Here’s a new idea for co-opting investors: let’s write a white paper together.

We don’t know who is more delusional:

1. ❖J.P. Morgan Chase CEO Jamie Dimon for trying to buy off investors with a “statement of best practice” on corp gov, or
   

2. ❖some of the largest institutional investors in the US for attending multiple meetings to draft such a useless farce.
   

It may have even worked, a little, or possibly backfired. Larry Fink at BlackRock followed his participation in last year’s gatherings with what has become his annual letter to CEOs. Heavy on the virtues of long-term thinking and even environmental, social, and governance (ESG) issues, it also features a couple of useful nuggets which, if ever acted on, would represent a little progress for beleaguered investors.

Worse is, how any of these folks thinking that these manifestos will change minds among entrenched CEOs and BoDs. We thought as much when we first thought about shareholder engagement efforts like this.

White paper?

In August and December 2015, Jamie Dimon and Warren Buffett reportedly hosted the hugest institutional investors to “hammer out proposals for improving public company governance...” Evidently, the CEOs of Fidelity, Vanguard, The Capital Group, and BlackRock participated. As CEOs, they also represent traditional supporters of typical large company corp gov.

What proposals? Really new and exciting stuff, like “the role of board directors, executive compensation, board tenure and shareholder rights.” No mention of the important stuff.

In a bit of a surprise, the Canada Pension Plan Investment Board and ValueAct, one of the more successful activist hedge funds, also have some input to the deliberations. CPPIB might be flattered to advise Dimon and Buffett about corp gov. They’re not the first fund I’d expect Dimon to invite to this party, so CalPERS and others should be insulted if not similarly included. Jeff Ubben at ValueAct might have better things to do than debate the nuances of arcane corp gov principles.

Letter?

Coincidentally, perhaps as response, instructive even if not, Larry Fink wrote his annual letter to CEOs. We struggle to tease out the meaningful bits, in which companies should:

1. ❖convey their long-term strategy to shareholders and involve the BoD in this long-term strategy
   

2. ❖“move away” from quarterly EPS guidance and adopt long-term metrics, whatever those are.
   

He lobs in hoary platitudes about ESG, which we interpret as a sop to his pension fund clients that value this sort of thing. He also tries to establish his independence cred by mentioning how BlackRock supported activists in 39% of the top 18 proxy contests (no mention of their overall record). He saves room to slam US capital gains tax policy and infrastructure investment as short-term, too.

The constant pleas for long-term thinking ignore established corp fin theory, which does not distinguish meaningfully between long- and short-term, and thus recalls how long-term just means entrenched. The letter also features much of the affirming language (“We recognize that companies operate in fluid environments and face a challenging mix of external dynamics”) that reminds us how corporate BlackRock really is.

Look, we’re all for better metrics than EPS for assessing corp performance and exec comp. And, we like discussing strategy with portfolio companies. It saddens and disappoints us that Fink finds it necessary to remind them that the BoD needs to review and approve that strategy.

White paper and Letter!

We wonder about the point of both charades, the meetings or the letter. We don’t think either will change any minds, corporate or investor, about giving shareholders meaningful voice. The big funds that met with Dimon should have no illusions that he (or any other CEO) will relinquish his BoD Chair role (for instance) if their joint white paper says he should (and it should). BlackRock will have much more impact with its votes at portfolio companies than with its letter to portfolio company CEOs.

We suspect that Dimon and Fink each know this. They feel good contributing to improving corp gov, if we can even call it that, with a joint white paper, or with sharply-worded letters. Dimon deftly deflects shareholder pressure, while Fink carefully avoids imposing too much pressure. Both, deliberately or inadvertently, promote corporate interests at the expense of real investor influence.