Tag Archives | BP

Shell ‘Welcomes’ Resolution on Climate Change

Shell old logoLAPFFThe Local Authority Pension Fund Forum (LAPFF) recently welcomed the decision by Royal Dutch Shell’s Board of Directors to recommend support for the ‘Aiming for A’ shareholder resolution submitted by a coalition of shareholders including the Forum, CCLA, Rathbone Greenbank Investments and the Church Investors Group.

In a letter to the investor coalition advising of its decision Shell said: Continue Reading →

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How I Voted at BP & Why I Vote on MoxyVote

BP, one of the stocks in my portfolio of about 50 companies, has an Apr 14, 2011 Annual Meeting coming up. I pulled up the “proxy statement” but didn’t have much patience with it… couldn’t easily find pay package, etc… perhaps because not US company. I checked in with ProxyDemocracy.org and MoxyVote.com… last day to vote using MoxyVote!

At ProxyDemocracy I see that Trillium voted against management on just about everything. I’m not quite that rebellious. I went with Florida SBA and CBIS, taking the harder line against management whenever they differed.

MoxyVote had recommendations from three groups but it is a little more difficult to compare them on that site since you have to click on each to get their recommendations, unless they are on your list of good causes. It looks like “Diversity” is asking people to vote against the only Continue Reading →

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Risk Lessons from BP

According to an article in Pensions & Investments, the BP disaster will cause managers and investors to become more aware of how ESG-related risks can be material to a company’s performance, experts say. This will drive managers and investors to pay closer attention to ESG risks and to push for changes in areas such as corporate disclosure that might help investors better understand ESG risks.

At the heart of the problem is that stock analysis never assumes anything will go wrong, said Ran Fuchs, global head of ESG analytics at RiskMetrics Group: “It is something missing from analysis — not just ESG analysis. In the past few years, a lot of bad things have gone wrong, and we still ignore it in our analysis.”

Most of the best-in-class products labeled ESG had BP in the portfolio (before the disaster), yet there seems to have been plenty of warning signals in hindsight. According to ABC News:

  • In 2007, a BP pipeline spilled 200,000 gallons of crude into the Alaskan wilderness and BP got fined $16 million.
  • Then the Justice Department required the company to pay approximately $353 million as part of an agreement to defer prosecution on charges that the company conspired to manipulate the propane gas market.
  • In two separate disasters prior to Deepwater Horizon, 30 BP workers were killed and more than 200 have been seriously injured.
  • According to the Center for Public Integrity, in the last three years, BP refineries in Ohio and Texas have accounted for 97 percent of the “egregious, willful” violations handed out by OSHA.
  • OSHA statistics show BP ran up 760 “egregious, willful” safety violations, while Sunoco and Conoco-Phillips each had eight, Citgo had two and Exxon had one comparable citation. (BP’s Horrible Safety Record: It’s Got 760 OSHA Fines, Exxon Has Just 1, Business Insider, 6/2/10)

The P&I article says we’ve learned four key things from the BP spill:

  • the importance of inherent sector risks;
  • the potential of politics affecting how a company manages a disaster;
  • media response will be much swifter and more international than ever before; and
  • companies must take responsibility for their suppliers and contractors publicly from the start of the disaster. (Managers learn from the BP catastrophe, 6/28/10)(

As early as 1993, ICCR members filed six resolutions to more closely regulate subprime mortgages. (Two Overlooked Lessons From the Financial Crisis, 12/31/10) We need to pay more attention to signals of excessive risk.

Maybe it’s time for index funds to weight stocks based on risk. David R. Koenig, recently launched The Governance Fund, LLC, a private investment management firm that uses a proprietary model of corporate governance based on several data-sets to capitalize on what he terms “the value gap” between well-governed and poorly governed companies. Hopefully, we’ll see more attention to strategies that eventually may reduce overall risks to our environment. Kenneth Rogoff even speculates the BP spill may rekindle interest in a carbon tax? (Can Good Emerge From the BP Oil Spill?, Project Syndicate, 7/2/10)

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Reign of the Shareholder is Over?

