LGBTQ CorVel (CRVL) workplace equality advocates celebrate a significant victory in the midst of a historic Pride month representing the 50th anniversary of the Stonewall riots. Shareholders will have a voice on CorVel’s EEO policy. Continue Reading →
Tag Archives | Walden
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.
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.
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.
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.
Corporate lobbying disclosure remains a pressing shareholder proposal topic for 2019. A coalition of at least 70 investors have filed proposals at 33 companies asking for disclosure reports that include federal and state lobbying payments, payments to trade associations and social welfare groups used for lobbying and payments to any tax-exempt organization that writes and endorses model legislation. This year’s campaign highlights the theme of corporate political responsibility, with a focus on climate change lobbying. Continue Reading →
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 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.
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.
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.”
“[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.
Main Street Investors: Conclusion
The Main Street Investors Coalition fights a rear-guard battle. Yes, they can fund surveys that find most people invest primarily to earn money, not to have a social impact. However, people often invest with multiple objectives in mind. Not all their reasons are financial.
The Coalition tries to convince the public the only legitimate reason to own equities is for the highest financial gain, regardless of social or environmental consequences. They encourage investors to take a purely instrumental view of others and the natural world. What’s in it for me? Take, take, take without reciprocity.
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).
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 →
Shareholder Collaboration is a new ECGI working paper by Jill Fisch and Simone M. Sepe. Fisch is one of my favorite researchers, being insightful and less predictable than many of those in the primary academic hubs of corporate governance (Harvard, Stanford, and Delaware). In Shareholder Collaboration, the authors discuss the growing importance of a collaborative model, in contrast to models based on management power or shareholder power. (download paper in pdf) Continue Reading →
Alphabet 2018 proxy recommendations. Alphabet is run by an Oligarchy. Will $GOOG overlords give up their position as a dictatorship? Are companies governed by dictatorships and oligarchies healthy for democratic governments? Shareholders can vote for change.
Alphabet Inc., through its subsidiaries, provides online advertising services in the United States 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, have values aligned with mine, and trust my judgment (or you do not 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.
Conoco’s virtual only annual meeting is the target of a shareholder proposal by the Sisters of St. Francis of Philadelphia. A similar proposal was filed at Comcast. The Conoco resolution has already been cofiled by the Church of the Brethren Benefit Trust and the Needmor Fund, a Walden client.
As responsible shareholders, we believe good corporate governance includes the opportunity for shareholders to meet face-to-face with the company’s Board and management at the Annual Shareholders Meeting.
Tim Smith of Walden Asset Management stated
The decision to move an annual meeting to cyberspace has moved far beyond a minor internal management decision and become an important governance matter for companies. Imagine if companies facing major controversies had decided to forgo physical meetings. If a company faces debate on their comp package or its climate change position or has votes on shareholder resolutions it is also a problem to have a disembodied discussion on line for a stockholder meeting.
For more views, see Nuns tell companies to get real over virtual AGMs @FT and In Depth: Growth in Virtual-Only Meetings a Concern for Institutional Investors @ Chief Investment Officer.
Walden Asset Management has engaged a number of investment managers and mutual funds on their proxy voting practices, specifically challenging voting records on shareholder resolutions addressing significant social and environmental issues. I see this as a major victory. However, more Vanguard shareholders need to speak out to ensure momentum continues. Contact Vanguard.
In 2017, Walden filed resolutions with two Vanguard equity index funds that requested a review of their proxy voting at portfolio companies, particularly on shareholder resolutions focused on climate change. While mutual funds are not required to hold annual meetings for investors, Vanguard scheduled a November meeting for other reasons, thus setting up the opportunity for a vote on the Walden resolution. Continue Reading →
Walden Moves BlackRock: Background
A number of investors, led by Walden moves BlackRock on climate Risk. Walden Asset Management and the Center for Community Change, along with the City of Seattle Employees’ Retirement System and First Affirmative Financial Network, filed a shareholder resolution requesting a review of BlackRock’s proxy voting process and record on climate change.
