Proxy Access: The Obama-Dodd-Alinsky Shareholder Jujitsu

by John Berlau

What would Saul Alinksy do?

In the wake of defeats for the Obama administration last month both with Scott Brown’s stunning Senate victory in the bluest of blue states and the Supreme Court Citizens United decision that will let thousands of groups speak more freely about candidates positions’ in the 2010 elections and beyond, that’s the question President Obama and his allies are probably asking. It’s also the question that proponents of limited, constitutional government and free enterprise must be asking in order to anticipate the organized Left’s next moves.

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Alinksy was the father of left-wing community organizing. He wrote the book Rules for Radicals and other primers, which explained to would-be leftist organizers how to “search out controversy” and “fan the latent hostilities.” Seeing the world as a never-ending conflict between the “haves and have-nots,” Alinsky wrote In Rules for Radicals that “in war, the end justifies almost any means.”  One community organizer who took Alinsky’s words to heart was a young Barack Obama, who worked for an offshoot of Alinsky’s network of organizations in Chicago in the 1980s. Throughout his career, according to the Washington Post, Obama has “embraced many of Alinsky’s tactics.”

And one tactic in Alinsky’s arsenal dovetails almost perfectly with Obama’s new focus on so-called “financial reform” and his bashing of Wall Street to score political points. One of Alinsky’s most important rules for radicals was that “you do what you can with what you have and clothe it with moral garments.” In this case, the “moral garment” is the supposed interest of shareholders.

Obama and Democrats are pushing legislation they claim would empower average investors against powerful corporate executives. They propose requiring a shareholder vote on everything from CEO pay to – in a move to limit the freedoms in the Citizens United decision — companies’ weighing in on political candidates.

But the crème de la crème in using the cover of shareholders to tilt the playing field to the Left’s advantage may be a scheme called “proxy access.” Provisions regarding proxy access are embedded in House Financial Services Committee Chairman Barney Frank’s “financial reform” bill that passed the House in December, as well as a “discussion draft” of a bill introduced by Senate Banking Committee Chairman Chris Dodd (D-Conn.).

After Dodd’s failure to reach agreement on a compromise bill with Senate Banking Committee ranking Republican Richard Shelby, Sen. Bob Corker (R-Tenn.) has stepped into the void and is now hashing out a bill with Dodd. It is vital that grass-roots conservatives and libertarians learn about proxy access and educate lawmakers of both parties about the threat this Alinksy-inspired policy poses both to a fragile economy and to the political playing field.

Proxy access would federalize and override decades of state law governing the structure of corporations and force publicly-traded companies to put shareholders’ nominees for a board of directors on a company’s proxy ballot along with the firm’s own nominees for those positions. Currently, in states such as Delaware, where many firms are incorporated, all shareholders can nominate their own candidates for the board of directors, but they have to finance these campaigns at their own expense. Under proxy access, companies and all their shareholders would effectively be forced to subsidize the director campaigns of certain shareholder nominees. The threshold for shareholders could be less than 1 percent, based proposals that have floated before the Securities and Exchange Commission.

Like net neutrality, another pet cause of the Left, proxy access sounds technical and somewhat boring on the surface. But also like net neutrality, and like the Fairness Doctrine, proxy access would fundamentally reshape an area of commerce to the Left’s advantage by granting a right of forced access to viewpoints that have been unable to prevail in the marketplace of ideas. And because proxy access would reach all types of businesses that are publicly traded, it could serve as a lever to force U.S. companies to bow to the Left’s wish list on every policy from “card check” that would end secret ballot for union elections to cap-and-trade rationing of electricity to a silencing of conservative voices by small group of ideological shareholders who would have veto power over the content of a media company.

Proxy access has its roots in a concept developed by Alinsky called the “proxy tactic” In Rules for Radicals, Alinsky devoted his second-to-last chapter – “The Genesis of Tactic Proxy” — to describing a new method to force corporations to bow to leftist demands.

In explaining the “proxy tactic,” Alinsky laid out a roadmap for progressive groups and individuals to pool shares of stock and “use [shareholder] proxies for political and social purposes.” Alinsky proclaimed proudly that “there was dynamite in the proxy scare” and described it as “the razor to cut through the golden curtain that protected the so-called private sector from facing its public responsibilities.” In a Playboy interview published in 1972 – a few months before he died – Alinsky would add that “the proxy tactic is also an invaluable means of gaining middle-class participation in radical causes.”

Fast forward almost 40 years to 2010. Since the 1980s, the Left had developed, in the words of George Washington University political scientist Jarol Manheim, a “network that is using shareholder resolutions and proxy voting to press American corporations to change their governance structures and social policies in ways aligned with the Progressive worldview.”

