Tag Archives | ESG

SSgA Critical of GHG Short-Term Disclosures

SSgA critical of GHG short-term perspective offered up by oil and gas, mining and utility disclosures on addressing greenhouse gas emissions. If we are to maintain a salubrious environment, much of the coal and oil will turn out to be stranded assets. Given that reality, I reallocated most positions I had in this sector to others more likely to continue to grow in coming decades.

Index funds, such as those held by SSgA, BlackRock and Vanguard do not have that option, as long as heavy GHG emitters remain in the indexes. I am glad they remain invested because shareholders are often in a better position to press for change than consumers and governments. It is good to see SSgA taking something of a leadership role among the largest funds. See prior post, Morningstar Direct Uncovers ESG Hypocrites.

SSgA Critical of GHG Short-Term Focus

SSgA notes that oil and gas, mining and utilities collectively account for more than one quarter of annual greenhouse gas (GHG) emissions. As such, they should be taking a leadership role in addressing the long-term impacts of GHG emissions. Instead, their research by Rakhi Kumar and Michael Younis finds:

  • A majority of companies (55%) are using one- to three-year time horizons for their GHG emissions-reduction goals, rather than longer time horizons needed to drive strategic change.
  • Only two of surveyed companies identify review of strategic opportunities related to sustainability in committee charters. None of the others set clear expectations regarding the eventual shift to a low-carbon economy as an opportunity to shape long-term strategy.
  • 43% of companies established absolute GHG reduction goals, 28% focused on intensity or efficiency targets and 10% set both absolute and intensity targets.
  • US-based companies lag peers in Europe, Australia and Canada in disclosing carbon pricing and GHG emissions-reduction goals.
  • Only half of the companies disclose either an average carbon-price assumption or a range of carbon prices; no company discloses both.

See Climate-Related Disclosures in Oil and Gas, Mining, and Utilities. According to Rakhi Kumar: “We are sending the paper to companies via emails and will bring it up during engagement.”

CalPERS and CalSTRS to Evaluate Portfolio Impacts

Senate Bill 964 defines “climate-related financial risk” at the risk that the changing climate and the transition to a low-carbon economy pose to investments. CalPERS and CalSTRS will generate their first comprehensive reports on climate risk by January 1, 2020. See IEEFA and environmental groups warn CalPERS/CalSTRS about climate risk.

   

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Training for Sustainable Investing

Training for Sustainable Investing was a topic at the most recent Morningstar Conference in Chicago. (#MICUS) I would like to learn more the education of investment advisors in #ESG, #SRI, #corpgov issues. Interest in sustainable investing was high at the conference due to fund flows and client inquiries. However, I only saw a couple of handouts on the subject of education in the exhibition area. There were several sessions on sustainable investing but not on eduction programs, as far as I know. The True Faces of Sustainable Investing: Busting Industry Myths Around ESG, found that 72% of the U.S. population expressed at least a moderate interest in sustainable investing – spanning genders and generations.

Readers, what training for sustainable investing is available? Continue Reading →

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Sustainability at Morningstar

Sustainability at Morningstar (Morningstar Investment Conference #MICUS) in Chicago was an important topic, growing in popularity. As posted, their research found “72% of the United States population expressed at least a moderate interest in sustainable investing.” Nice to know many value a habitable planet as well as profits. However, research from Morningstar also finds we can divest from fossil fuels and other sectors without suffering underperformance. [Photo credit, Wyckoff-Tweedie Photography. Jon Hale of Morningstar, Michael Jantzi of Sustainalytics, Jackie Cook of Morningstar.]

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MBII Elects Directors by Majority Vote

MBII elects directors by majority vote, effective March 15th 2019. Marrone Bio Innovations (MBII) amended its bylaws after a request by shareholder advocate James McRitchie and upon the recommendation of the Nominating and Governance Committee. The bylaws now provide that, in uncontested elections, MBII elects directors by majority vote of “For” and “Withheld” votes cast.

The board also amended MBII’s Corporate Governance Guidelines to provide that director nominee are to supply a conditional letter of resignation, effective if they fail to get a majority vote and the board accepts their resignation. I hope if the board fails to accept such a resignation, that would clearly be on a temporary basis.  Continue Reading →

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Morningstar Direct Uncovers ESG Hypocrites

Morningstar Direct is planning to offer its clients important voting data. The firm recently published a preview of what I impolitely term ESG hypocrites – funds that advertise themselves as allowing us to invest in our values but then vote proxies against our values.

For example, last week, students around the world participated in a massive #ClimateStrike. Some have called it a tipping point. With BlackRock, Fidelity, TIAA-CREF and Vanguard all offering ESG funds to invest in our values, we must be heading for a low-carbon economy, right? That assessment may be premature. Not all ESG funds are alike.