Following extensive engagement and constructive dialogue between BlackRock, Walden and a number of investors, the shareholder resolution was withdrawn. As a result of the dialogue, BlackRock has updated its website to provide fresh insights into the ways it believes climate change creates risks and opportunities for companies. BlackRock also noted that climate risk will be a priority for their engagement with companies and boards throughout 2017 and 2018. Continue Reading →
It is rare when investors file a resolution with a mutual fund since most funds don’t hold regular annual meetings. Nonetheless the act of filing puts the fund on notice that participants are concerned about their voting record on issues like climate change. Tim Smith shared this new resolution with Vanguard, which as many know signed onto the UN’s PRI.
It is significant that investors are questioning their proxy voting record on issues like climate change. Continue Reading →
On September 29, 2016 Tim Smith, Walden Asset Management’s director of ESG Shareowner Engagement, will be honored at the annual event of the Interfaith Center for Corporate Responsibility (ICCR) for his decades-long, indefatigable leadership shaping the landscape of shareholder advocacy for more just and environmentally sound business policies and practices.
Tim is the first secular recipient of the ICCR Legacy Award, a recognition of his nearly quarter-century history at the helm of ICCR as well as 16 years at Walden where he continues to demonstrate daily how shareholder leverage can be an effective vehicle for positive change.
ICCR describes Tim as having had a profound impact on the field of sustainable and responsible investing, noting:
Tim plays a valuable role in virtually every ICCR program area but has been an especially effective leader of investor engagements on climate change and on governance topics including lobbying and political spending, executive compensation and separate Chair/CEO, as well as board diversity.
Shareholders have been urging companies to fully disclose the lobbying they do directly and through trade associations and third parties for six years now. This year 66 investors joined in filing resolutions with 50 companies seeking expanded lobbying transparency. Twinned with calls for disclosure of political spending aimed at affecting elections, this effort has had a steady positive effect. For example, this year companies including Raytheon, CenterPoint and DuPont came to agreements with investors to expand their lobbying disclosure.
We also find that many companies, even if they do not want to fully disclose, have expanded their reporting on items like Board oversight, priority issues they lobbied on, whether and when they did grassroots lobbying, making it easier to access their quarterly Senate reports or disclosing specific dollar amounts spent on federal lobbying. Continue Reading →
CLARCOR Inc. (CLC) hosted its Annual General Meeting on March 29, 2016. A shareholder proposal led by Walden Asset Management for environmental, social and governance (ESG) reporting received 61% support from shareholders, excluding abstentions.
With this result, CLARCOR joins a small minority of companies to ever experience a majority vote in support of on an environmental or social resolution. According to proxy advisor ISS, just one environmental or social proposal passed out of 474 submitted in 2015. Continue Reading →
Disclose Climate Lobbying: Resolutions Filed at Oil and Gas Companies
Encouraged by the forward‐looking actions addressing climate change at the Paris Climate Conference (COP21) in December, investors have filed shareholder resolutions at 11 oil and gas companies asking them to disclose climate lobbying activities. The resolutions urge the companies to fully disclose their lobbying activities and expenses (direct and indirect through trade associations) and to review their public policy advocacy on energy policy and climate change. Let’s get oil and gas companies to disclose climate lobbying! I sincerely hope readers of Corporate Governance (CorpGov.net) will vote in favor of these resolutions as they appear on corporate proxies. Monitor how others are voting at Proxy Democracy. If you own stock in other oil and gas companies, consider filing similar resolutions. Don’t know how? Check out our Shareowner Action Handbook. Take Action! Continue Reading →
Recently, with the revelations about Exxon’s past support for climate denial organizations hitting the news, there has been a fresh interest in the ways oil companies have used their lobbying and contributions to oppose climate change solutions. For example most oil companies are members of the Chamber and American Petroleum Association, which recently sued the EPA opposing its clean power plan. Their money and reputation line up working to block regulations that would reduce GHG emissions. Continue Reading →
Here’s one of the most interesting proxy proposals I have seen so far during this new season. I wasn’t aware of similar resolutions filed by Zevin until recently notified by Timothy Smith. If BNY Mellon is a PRI signatory, why are they consistently voting against what PRI stands for? Let’s see more proposals like this. It is like calling out green-washers for polluting. Continue Reading →
The following on shareholder rights by Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management, originally appeared in the Summer 2014 Edition of Walden’s Values Newsletter, which included the usual disclaimer at the bottom.
I’ve added the links and have tacked on some additional reformatted comments from Timothy Smith regarding the role of individual investors in prompting reform.