According to Manheim’s book Biz-War and the Out of Power Elite, “By one estimate in 1997 union pension funds controlled a total of $1.4 trillion [emphasis in original].” Also controlling billions of dollars of investment are left-wing foundations such as The Tides Foundation, which has funded radical environmentalism, efforts to ban guns, and the notorious Association for Community Reform Now or ACORN. Manheim writes that Tides, which had almost $150 million in net assets as of 2006, “has openly advocated policies that would advance the influence of Progressive shareholder activists.”

And hardly anything would advance that interest more than proxy access. The government employees union AFSCME has called proxy access rules “the holy grail of corporate governance.” But in reality, the shareholders these proposals would most help are leftist pressure groups – from union pension funds to George Soros-backed foundations with substantial shares of stock – at the expense of ordinary shareholders. Groups from unions to animal rights groups could run their own candidate for corporate directors and promote their special interest agendas at the company’s (and ultimately other shareholders) expense.

Even now—without “proxy access”—the public pension managers and union bosses haven’t been shy about asserting union and other social priorities that would reduce returns for their own pensioners as well as other shareholders. They’ve also used their control over worker funds in obvious efforts to aid the Democratic Party – and attempt to silence its opposition.

In 2004, when Sinclair Broadcasting was planning to air “Stolen Honor,” a documentary critical of presidential candidate John Kerry, New York’s Democrat Comptroller Alan Hevesi fired off a threatening letter to Sinclair saying that airing the program would hurt “shareholder value.” The claim was pretty dubious, as the controversy about the program would almost ensure high ratings. But Sinclair ended up airing only clips from the documentary in a news special. Ironically Hevesi, who posed as a guardian of state pension holders’ interests in Sinclair conflict, would later plead guilty to defrauding the state government and face – in the words of the New York Times — allegations that his “associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves.”

Similarly, when President Bush was pushing private accounts for Social Security, the AFL-CIO threatened to pull its $400 billion fund away from any financial services company backing the accounts. “We have no intention of letting any of these companies get away with this while they manage our workers’ funds,” said top AFL-CIO lobbyist Gerald Shea, according to the Wall Street Journal. After this “pension fund blackmail,” as the Journal called it, several companies pulled out of coalitions supporting private accounts.

Other shareholder groups are pushing corporate policies that would endanger both health and American foreign policy. The radical animal-rights group People for the Ethical Treatment of Animals has sponsored shareholder resolutions to stop companies from conducting animal research for potential life-saving drugs. The left-leaning Human Rights Watch pushed Caterpillar to stop sales to Israel of bulldozers, because the dozers could be used to destroy Palestinian homes. (Not mentioned in the resolution was that many of these homes belonged to terrorists or were used to cover the entrances of arms-smuggling tunnels.) The proposal was defeated by Caterpillar’s shareholders 97 percent to 3 percent.

But under “proxy access” rules, a militant minority of less than one percent, depending on where the threshold is set, could run candidates for director on the official company proxy ballot. And these groups could be “swing votes” in close director elections. This would give corporate boards and management a huge incentive to cave to various demands of interest groups on the Left.

And many squishy CEOs would give in, cutting deals with “progressive” groups at the expense of ordinary shareholders. As I note in a new report for the Capital Research Center, General Electric CEO Jeff Immelt has rarely been a target of campaigns to rein in pay of poorly performing executives, despite the fact that GE has lost almost two-thirds of its value since Immelt has been at the helm. Why? Likely because Immelt has supported liberal priorities like the energy-rationing cap and trade, and lets Leftists dominate the airwaves of GE-owned MSNBC despite abysmal ratings.

In Rules for Radicals, Alinsky admitted that his proxy tactic “will result in diminished dividends” and lower returns for middle-class investors. He even called it “corporate jujitsu.” But the negative effects on nest eggs were okay with him, because he didn’t think much of middle-class folks anyway, referring to them contemptuously as the “have-a-little-want-mores”

Radicals “are right,” Alinksy wrote, that “the values and way of life of the middle class” are “materialistic, decadent, bourgeois, degenerate, imperialistic, war-mongering, brutalized, and corrupt.” But he advised that radicals must disguise their true beliefs and appeal to the middle-class to take power for the Left. “We must begin from where we are if we are to build power for change, and the power and the people are in the big middle-class majority.”

Indeed the middle-class is where the power is. But members of this class are smarter, savvier, and more attuned to threats to the nation’s well-being than Alinsky, Obama, and other community organizers have ever given them credit for. If Democrats and/or compromising Republicans attempt to push through proxy access or any other form of Alinsky’s shareholder jujitsu, they may face an army of opposition from middle-class investors and entrepreneurs who know the principles of freedom that made this country great.


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Posted Mar 1st 2010 at 7:01 am in Economics, Justice/Legal, Politics, Regulation | 402 Comments