New Morningstar research – published for Morningstar Direct users – uses Morningstar’s Fund Votes database to examine how ESG funds voted during the 2018 proxy season on climate-related shareholder resolutions. The research reveals a striking difference in voting patterns from funds sponsors by ESG-specialists vs. ESG funds from more traditional, non-ESG fund companies.

Morningstar Direct Findings

A huge positive is that more funds are starting to “get” the importance of ESG, not only as a screening tool for investing but also in casting proxy votes. Morningstar research found votes cast by the largest asset managers across all funds shows a year-on-year increase in support for all climate resolutions voted since 2016. That is certainly good news. Morningstar surveyed 14 resolutions with a positive vote of 40% or higher. Notice the two largest funds, BlackRock and Vanguard, with combined assets under management of $11.5 trillion, are laggards. Changing how they vote would make a significant difference.

Moningstar Fund Votes ESG Trends

ESG funds from BlackRock, Vanguard, Fidelity Investments, and TIAA- CREF, among others, cast a number of votes that appear to conflict with an ESG mandate, especially for funds specifically aimed at the environment.

ESG votes by Mainstream funds

By way of contrast, among nine fund companies with a long-term ESG focus, not a single vote was cast against climate-change resolutions that garnered more than 40% of the shareholder vote. Asset managers with an ESG orientation unanimously voted for the 14 climate-related resolutions that garnered more than 40% of the shareholder vote across all funds managed.

Votes by SRI asset managers

Underlying Assets

It also might be useful to look at underlying assets. For example, compare holdings of the Trillium P21 Global Equity Fund with BlackRock’s Impact US Equity Fund. BlackRock’s Impact fund contains investments in coal, oil and gas, fossil-fired utilities, etc. They constitute only a small portion of the portfolio but that is enough to get them 0 out of 5 “badges” from Fossil Free Funds. In contrast, Trillium P21 Global Equity Fund wins 5 out of 5 badges.

Research based on Morningstar’s Fund Votes database will help Morningstar Direct clients differentiate ESG hype from ESG reality. The service is likely to increase demand for mainstream fund families to be more consistent in voting and investing within a transparent ESG framework. Traditional SRI funds have been investing and voting ESG concerns for decades. Some, like Calvert, Domini, Pax World, Praxis, and Trillium even announce their votes to the public before annual meetings. Do not expect that from mainstream ESG funds any time soon.

   

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Real-Time Proxy Voting Disclosure Will Drive Competition

Real-time proxy voting disclosure by big funds could drive competition for investments from individual investors and smaller institutional investors with few resources for proxy analysis. Such disclosures would also go a long way in solving problems raised by Delaware Supreme Court Chief Justice Leo E. StrineLucian Bebchuk, and the Main Street Investors Coalition regarding potential conflicts of interest and/or under/over investment in ESG analysis and advocacy. The cost of real-time proxy voting disclosure would be minimal and may actually save funds money currently spent converting voting files to pdfs.

Real-time disclosure would help customers compare voting records and could drive competition among big funds to vote the predominant values of their customers. For ease of use, Compare CalSTRS’ sortable real-time disclosures with those of State Street Institutional Investment Trust. [Graphic above from Pensions & Investments article, No excuse for fiduciary ignorance, 2/19/2018] Continue Reading →

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NAM: Stop Supporting ‘Main Street Investors’ Coalition Say Real Investors

NAM Board Targeted

Investors led by Walden Asset Management, New York Common and the California State Teachers’ Retirement System (CalSTRS) called on 45 companies sitting on the Executive Committee and Board of the National Association of Manufacturers (NAM) to end the trade association’s attacks on shareholders.

The investors’ letter asks the companies to distance themselves from NAM’s recent attempts to discredit shareholder engagement, particularly on climate change. These efforts have been undertaken primarily through NAM’s membership in the Main Street Investors Coalition (MSIC) and through a report NAM funded and distributed that wrongly asserts that shareholder resolutions diminish company value. MSIC represents no investors. In my opinion, it is a front group for corporate managers attempting to generate fake news, stirring public opinion against investor rights. I originally posted in September. A January 2019 Addendum has now been added below.

Quotables on NAM

“The irony is that many companies on the NAM board are active business leaders on climate change,” said Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management.

They understand the very real risk to our environment and have active forward-looking policies and programs on climate. Yet their dues to NAM are funding an aggressive attack against the very investors they meet with regularly to address climate change. We are appealing to these companies to clearly state their opposition to these positions taken by NAM and Main Street Investors Coalition. It is important to do so to protect their company reputations and integrity.

“Environmental risk consideration is part of the evolution of investing. Whether a retail or institutional investor, assessing the risks of investments is a standard practice,” said CalSTRS Portfolio Manager in Corporate Governance Aeisha Mastagni.