I just returned from ICGN 2010 (and will post on that next week). Among the thousands of e-mails I received during my week of absence, one stands out (although I haven’t gone through them all). Brendan Sheehan, the usually thoughtful Executive Editor of the Corporate Secretary, posits the “Reign of the Shareholder is Over” because 36 members of Congress wrote to BP protesting the company’s announced intention to pay a dividend.

Sheehan argues “that members of Congress are showing their true colors: they care about whatever the hottest topic of the day is. After two years of fighting for the rights of shareholders everywhere, they have turned on them almost overnight.” “So it now appears that the message from Congress is ‘Shareholder be damned.’”

First, when did a “reign” of shareowners begin? If there ever was such a phenomenon during my lifetime, I missed it. True, we are finally to the point where at about 2/3 of S&P 500 shareowners can vote against directors and if those incumbents don’t get a majority of the vote, when running unopposed, they are supposed to turn in a letter of resignation, which boards so far have more frequently refused than accepted. The vast majority of companies still operate under a plurality vote system, much like the old Soviet Union… vote for the party but if you don’t they are in anyway. Congress and the SEC are still moving forward on proxy access, so it isn’t as if Congress has all of a sudden turned against trying to rebalance, in a small way, the huge advantage given CEOs over shareowners.

Of course Congress cares about the hottest topics of the day. They are elected to represent the public. Too often, they are more concerned with taking money and advice from lobbyists. On issues as huge as the Gulf spill, they can’t duck out completely. Congress needs to at least attempt to get BP to hold on to cash needed to pay for cleanining up the oil spill and damages, although it is hard to imagine that any amount of money will undue all the damages to people and to nature.

BP also faces political pressure on their home-front, since dividends funded a good portion of British pensions. Apparently, BP may hold off on paying the dividend, placing the money in an escrow account “until the full scale of the company’s liabilities” from the spill are clear. (BP plans to defer dividend after pressure from Obama, Times of London, 6/1/10)

After purporting to show that Congress has turned against shareowners, Sheehan goes on to argue that giving more power to shareowners is a mistake because in speaking before the Financial Crisis Inquiry Commission, Warren Buffett, the largest shareowner at Moody’s, defended their lack of foresight regarding the risk of subprime loans. Since Buffett made the same mistakes and assumptions as the rest of management, “it is a slap in the face to all those who argue that greater shareholder representation on boards would have mitigated some of the problems.”

Sheehan mistakenly lumps all shareowners into a single class. Buffett is widely known for the passivity of his management style, once a company has entered the Berkshire Hathaway fold. Members of the Interfaith Center on Corporate Responsibility (ICCR) aren’t nearly as passive as Buffett. As early as 1993, ICCR members filed six resolutions to more closely regulate subprime mortgages. According to ICCR Executive Director Laura Berry:

When our institutional investor members view their holdings through the lens of justice and sustainability, the priorities for action that emerge frequently anticipate market moves. Time and time again, the prophetic voice of faith has allowed our members to anticipate emerging areas of corporate responsibility, in investment policy as well as in social, economic and environmental policy. For more than a decade before anyone else, our visionary members have been expressing concerns related to predatory lending practices, inappropriate underwriting standards and the potential consequences of securitization of debt instruments.

Of course, it would be nice if proxy access empowered long-term responsible shareonwers like the members of the ICCR. Unfortunately, even a best case scenario is likely to leave ICCR members mostly out of the loop because of the high thresholds that will be required to nominate a small portion of board members.

The government has a role to play in regulating companies and in ensuring corporations are operated more democratically. Certainly, they capture of regulators by businesses doesn’t help avert disasters such as the Gulf spill. Even before Citizen United, active shareowners like ICCR sought to limit the political influence of not just the companies whose stock they own, but all companies. Now, that task is even more urgent.

The reign of shareowners has yet to begin. If it ever does come about, let’s hope activists like ICCR are empowered, rather than pacifists like Buffett. Buffett may make lots of money, but don’t count on shareowners like him to foresee or forestall housing bubbles, oil spills or global climate change. Of course, according to organizations like the Business Roundtable, governance reforms, like even a mild for of proxy access, will only empower “special interests” that will “hurt the U.S. economy.”

