Tag Archives | Principles for Responsible Investment

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 Over the last decade more than 75 percent of the environmental-related proposals CalSTRS filed were withdrawn because the companies were willing to negotiate a mutually agreeable outcome.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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Investor Response to Chamber: Don’t Gut Rights

Investor Response to Chamber: Letter

Representatives of hundreds of investors with trillions of dollars in assets delivered a letter to the SEC on November 9, 2017, An Investor response to U.S. Chamber’s Proposal to Revise SEC Rule 14a-8 (report).

We noted with interest the November 1, 2017, guidance contained in Staff Legal Bulletin No. 14I. While we are reserving judgment about how the guidance may apply in practice, we are particularly pleased by Director Hinman’s accompanying statement that the guidance is not intended to “make things easier or harder for one side or the other, . . . [but] to improve the process.” We strongly support that goal and plan to actively monitor the SEC staff no-action process during the upcoming proxy season to determine whether the goal was achieved.

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Mutual Funds Hold Back Political Spending Transparency

Mutual Funds Hold Back Political Spending Transparency

Mutual Funds Hold Back Political Spending Transparency

A Public Citizen report shows mutual funds hold back political spending transparency through their proxy voting behavior. Fully 64% of political spending disclosure shareholder proposals would have passed with majority support if major mutual funds owning more than 5% had voted in favor of them in 2016.

The report, released during a telephone press conference last week, calls on the nation’s largest mutual fund companies to support political spending disclosure. Press conference participants included US Sen Robert Menendez (D-N.J.); John Coates, professor of law and economics at Harvard Law School; and Patrick Doherty, director of corporate governance for the Office of the New York State Comptroller.

For years shareholders have been pushing companies to disclose information critical to shareholders’ ability to evaluate their investments. Major mutual fund companies can and should play a pivotal role, according to Public Citizen and its partners in the Corporate Reform Coalition. Continue Reading →

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Global Sustainable Investment Up 25%

Global Sustainable Investment ReviewThe Global Sustainable Investment Alliance (GSIA) released its biennial Global Sustainable Investment Review 2016, showing that global sustainable investment assets reached $22.89 trillion at the start of 2016, a 25% increase from 2014.

Sustainable investment encompasses the following activities and strategies:

  1. Negative/exclusionary screening,
  2. Positive/best-in-class screening,
  3. Norms-based screening,
  4. Integration of ESG factors,
  5. Sustainability themed investing,
  6. Impact/community investing, and
  7. Corporate engagement and shareholder action.

Yet, many in the mainstream press continue to disparage sustainable investing. This morning, Justin Baer of the Wall Street Journal reported that “interest in so-called environmental, social and governance investing is surging.” (State Street Offers New Tool to Gauge Environmental, Other Social Risks) There is nothing “so-called” about the movement to ESG investing. It is real.

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Vanguard’s Political Disclosure Vote: Wrong!

Vanguard's Political Disclosure Vote is Wrong (2nd from bottom on graph)

Vanguard’s Political Disclosure Vote is Wrong (2nd from bottom on graph)

VanguardLet’s change Vanguard’s political disclosure vote. Our nation’s largest mutual fund voted against all resolutions submitted by shareholders asking for companies to disclose their political spending. Shouldn’t we have the right to know what candidates our investments are supporting?

Vanguard’s Political Disclosure Vote Needs Changed

Join more than 59,000 American’s who have already petitioned Vanguard to change their proxy voting behavior. Support shareholder resolutions that seek disclosure of political spending at companies where Vanguard owns a shares. If Vanguard votes with us, instead of against us, it won’t be long before other large funds like BlackRock start doing the same. Within a few years, we could actually begin to know what companies are funneling how much money to which candidates. Vanguard’s political disclosure vote can be changed – with your help. Sign the petition by U.S. PIRG to change Vanguard’s political disclosure vote. Continue Reading →

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Beyond the Bottom Line With PRI

PRII used to believe that democratic power was exercised like the creation of an impressionist masterpiece — each individual offering an artistically placed paint stroke that blends into the whole as you step back. As I have matured, I now see that those who are able to influence others around them are most effective in shaping the spirit of the painting. Power isn’t wielded by isolated individuals but by networks of individuals who are bonded by trust and influence. Continue Reading →

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A Step Toward Responsible Investment @ Harvard

Guest Post: Dr. E. James M. Gifford, a Senior Fellow at the Initiative for Responsible Investment by way of Annie Olszewski, Research Associate at Initiative for Responsible Investment at the Harvard Kennedy School. This article was originally posted in the Harvard Crimson on May 28, 2014.HarvardLogo

James Gifford headshot suit HR

Dr. E. James M. Gifford

Last month, Harvard University joined more than a thousand other global investment institutions that have signed the UN-supported Principles for Responsible Investment. For students and staff who advocate Harvard’s divestment from fossil fuel companies, signing the PRI may appear to be a small and incremental step. However, as the founding Executive Director of the PRI who has spent the last decade promoting responsible investments within mainstream institutions, I believe it is a huge step forward—and its implications shouldn’t be underestimated. Continue Reading →

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