NAM appears out of touch with its own constituents. Over the last decade more than 75 percent of the environmental-related proposals CalSTRS filed were withdrawn because the companies were willing to negotiate a mutually agreeable outcome.

The Letter’s Key Paragraph

The MSIC perpetuates the myth that incorporating environmental, social and governance (“ESG”) factors inherently conflicts with protecting and advancing shareholder value. However, the 1,200 members of the United Nations-backed Principles for Responsible Investment – including Fidelity, BlackRock, Vanguard and State Street – with over $70 trillion in assets under management, have committed to consider ESG issues in the investment decision-making process since these factors may affect shareholder value. There is ample evidence that incorporating ESG issues into investment decisions is part of responsible management as a fiduciary. Moreover, hundreds of global companies demonstrate leadership and transparency on sustainability issues. These companies’ action are not guided by “political and social interests” but by what is good for their investors and stakeholders over the long term.

NAM Background

NAM is a trade organization that represents and advocates for manufacturers across industrial sectors. Many NAM members are taking active steps on climate issues as a result of shareholder engagement. Nevertheless, NAM has established significant ties to MSIC, which purports to speak for investors, but which instead appears to be engaged in an attempt to undermine shareholders’ rights by denouncing ESG-related shareholder proposals and by suggesting shareholders’ concerns are politically motivated.

Why NAM is Attacking Shareholders Now

The investor letter noted that, “The emergence of MSIC and the release of this report come at a time when investor support for shareholder proposals is growing” because the “business case behind them is clear and convincing.” The signatories requested that the companies explain their views on MSIC’s public attempts to discredit investor engagement and shareholder proposals.

Over 80 institutional investors, including state and city pension funds, investor trade associations, investment firms and mutual funds, foundations and religious investors added their organization’s names in support of the letter.

Investors are actively engaging companies in their portfolios as concerns over climate risk grow. Most recently, investors representing approximately $30 trillion urged some 150 companies to reduce their greenhouse gas emissions, disclose their assessment of climate risks, and explain what actions they plan in response to climate risk.

Investors like BlackRock, Vanguard and State Street have made it clear that they want the companies in which they own shares to address climate risk.

“It is extremely bad timing for NAM and by implication the members of its board to be attacking investors addressing climate change at a moment when we desperately need to work together,” said Smith.

Historical Perspective

Since I am older than most of my readers, I offer the following historical perspective. The investor letter sent to the Executive Committee and Board NAM is correct in assuming that shareholder rights are under attack because their proposals are winning. The current fight on climate change and social issues reminds me of an older one on proxy access. In 1977 the SEC held a number of hearings to address corporate scandals. At that time, the Business Roundtable (BRT) recommended amendments to Rule 14a-8 that would allow access proposals, noting such amendments

… would do no more than allow the establishment of machinery to enable shareholders to exercise rights acknowledged to exist under state law.

The right to pursue proxy access at any given company was uncontroversial. In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies.

One company argued that placing a minimum threshold on access would discriminate “in favor of large stockholders and to the detriment of small stockholders,” violating equal treatment principles. CalPERS participated in the movement, submitting a proposal in 1988 but withdrawing it when Texaco agreed to include their nominee.

Early attempts to win proxy access through shareowner resolutions met with the same fate as most resolutions in those days – they failed. But the tides of change turned. A 1987 proposal by Lewis Gilbert to allow shareowners to ratify the choice of auditors won a majority vote at Chock Full of O’Nuts Corporation and in 1988 Richard Foley’s proposal to redeem a poison pill won a majority vote at the Santa Fe Southern Pacific Corporation.

In 1990, without public discussion or a rule change, the SEC began issuing a series of no-action letters on proxy access proposals. The SEC’s about-face was prompted by fear that “private ordering,” through shareowner proposals was about to begin in earnest. It took more than 20 years of struggle to win back the right to file proxy access proposals.

Conclusion

Let’s hope the current attack on shareholder rights by NAM and the fake Main Street Investors Coalition does not set investor rights back by another 20 years.

Addendum: John Hale of Morningstar (Responses to CalSTRS/Walden letter)

In August of 2018, investors led by the California State Teachers’ Retirement System (CalSTRS) and Walden Asset Management called on the 45 companies sitting on the Executive Committee and Board of the National Association of Manufacturers (NAM) to distance themselves from the Main Street Investors Coalition project and its objectives.

Of the companies contacted, Microsoft and Intel quickly said they would distance themselves from NAM on this issue. According to an August 14, 2018 letter from Fred Humphries, Corporate Vice President, U.S. Government Affairs at Microsoft:

“I’ve written to the CEO of NAM Jay Timmons to share our long experience with the positive value of shareholder engagement and to encourage NAM to consider this perspective.”