It may take a little hurt in the short-run to address long-term problems. I hope Brendan Sheehan and the corporate governance professionals he works for aren’t too short-sighted.

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Another Area Where Corporate Governance Failures Have Spreading Implications

While the financial crisis prompted this writer and Prof. Eric Pan of Cardozo Law School to write about how corporate governance law requires change to take into account outcomes as well as process in order to prevent harm to innocent bystanders – such as taxpayers – from occurring, the BP Gulf oil spill is yet another situation illustrating the need for law to prompt greater oversight of and by senior management. It is far from clear at this time whether the various claims made about BP, Transocean and Halliburton in connection with the infamous well are true, and there are obvious issues of extraterritoriality with respect to BP itself, but if a significant number of them are, this will indicate a major breakdown in corporate governance.

At the least, it appears to me that BP had no real plan in place to deal with the aftermath of a spill in extremely deep water when it started such activity. While hindsight is always 20/20, it seems reasonable to expect the governing body for a firm like this to insist upon some meaningful strategy and analysis to mitigate harm to innocent people before the firm undertakes operations which can have such widespread impact and are the subject of so little definitive learning. Even if such a plan is not technically perfect, the mere process associated with its creation, should a cause a more effective response and weighing of alternatives if the worst happens.

Yet, from what we can deduce from BP’s halting, thus far ineffective, response to the spill, the difficulties associated with dealing with a spill in literally uncharted waters and the differences between such circumstances and much more shallow water, were not the subject of much deliberation at the top levels of the company. This is inexcusably poor corporate governance and its effects are being felt by the families of those killed in the rig explosion and by tens or hundreds of thousands in the Gulf Coast region, who were not BP shareholders and thought they had no connection to the company.

Additionally, claims have been made that BP cut many corners with respect to the doomed well in its haste to conclude its operations and that such corner cutting may have played a role in the drill rig explosion. If this is the case, whether it resulted from the wrong message coming from the top of the company or from poor decision-making by midlevel managers is subject to interpretation and fact gathering. If the problems are traceable to senior level edicts, this is yet another argument for much greater board oversight.

I am not asking for boards and CEO’s to be insurers and responsible for every serious problem befalling their companies, but merely to seriously consider what can go wrong when major initiatives or changes in strategy are being pursued, and how to respond in such case, before proceeding with an approach which can have so many severe consequences for so many outside the company who can do little to protect themselves. If such consideration is done and results in a plan which is prima facie viable, yet does not ultimately solve the problem, one can use the need to take business risks to drive the economy, especially where we are pursuing alternatives to imported oil, to justify absolving executives and directors from further personal responsibility.

What is intolerable is the blank check we have seen in the financial sector where blind faith was placed in the likelihood of real estate values not declining, and apparently in the oil field when drilling moved into unprecedented areas. When commenting to Cnn.com (June 4, 2010; Tutton, Lessons Learned from  the Largest Oil Spill In History) on oil spill clean ups, specifically the 1991 Persian Gulf operation, Abdul Nabi Al-Ghadban of the Kuwait Institute for Scientific Research gives excellent guidance for all such risky activity:

If you have offshore operation you need to have a good contingency plan in place of spillage, damage, earthquake or a problem with the pipeline. We learned the lesson that we have to have an action plan – you have expect the unexpected.

When companies take risks that can have huge external implications, corporate law needs to require those ultimately in charge of such companies to ensure that such risks are fully understood and alternatives are in place to deal with the manifestation of such risks. With the growing external implications of so many corporate decisions, we can no longer afford a process-oriented corporate governance regimen, but must do more to link decisional authority and responsibility for outcomes. This means augmenting current initiatives around proxy access and compensation clawbacks with some sort of direct responsibility for damages suffered by third parties outside firms as a result of poor oversight within the firms.

Publisher’s Note: Thanks to guest reviewer Martin B. Robins, an adjunct professor in the Law School of Northwestern University. He is presently, and for the past 10 years has been, the principal of the Law Office of Martin B. Robins where his practice emphasizes acquisitions and financings, technology procurement and licensing, executive employment and business start-ups. The firm represents clients of all sizes, from multinational corporations to medium sized businesses to start-ups and individuals.

