Subprime Lending
/Prior to the banking crisis of 2007-2008, shareholders of banks had attempted to draw attention to the risks of predatory lending through shareholder proposals. Predatory lending in the subprime market was of growing concern to some investors as it became clear that borrowers were unable to repay these loans and were losing their homes. In 2004, shareholders submitted a proposal at American International Group (AIG) requesting that the Board conduct a review to study ways of linking executive compensation to successfully addressing predatory lending practices. Although the proposal only received 2.8% voting support, it is a remarkable example of the prescience of shareholders as to material risks to their companies. In 2007, AIG was the world’s largest insurance company with some $850 billion in assets and 76 million customers worldwide (30 million in the US alone). By September 2008, it was on the brink of collapse. Over the course of the financial crisis, AIG received a total of $182 billion in government bailout funds.
The AIG example underscores the foresight and function of ESG-related shareholder proposals as early warning systems—tools that can identify risks long before they materialize into financial catastrophe. While proposals like the one on predatory lending may receive limited support at the time of filing, they often signal systemic vulnerabilities that, if left unaddressed, can have sweeping consequences for companies, investors, and the broader economy. This case study, among others, demonstrates why shareholder engagement should not be dismissed as mere activism. It is a necessary component of sound corporate governance and long-term risk management. In a financial system where the public’s retirement savings are often tied to the health of the national and global economy, shareholder proposals offer a critical mechanism to protect long-term value and promote corporate accountability.
Learn more about the New York Fed’s actions related to AIG during the financial crisis here.