From Intel:

“[W]e do understand your concerns with aspects of recent MSIC statements and the NAM sponsored report ‘Political, environmental, and social shareholder proposals: do they create or destroy value?’, including language that frames issues addressed by ESG-related shareholder proposals as ‘politically charged’ instead of within the context of how these issues can impact shareholder value. We intend to share our perspective on the value of constructive ongoing investor-company engagement.

“We will continue to take action to advance corporate responsibility practices, improved transparency and climate change strategies, and engage with our stockholders as a key part of Intel’s and our Board’s corporate governance commitment.”

Good for Microsoft and Intel.

The other responses were less supportive. ConocoPhillips’ letter noted that it does have issues with the current shareholder-resolution process, but added this is not a “priority issue,” It doesn’t necessarily support every position taken by a trade association of which it is a member.

“ConocoPhillips recognizes the value of stockholder proposals, as well as the costs and burden of responding to formal stockholder resolutions. The Company wants to preserve stockholders’ access, but that does not imply that the current system for filing stockholder proposals could not be improved. While not currently a priority issue for the company, we are interested in an open dialogue on the topic, including ideas on criteria for reintroduction of stockholder resolutions which had previously been voted upon without passing.

“Our participation with a trade association does not imply that we are aligned on all issues; however, it does provide a seat at the table… . Our association membership should not be interpreted as a direct endorsement of the entire range of activities or positions undertaken by such trade associations.”

Cummins, Lockheed Martin, and Pfizer responded with general statements touting their shareholder engagement policies and activities, prompting this reply (to Pfizer) from Walden Asset Management:

“In our letter we raised a specific governance issue, specifically Pfizer’s role as a Board member of NAM. We also understand that Pfizer is a member of the Business Roundtable. Both organizations have chosen to lead aggressive attacks against shareholder rights and the ability to file resolutions.

“We are concerned that your dues and good reputation are being used in this campaign. We therefore appealed to Pfizer to state your own company position and agreement or disagreement with the NAM initiative. We are not asking Pfizer to disengage from the Buisness Roundtable or NAM, but to use your role as a responsible board member to address this issue and state that you do not believe these campaigns are in the best interests of companies that serve on their Board.

“We are aware that Pfizer has a long history of communication with trade associations, whether it be the U.S. Chamber of Commerce or ALEC. Thus, as our letter articulates, we are asking Pfizer to urge NAM to end their attacks on shareholder rights.”

The silence from most companies speaks volumes. Despite their stated support for shareholder engagement, they actually are supporting efforts to curtail shareholder rights. It is easier to hide behind NAM of the Main Street Investors Coalition than to be on the front lines as an individual company. Even if a company does not support NAM’s position in this case, NAM’s influence could come in handy on any number of other issues in the future. Hence, companies want to be members in good standing.

The third possibility is that a lot of member companies simply may not have been paying much attention to NAM’s attacks on shareholder rights. Groups like NAM operate with considerable autonomy from their membership, except during times when a major issue galvanizes the membership to demand action. At other times, a trade group may conjure up issues on its own that it believes its membership supports as part of an ongoing agenda that conveys to members that the group is actually doing the work that justifies its membership fees.

Great work by Walden Asset Management and CalSTRS in raising this issue with NAM members and pressing them to take action.

*I get the distinction between an actual lobbyist specifically hired by a corporation to pursue its unique interests in Washington and “trade associations”, which are pressure groups that advocate more generally, but all are part of the swamp.

Economics and politics suffer not from too much moral argument, but too little. Both fail to engage the big questions people care about. Winning in life is NOT dying with the most toys. We can neither empathize with others nor persuade them by sweeping our values or theirs under the rug. Finding shared norms requires moral imagination, exploration and dialogue, both as economic agents and citizens.

As Jessie Norman concludes in his book, Adam Smith: Father of Economics,

Economics itself needs to own up to its limitations… it has long been overly preoccupied with its own models rather than with the real-world phenomena they are supposed to represent… It encourages politicians to persist in the responsibility-abrogating technocratic fantasy that economics trumps politics and can itself solve issues of justice, fairness and social welfare… There can be no such thing as value-free economics.

There can also be no such thing as value-free investing. Both the modern democratic state and the modern evolving corporation depend on mutual moral obligation. For the center to hold, common values must be created through open dialogue and democratic elections, not by a few unaccountable individuals hidden in the shadows controlling companies like Wal-Mart, Koch Industries, Alphabet, or Facebook. See Recommendation of the Investor Advisory Committee: Dual Class and Other Entrenching Governance Structures in Public Companies. Both the purpose of the state and corporations must be discussed openly to create shared cultural values.

Like the Trump administration, the Main Street Investors Coalition seeks to win over public opinion, not through moral argument but largely through fake news and bluster. Hopefully, the Coalition’s campaign itself will open eyes to the need for wider participation in corporate governance by real Main Street investors, or as SEC Chairman Clayton calls them, Mr. and Ms. 401(k).

