputation as trusted advisors and capitalize on the opportunity.
Investors and interested stakeholders must monitor these goals and the following actions, as they are material to the business and can drive localized impact as only the company can.
Rather than spin companies up with opposing pressure, I suggest keeping the pressure on and focusing on the business, not issues outside of it. Coincidentally, and you might hate to hear this, this is really why Starbuck is so effective. He’s convincing people that companies are doing something outside their core business.
Starbuck is effective at rallying his base through video and social media, building his use case and publishing it out to the ether to generate outrage. Still, at the core, he indirectly leads with the business by leading with what isn’t relevant to the business. The last piece of the puzzle is figuring out how to communicate a material message to companies while spinning others up to your argument.
And boycotts aren’t the way. Those are too transient for the long-term progress needed here.
If you want a company to make a move, you must make it matter to them and do it at scale with their stakeholders, leveraging all the tools at your disposal, including research, an ESG mindset, and any skillful communicators you can find.
Champions and compelling storytellers are needed for this last piece. Do you have the touch?