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Annual Meeting Reports

I don’t get out to attend many annual meetings but I would like to encourage anyone who does to report on what happened. Matthew Rafat, who writes for Seeking Alpha, is the only one I know of who routinely writes up his impressions of these events.

On April 14, Rafat wrote Notes From the 2010 Brocade Shareholder Meeting. I see management had two governance proposals on the proxy. One to declassify the board. The other to end supermajority requirements. Since these both came from management, I suspect they got the votes required for adoption. However, I would be interested to know if there was any discussion at the meeting of these proposals and their importance. Rafat’s discussion of Brocade’s strategy is good. I wish he would discuss governance concerns more frequently but at least he is out there giving us some idea of what happens.

John Chevedden reports that a shareowner proposal by Patricia Shaw of Scarborough, Maine, submitted by Ram Trust Services of Portland Maine won 55% support at Weyerhaeuser this morning in spite of management opposition. The proposal was item 6 and advocated for a right for 10% of shareholders to call a special meeting. I see that, as reported by ProxyDemocracy.org, Green Century, CalSTRS, CBIS, Florida SBA, and AFSCME all voted in support. In addition, Chevedden tells me that probably as a result of a shareowner proposal last year to end supermajority requirements that won 85% support and a 2005 proposal from CalPERS that won 73% to declassify the board, management put forward a proposal this year to not only  end supermajority requirements but also to declassify the board, allowing annual election of all directors. That important measure passed as well.

According to an e-mail alert from The Economist, “Nearly 40% of shareholders at UBS opposed a plan on executive pay in a consultative vote. The Swiss bank earlier forecast a pre-tax profit for the first quarter, but investors are furious at the huge losses it has previously incurred. Kaspar Villiger, the chairman, said he understood the anger, but that UBS had ‘cut back too much last year, causing us to lose entire teams, their clients and the corresponding revenue.'” (4/15/2010)

Fair Pensions reports, their resolution on BP’s controversial plans in the Canadian tar sands (also known as oil sands) won support or abstention from 15% of shareowners, despite a strong company recommendation to oppose. Many, even some of those voting with management, agreed that BP had not provided sufficient assurance that tar sands plans are financially robust, and that the greater level of transparency called for in the resolution is still required.

Those attending the meeting raised questioned the companies’ use of demand projections that assume no change in governments’ climate change policies & imply catastrophic climate change. They also questioned, how adequate control of outsourced projects can be asserted and expressed concern over health impacts on local communities and the overall impact on BP’s finances. Catherine Howarth, CEO of FairPensions said:

Shareholder resolutions are primarily a means to draw attention to an issue of concern to investors. The vote today is only one outcome of a wider process, which has catapulted tar sands risks to the top of BP’s agenda, and has become a major topic of debate in the City. The task for investors now is to make the most of the disclosures made to date, and continue to robustly engage with BP into the future. This will be matched by an unprecedented level of scrutiny from campaigners, politicians and members of the public.

The resolution was filed by over 140 individual and institutional investors from around the world including The Co-operative Asset Management, Boston Common Asset Management, the Ecumenical Council for Corporate Responsibility (ECCR), the UNISON Staff Pension Scheme, Rathbone Greenbank, and other fund managers, foundations and faith groups. The resolution asks the company to commission and review reports setting out the assumptions made by both companies in deciding to proceed with tar sands projects regarding future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods. The resolution asks that the findings of the report and review should be reported to investors in 2011.

Votes cast at the AGM have yet to be counted, but figures for votes cast in advance and announced on the day indicate that 15% of shareholders either voted for the resolution (5.6%) or abstained (9.2%). Total advance votes are as follows:

For: 622,272,418
Against: 9.497,638,714
Withheld / abstained: 1,020,301,075
Total Shares: 11,140,212,207

On a somewhat related note, a new proxy voting guide from The Corporate Library has just been released by The Corporate Library and is available for free download. Proxy Voting on Labor Standards: A Case-by-Case Guide.