    
 
 

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Fitch Links ESG to Credit Ratings

Fitch Ratings today announced the launch of a new integrated scoring system that shows how environmental, social and governance (ESG) factors impact individual credit rating decisions. On one side, the Main Street Investors Coalition believe investors must focus on maximizing financial return and management knows best. On the other side are those who want to broaden the focus of investors to include environmental, social and governance (ESG) issues, with everyone participating in the debate.

Perhaps the new ESG Relevance Scores from Fitch Ratings will help bridge the gap. Unlike ESG ratings developed by others, Fitch displays both the relevance and materiality of ESG elements to the rating decision. They are sector-based and entity-specific. Continue Reading →

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ESG Assets Surging but at Risk

US SIF study documents environmental, social, and governance — ESG assets — under management surging. ESG assets now account for one in every four investment dollars. Demand for ESG asset focus is coming from real people.

In contrast, the Main Street Investors Coalition [funded by the National Association of Manufacturing (NAM)], insists on “maximizing performance ahead of pursuing social and political objectives.” If NAM gets its way, ESG assets will be cut to a trickle.

In a letter to the SEC ahead of an upcoming Staff Roundtable on the Proxy Process NAM writes,

Investment advisers should have policies and procedures in place that require the identification of a clear link to shareholder value creation before voting in favor of any proxy proposal, including those focused on ESG topics.

However, as you will read below, the public wants to move in a different direction. The public wants to invest in ESG assets – those geared toward not only making money but creating a better world.

The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends, found that sustainable, responsible and impact investing, SRI assets, now account for $12.0 trillion—or one in four dollars—of the $46.6 trillion in total assets under professional management in the United States. This represents a 38 percent increase over 2016.

The Trends Report—first compiled in 1995—is the most comprehensive study of sustainable and impact investing in the United States. From the first report when assets totaled just $639 billion to today, the sustainable and responsible investing industry has grown 18-fold and has matured and expanded across numerous asset classes.

The 2018 report identified $11.6 trillion in ESG incorporation assets under management at the outset of 2018 held by 496 institutional investors, 365 money managers and 1,145 community investing financial institutions. The largest percentage of money managers cited client demand as their top motivation for pursuing ESG incorporation, while the largest number of institutional investors cited fulfilling mission and pursuing social benefit as their top motivations.

In addition, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets filed or co-filed shareholder resolutions on ESG issues between 2016 and the first half of 2018.

Eliminating double counting for assets involved in both ESG incorporation and filing shareholder resolutions produces the net total of $12.0 trillion in SRI strategies at the start of 2018.

Money managers and institutions are utilizing ESG criteria and shareholder engagement to address a plethora of issues including climate change, diversity, human rights, weapons and political spending,

said Lisa Woll, US SIF Foundation CEO.  Additionally, retail and high net worth individuals are increasingly utilizing this investment approach with $3 trillion in sustainable assets.

Ellen Dorsey, Executive Director of the Wallace Global Fund, a leading foundation endowment that has embraced sustainable investing and supported the Trends Report since 2010, noted,

We support this research as a critical tool to track crucial trends in the industry and benchmark our own goal of 100% mission alignment, as we promote an informed and engaged citizenry, help fight injustice and protect the diversity of nature.

According to Amy O’Brien, Global Head of Responsible Investing at Nuveen, the investment management division of TIAA:

What the US SIF Trends Report shows incontrovertibly, is that investors are truly beginning to understand the value of ESG considerations as an effective means of managing risk and improving investment performance. With an intensified focus on important issues such as climate change and corporate board gender diversity, we hope to see creative solutions that will help address these challenges, and in turn, drive shareholder value in the years ahead.

Top ESG Asset Criteria

The relative prominence of specific ESG criteria differed between money managers (firms that manage assets on behalf of others) and institutional asset owners (entities like pension funds, foundations and educational endowments that own and invest assets, often via money managers).

The report breaks out the top ESG issues by types of investment vehicles, including registered investment companies, such as mutual funds and exchange traded funds (ETFs), private equity and venture capital funds, community investing institutions and others.

The report also provides detail on the top ESG criteria by each of nine types of institutions: public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and healthcare plans, faith-based institutions, other nonprofits and family offices.

Asset managers:  Climate change was the most important specific ESG issue considered by money managers in asset-weighted terms; the assets to which this criterion applies more than doubled from 2016 to 2018 to $3.0 trillion. Other top ESG categories included tobacco, conflict risk, human rights, and transparency/anti-corruption. Concern among money managers and their clients about civilian firearms was also on the rise.

Asset owners:  For institutional asset owners, conflict risk was the top specific ESG criteria, up 8 percent from 2016 to $3.0 trillion followed by tobacco, carbon/climate change, board issues, and executive pay.

