Part Two of Three Parts
For more than forty years, shareholder activists and large investors have expressed their concerns to corporate boards through the proxy resolution process. For them, this past season was the best ever.
Proxy resolutions are proposed by investors with the knowledge that even if the proposal “loses”, i.e. gets less than 50% of the actual vote, it can still have a major effect on a corporation’s future behavior. Many of this year’s votes crossed the 30% mark – with some nearing 50% – a level of support that would have been unthinkable only a few years ago.
“Across the industry, investor support for environmental, social and governance proposals (ESG) has climbed dramatically in the last several years,” says Shelley Alpern, Director of ESG Research and Shareholder Engagement at Trillium Asset Management. Mindy Lubber, President of Ceres, agrees, “The BP spill is only the latest reminder of why investors are ratcheting up their attention to climate and other environmental risks across their portfolios,” she said.
Resolutions on the environment – particularly those related to climate change – that went to a vote achieved 30 percent or more support, almost three times the level of support achieved in 2009, writes Ceres’ Meg Wilcox. Ceres helped coordinate this year’s shareholder filings with the Interfaith Center on Corporate Responsibility (ICCR), longtime leader in the corporate social responsibility movement. The filers include state and city pension funds, foundations, and religious, labor, and other institutional shareholders that collectively manage more than $300 billion in assets.
Among the high vote getters:
- Environmental and sustainability reporting resolutions. Thirty-five percent of corporate social responsibility resolutions concerned the environmental and sustainability reporting, according to the Sustainable Investments Institute (Si2). A record 101 climate and energy related resolutions were filed with 88 U.S. and Canadian companies, Ceres reports—roughly 50 percent more than were filed in 2009. Fifty-one of these were withdrawn after companies committed to make positive change. Of the 42 resolutions that went to a vote, 16 received 30 percent or greater support—three times the same level achieved in 2009. Most popular were proposals asking for corporate policy changes, disclosure on climate change, natural resource impacts including coal ash risks, and hydraulic fracturing.
- Labor and human rights resolutions accounted for 18 percent of total resolutions filed. A Mercy Investment resolution to military contractor KBR, which has controversial operations in Iraq and elsewhere, received 42.2 percent support. A similar resolution filed with Halliburton, also plagued by incidents at its Iraq operations, earned just under 37 percent support. Other issues covered by labor and human rights proposals included Internet privacy and net neutrality; corporate obligations to ensure human rights in conflict-ridden areas where they do business; and the human right to water. Only a few proposals directly addressed supplier codes of conduct, while two proposals filed by Trinity Health on child labor (at tobacco giants Reynolds American and Altria) were supported by investors (10 percent and 20.4 percent, respectively).
- Equal employment and diversity resolutions received the highest average level of support, according to Si2. Eleven of these asked companies to protect the rights of gay, lesbian, bisexual, and transgendered (GLBT) employees, and received 33 percent support on average. A resolution filed with Gardner Denver, manufacturer of fuel compressors, by Calvert Investments almost reached 50 percent. Resolutions filed by longtime activist funds at the New York City Employees Retirement System (NYCERS) with KBR received 48.7 percent, and 40.4 percent at Leggett and Platt, (a manufacturer of mattresses and other products). Si2 notes that of those 16 proxy resolutions asking companies to adopt board diversity policies – a key part of SEC reforms – only one came to a vote, at Exco Resources, a natural gas company. “The others were withdrawn, generally after accords between the proponents and companies,” says Heidi Welsh co-founder and executive director of Si2.
- Political activity resolutions. Fifty-six resolutions focused on corporate political activity from a variety of perspectives, including disclosure and board oversight of political spending. Three-quarters of these were coordinated by the nonprofit Center for Political Accountability, which has spearheaded a nationwide investor initiative to bring transparency and accountability to corporate political spending. The highest-scoring political spending proposals were at health care and telecommunications companies, according to Si2.
A resolution filed by Domini Social Investments asking Goldman Sachs to report on trade association payments used for political purposes won backing from 37 percent of shareholders, according to the Center for Political Accountability. This is important, said Domini’s managing director and general counsel Adam Kanzer, because “associations continue to exert influence over our political system without any meaningful system of checks and balances.”
Heidi Welsh tells us that requests to companies about corporate lobbying did not fare as well. “The SEC has long been skeptical about lobbying resolutions,” she said. Bob Massie, a principal of The Transition Group (which sponsors The Murninghan Post), notes that there is widespread concern that the U.S. Supreme Court, in the aftermath of their sweepingly activist reversal of precedent in the Citizens United case, may unleash a “democracy-warping flood of new political and lobbying spending.” To combat this, “many large institutional investors expect to weigh in more aggressively on the deployment of huge sums of shareholder money by executives for the unaccountable advancement of personal, partisan, or pro-corporate concerns.”