The second principle of the UN PRI commits signatories to active ownership with regard to environmental, social and governance (ESG) issues. “Proxy voting is an important means of exercising active ownership but can also be challenging to execute,” said Director of Research and Risk Analytics Kimberly Gladman, author of the voting guide. “Investors must not only understand the topic of the resolution, but also determine whether it deserves support at a particular company.” Although this guide focuses on labor standards, guidance on all ESG issues is similar.

Investors who conclude that a resolution is germane to the company’s business and that the company’s board and management are not yet adequately addressing the business risks and opportunities it poses are likely to support the resolution. Those who conclude that the issue is not significant for the company, or that it is significant but the company is already taking adequate steps to address it, may oppose the resolution. Some investors in the later group, however, may also choose to abstain on the resolution, in order to signal support for investor abstention to the issue in general, even if it does not seem pressing at this particular company at this time. Some investors also oppose or abstain on resolutions they believe are overly prescriptive or poorly constructed, even if they agree that the issue is important.

Abstentions, in the case of BP, may indicate the many investors want BP to do more, but aren’t necessarily ready to back this specific proposal. How many investors have the time to sit down and properly read and analyze the proposal? That where, in future, “branded” voting advice becomes ever critical. Who do you trust? Mark Latham’s Proxy Voting Brand Competition remains a critical read.

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How I Voted at BP

Per my disclosures, I own a small amount of BP PLC ADS. Maybe because it is a foreign issue, I didn’t find BP as I tried to use MoxyVote.com but I was able to see how CalSTRS voted at ProxyDemocracy.org. Frankly, I’m not as informed as I would like to be, especially with regard to the directors.

I know that investors from both sides of the Atlantic have filed resolutions for the BP, Shell, ConocoPhillips and ExxonMobil annual general meetings, which ask the companies to report on the financial, environmental and social risks associated with their oil sands investments. FairPensions UK, the California State Teachers Retirement Fund (CalSTRS), and Boston-based Green Century Capital Management (Green Century) are coordinating the shareholders’ efforts.

At BP, the only oil company I own, this resolution is identified on the ballot as SPECIAL RESOLUTION: TO INSTRUCT A COMMITTEE OF THE BOARD TO REVIEW THE ASSUMPTIONS BEHIND THE SUNRISE SAGD PROJECT.

Canada’s tar sands are the second largest oil resource in the world, with 173Bn barrels in reserves. However, extraction is energy-intensive and environmentally-damaging, requiring deforestation, extensive water use, and the creation of massive amounts of toxic waste. Even using the most conservative lifecycle analysis, oil from this source emits between 15% and 40% more greenhouse gases than the average of conventional sources, raising doubts about the long-term economic viability of oil sands development. Local indigenous communities affected by oil sands pollution and ecological harm, such as the Beaver Lake Cree Nation, have filed legal challenges that could drastically slow or halt oil sands development.  BP has responded, but not to my satisfaction.

Frankly, I trust the analysis done by CalSTRS, FairPensions UK, and Green Century on this issue. “Shareholders must know how companies are preparing for these costs and mitigating future risks,” says Emily Stone for Green Century. Mindy S. Lubber, president of Ceres and director of the $8 trillion Investor Network on Climate Risk (INCR) says,

Investors are concerned that many companies seem to be moving ahead without a well-articulated plan to manage the environmental and social risks associated with the oil sands. Given the extra-long investment horizons of oil sands projects, it is especially important for companies to invest in solutions to these challenges upfront.

I recall my dad, an engineer, showing me some of the oil sands when we visited his brothers in Canada about 50 years ago. He was very skeptical concerning our ability to extract the oil without ruining the environment. I’m not sure we’re there yet. Since I’m voting with CalSTRS on this shareowner resolution, I’m also going with them and voting against all the director nominees and several management proposals as well.

If you are in the UK, I urge you to go to FairPensions on this issue. Click the take action button. From there, you can send a message to your own pension scheme to try to get them onboard with this issue at BP, Shell, ConocoPhillips and ExxonMobil. I wish we had a similar advocacy organizations in the US.

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