Investor Advocacy for ESG Issues

From 2016 through the first half of 2018, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets at the start of 2018 filed or co-filed shareholder resolutions on ESG issues. “Proxy access” was the leading issue raised in shareholder proposals, followed by disclosure and management of corporate political spending and lobbying.

The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2012-2015, only three shareholder proposals on environmental and social issues that were opposed by management received majority support, while 18 such proposals received majority support in 2016 through 2018.

In addition, the number of survey respondents that reported engaging in dialogue with companies on ESG issues increased notably since 2016.

Other Findings

Both the number and assets under management of registered investment companies incorporating ESG continued to grow at a strong pace. Assets in mutual funds reached $2.6 trillion, up 34 percent over 2016, and the number of ETFs more than doubled from 25 to 69.

ESG assets under management in 780 alternative investment vehicles, including private equity and venture capital funds, hedge funds, and real estate investment trusts (REITs) or other property funds, totaled $588 billion at the start of 2018. This is nearly triple the assets identified in 2016, and an 89 percent increase in the number of funds.

With assets of $185.4 billion, the community investing sector, which includes community development banks, credit unions, loan and venture funds, has experienced rapid growth over the last decade, nearly doubling in assets between 2014 and 2016, and growing more than 50 percent from 2016 to 2018.

The National Association of Manufacturing claims to have formed the Main Street Investors Coalition to ensure the individual investor’s interests are considered. Yet, money is pouring into ESG assets because more and more individuals are investing their values.

That letter from NAM to the SEC also asks that proxy proposal resubmission levels be raised from 3% of the vote in year one, 6% after two years and 10% after three to new thresholds of 6%, 15% and 30% respectively. Additionally, “NAM supports increasing the existing $2,000 threshold to a level that more appropriately reflects true ‘skin in the game’ for a shareholder sponsoring a proposal.” At least one bill in Congress aims at setting that level at 1% of the total value of the company

In summary, at a time when the public is clamoring for ESG assets and shareholder proposals to address ESG issues, NAM is calling on the SEC to:

  • double or triple resubmission thresholds on proxy proposals,
  • eliminate most proposals through high thresholds required for initial submissions,
  • prohibit investor advisors from voting for shareholder proposal unless they have identified the proposal is clearly linked to “shareholder value creation.”

Can NAM stem the flood of ESG assets? The SEC was created to protect investors. NAM seems to be asking the SEC to protect corporate managers from investors.

   

 Corporate Governance (CorpGov.net) on Facebook

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Main Street Investors: Battle Coming

The battle over Main Street Investors could determine the future of the American economy for decades to come. According to Cydney Posner of Cooley PubCo, on one side are those who believe investors must focus on maximizing financial return and management knows best. On the other side are those who want to broaden the focus of investors to include environmental, social and governance (ESG) issues, with everyone participating in the debate. Continue Reading →

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Keep Politics Out of the Boardroom?

The deceptive title of a recent op-ed in the Wall Street Journal would not keep politics out of the boardroom. Instead, the recommendations would deny shareholders the right to request boards disclose those politics, in addition to denying many other long-standing rights. Read the op-ed and weep that such trash gets published in the Journal.

This is my response to the 7/18/2018 op-ed “Keep Politics Out of the Boardroom” by Phil Gramm and Mike Solon. I waited before publishing this, in case WSJ chose to publish my rebuttal. They did not. Continue Reading →

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Environmental Health Program Manager Wanted

Environmental health program manager wanted by my favorite nonprofit, As You Sow. Austin Wilson is leaving for a period of extensive travel. I will certainly miss him and hope when he returns he will find similar employment. Looking to make the world a better place and have the right skills and experience? There is probably no better place you could be working. Official job announcement. Continue Reading →

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Chipotle Mexican Grill Proxy Guide

Chipotle Mexican Grill, Inc. (CMG), together with its subsidiaries, operates Chipotle Mexican Grill restaurants. As of December 31, 2017, it operated 2,363 Chipotle restaurants throughout the United States, as well as 37 international Chipotle restaurants; and 8 non-Chipotle restaurants. Most shareholders do not vote because reading through 70+ pages of the proxy is not worth the time for the small difference your vote will make.

Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts. The annual meeting is coming up on May 22, 2018. I voted with the Board’s recommendations 38% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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PayPal Holdings Proxy Recommendations

PayPal Holdings (PYPL), operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. Its payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products.

Most shareholders do not vote because reading through 100+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts. The annual meeting is coming up on May 23, 2018. I voted with the Board’s recommendations 44% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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Intel Proxy Voting Recommendations

Intel Corporation (INTC), designs, manufactures, and sells computer, networking, data storage, and communication platforms worldwide. Most shareholders do not vote because reading through 100+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts. The annual meeting is coming up on May 17, 2018. I voted with the Board’s recommendations 53% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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United-Guardian Proxy Rule Violation

United-Guardian (UG), United-Guardian, Inc. manufactures and markets cosmetic ingredients, personal care products, pharmaceuticals, medical lubricants, healthcare products, and specialty industrial products in the United States and internationally. Most shareholders do not vote because reading through the proxy is not worth the time for the small difference your vote will make, although this one is only 16 pages Below, I tell you how I voted and why. The annual meeting is coming up on May 16, 2018. I voted with the Board’s recommendations 0% of the time, since our Company flagrantly violated regulations. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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Charles Schwab Proxy Voting Guide

Charles Schwab Corporation (SCHW), through its subsidiaries, provides wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. Most shareholders do not vote because reading through 100+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted and why.

If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on May 15, 2018. I voted with the Board’s recommendations 60% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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3D Systems Proxy Voting Guide

3D Systems Corporation (DDD), through its subsidiaries, provides three-dimensional (3D) printing products and services worldwide. Most shareholders do not vote because reading through 50+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read my rationale), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on May 15, 2018. I voted with the Board’s recommendations 67% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

3D Systems: ISS Rating

From the Yahoo Finance profile:

3D Systems Corporation’s ISS Governance QualityScore as of April 1, 2018 is 4. The pillar scores are Audit: 2; Board: 3; Shareholder Rights: 1; Compensation: 10.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. Therefore, we need to pay closer attention to executive compensation.

3D Systems: Board Proposals

1. 3D Systems Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends “For,” with the exception of: William E. Curran (1A), Kevin S. Moore (1I) and Jim D. Kever (1F) because they have served for more than ten years (with compromised independence) and sit on key committees, which should be composed only of independent directors. Although I agree with the thrust of their arguments, I am not ready to set that as my policy.

Since I voted against the pay package, I also voted against all members of the compensation committee: William E. Curran, William D. Humes, and Kevin S. Moore. I also note, there are no women on the board. I am inclined to vote against the nominating committee next year, if that continues.

2. 3D Systems: Executive Compensation

3D Systems’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Vyomesh I. Joshi at $1.9M. I’m using Yahoo! Finance to determine market cap ($1.3B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. 3D Systems is a small-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $3M in 2014, so pay was under that amount.

3D Systems shares substantially underperformed the Nasdaq over the most recent one, two, and five year time periods. For 2017 the ratio of the annual total compensation of Mr. Joshi, our CEO, to the annual total compensation of our median employee was 35 to 1.

Egan-Jones Proxy Services rates compensation practices as “Neutral” and recommends For.
Egan-Jones

However, to me it looks like 3D Systems is gaming the system, since they substantially reduced pay from $8.1M to $1.9M in one year. I feel I cannot ignore this recent history of overpaying. That factor and continued underperformance led me to vote “AGAINST” the say-on-pay item, as well as members of the compensation committee.

3. 3D Systems: Ratify Auditors

I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest.  However, Egan-Jones notes the auditor has been serving as the Company’s auditor for more seven years and their independence is compromised. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years. In this case I voted FOR.

3D Systems: Shareholder Proposals

4. REDUCE THE OWNERSHIP REQUIRED FOR STOCKHOLDERS TO CALL A SPECIAL MEETING 

This proposal is from Myra Young, as written and recommended by me (James McRitchie), so we certainly voted in favor. Most states allow 10% to call a special meeting. Before we submitted the proposal 3D Systems had a threshold of 50+%, so we have already won substantial ground prior to this vote. We believe 15% is a reasonable compromise above the 10% standard.

Vote FOR.

3D Systems CorpGov RecommendationsProxy Insight

Proxy Democracy was down. Proxy Insight reported on CalSTRS. which also voted AGAINST the pay package and compensation committee. They voted FOR all other items, including our shareholder proposal to lower the requirements for calling a special meeting.

CorpGov Votes:

  1. Directors: Vote AGAINST William E. Curran, William D. Humes, and Kevin S. Moore.
  2. Auditor: Vote For.
  3. Ratify Executive Pay: Vote Against.
  4. Reduce Ownership Requirement to Call a Special Meeting; Vote FOR

3D Systems: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners:

  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Proxy access provisions are Lite.  A shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board.

3D Systems: Mark Your Calendar

Under Rule 14a-8 of the Exchange Act, certain stockholder proposals may be eligible for inclusion in our proxy statement and form of proxy for our 2019 Annual Meeting. The date by which we must receive stockholder proposals to be considered for inclusion in the proxy statement and form of proxy for the 2019 Annual Meeting of Stockholders is November 28, 2018 or, if the date of our 2019 Annual Meeting is changed by more than 30 days from May 15, 2018, a reasonable time before we begin to print and mail the proxy materials for the 2019 Annual Meeting.

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.

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Field Assistance Bulletin 2018-01: New Tone, Same ESG Analysis

Field Assistance Bulletin 2018-01

Field Assistance Bulletin 2018-01 issued by Trump administration. Recently, the Employee Benefits Security Administration (EBSA) within the Department of Labor (DoL) released Field Assistance Bulletin 2018-01 (link) relating to ESG (environment, social and governance) and shareholder rights for ERISA governed benefit plans. I set out some brief high-level analysis on the guidance below. Continue Reading →

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Invesco Proxy Voting Guide

Invesco Ltd. (IVZ) provides investment management services to retail clients, institutional clients, high-net worth clients, public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, financial institutions, and sovereign wealth funds. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on May 10 2018. I voted with the Board’s recommendations 35% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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Gilead Sciences Proxy Voting Guide

Gilead Sciences (GILD), a biopharmaceutical company, discovers, develops, and commercializes therapeutics in the areas of unmet medical needs in the United States, Europe, and internationally. Most shareholders do not vote because reading through 80+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read my rationale), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on May 9 2018. I voted with the Board’s recommendations 61% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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3M Company Proxy Voting Guide

3M Company (MMM) operates as a diversified technology company worldwide. Most shareholders do not vote because reading through 80+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read my rationale), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on May 8, 2018. I voted with the Board’s recommendations 44% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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Prison Labor: Corporate Supply Chain

NorthStar Asset Management, Inc., a Boston-based wealth management firm, announced that it has published a white paper outlining its perspective on the issue of domestic (U.S) prison labor in company supply chains, and recommending best practices for companies and investors to uncover and respond to abusive labor practices.

Prison Labor in the United States: An Investor Perspective goes into detail about how prison labor has become a critical issue related to economic inequality, racial justice, and human rights. Explained CEO Julie Goodridge, Continue Reading →

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Lobbying Disclosure Sought @ 50 Companies

Lobbying disclosure remains a top shareholder concern for the 2018 season, as evidenced by proposals filed at 50 companies by 74 institutional and individual investors. A coalition is asking for lobbying reports that include federal and state lobbying payments, payments to trade associations used for lobbying, and payments to any tax-exempt organization that writes and endorses model legislation. (Above graphic from The Nation’s Where Have All the Lobbyists Gone?)

I urge readers to vote in favor of all these resolutions. In Citizens United v. Federal Election Commission, dealing with the related issue of political contributions,  Justice Kennedy’s majority opinion justified the Supreme Court’s decision by pointing to the Internet.

With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.

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Compensation: The Difference it Makes

Compensation:  The Difference it Makes

Compensation. Most Americans think CEOs of the 500 largest publicly traded corporations are overpaid, even though they think CEOs made less than a tenth of what they actually earn. The Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,202 individuals — representative by gender, race, age, political affiliation, household income, and state residence — to understand public perception of CEO pay levels among the  Key takeaways are:

  • CEOs are vastly overpaid, according to most Americans
  • Most support drastic reductions
  • The public is divided on government intervention

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Benefit Corporation: Accountability Matters

Benefit corporation governance provides increased accountability. Most of our financial capital is allocated and stewarded through a system that has a primary goal of creating financial return. This goal directs the real economy, where shareholders treat corporations as accountable for financial results, but not for their economic, social or environmental impact. Continue Reading →

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Part 4 28th Annual SRI Conference

Part 4 28th Annual SRI Conference in San Diego. Search  on Twitter to see more posts. See Parts 1, 2, and 3. Yes, I know, this conference was held months ago but I’m still digesting… maybe until the next one. I could spend a productive year just exploring links to the work of the speakers. Mark your calendar for November 1-3, 2018. The SRI Conference returns to the Broadmoor in Colorado Springs. Get on the mailing list. Continue Reading →

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Directors Forum 2018: Best Stakeholder Interactions

Directors Forum 2018: Directors, Management & Shareholders in Dialogue brings together investors, directors and management to engage in open, off-the-record dialogue about today’s pressing governance issues. Speakers will put a spotlight on the escalating impact of “corporate culture” on business success.

Hosted by Corporate Directors Forum, Directors Forum 2018 will be held on January 21-23, 2018 at the University of San Diego.  It is designed to encourage interaction between attendees and the nation’s leading corporate governance authorities. Continue Reading →

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CalSTRS Best Place to Work: Survey Could Cinch Fourth Honor

CalSTRS was named a Best Place to Work in Money Management for 2017 by Pensions & Investments magazine. This year’s honor is the third CalSTRS has garnered—the only public pension plan to do so. They could cinch a fourth such honor by surveying member values.

Pensions & Investments, a global news source for money management, created the survey and award program, which is dedicated to identifying and recognizing the best employers in the money management industry. Continue Reading →

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