Every once in a long while a group of companies, usually led by the U.S. Chamber of Commerce, launches a campaign to change the rules allowing investors to file shareholder resolutions. Welcome to the latest iteration. Continue Reading →
The inveterate Timothy Smith, Director of Environmental Social and Governance Shareowner Engagement at Walden Asset Management recently wrote (download pdf) to Margaret (Peggy) Foran who chairs the Board Governance Committee at Occidental Petroleum Corporation (Oxy), asking them to review their vote counting bylaws and practices prior to their May 2nd AGM. Continue Reading →
Medtronic (MDT) is one of the stocks in my portfolio. Their annual meeting is coming up on August 25. I voted yesterday using the MoxyVote.com platform. However, it is too late to do that today, so you’ll have to use ProxyVote.com. MoxyVote.com had recommendations from seven “good causes,” which included two consolidations. ProxyDemocracy.org had only two participating funds Continue Reading →
I get hundreds of e-mails every day and often delete before even glancing if I am especially busy. Fortunately, Timothy Smith of Walden Asset Management also sent out an e-mail on a post by Theo Francis, of footnoted*, that had already hit my trash. We’ve all heard about Transocean’s bonuses for “the best year in safety performance in our Company’s history.”
The bonus incident speaks volumes about Transocean and the tone set at the top of the company. But so do two other details in the filings. First, the company’s board created a Health Safety and Environment Committee in August last year, some four months after the spill. Guess how often it met during the four months between then and the end of the year? Once.
Agenda Item 2 in the proxy is even more eye-opening. To hear the company tell it, the provision is an attempt to “discharge the members of the Board of Directors and our executive management from liability for their activities during fiscal year 2010,” explicitly including the rig explosion and oil spill. It would, Transocean says, not only prevent many shareholders from suing directors and officers entirely — whether by taking part in existing lawsuits or future ones — it would give other shareholders a narrow window of just six months to sue.
Those who vote for the measure give up their right to sue altogether, Transocean says. Those who vote against the measure, assuming they fail to stop it, will have just six months to sue, the company says:
“After the expiration of this six-month period, such shareholders will generally no longer have the right to bring, as a plaintiff, claims in shareholder derivative suits against our directors and executive management.”
And there’s more at Transocean’s quiet risk panel & push for immunity | footnoted.com, 4/6/2011. (apologies to Paul Harvey)
Investors have been urging companies serving on the Board of the U.S. Chamber of Commerce (“the Board”) to reevaluate their role on the Board. They point to a significant disconnect between the companies’ public commitment to corporate responsibility and sustainability and the Chamber’s aggressive lobbying and political spending against issues ranging from climate change legislation to healthcare reform.
In January, forty-four investors with $43 billion in assets wrote to nearly three dozen companies with representation on the Chamber Board. In March, a dozen investors led by Walden Asset Management began implementation of a new strategy to encourage companies to review their role on the Chamber Board – moving resolutions from the floor of annual stockholder meetings.
While shareholder resolutions submitted for company proxy statements under Securities and Exchange Commission (SEC) rules are a common occurrence, under company bylaws investors are also able to propose a resolution to be moved from the floor for action at the stockholder meeting. These resolutions can be much more direct and specific than resolutions submitted under SEC rules.
To date, floor resolutions addressing Chamber Board membership have been submitted this proxy season to 3M Company, ConocoPhillips, CVS Caremark, Eastman Kodak, JPMorgan Chase and Pfizer. More resolutions are Continue Reading →
Shareowners recognize that with more than 100 members the Chamber’s board is effectively ungovernable, leaving the door wide open for management. There are board committees on different issues, such as the environment, but committees do not govern, they recommend…
A company’s obligation to its shareowners also goes beyond disclosure. Companies also have an obligation to shareowners to oversee the activities of their trade associations. They can have a major impact on companies and pose a range of risks. It is important to understand the principal-agency relationship between companies and trade associations. Principals are responsible for the actions of their agents.
Shareowners look forward to hearing from Accenture, and the other 34 companies, in the very near future. Where do each of you stand as a company and what actions are you planning to take to reduce the dissonance between what you say you are and how that relates to your membership on the US Chamber of Commerce’s board? We know that you sit in many places. We need to know where you truly stand! (Can big US companies stay with the Chamber of Commerce when it contradicts their own policies?, Responsible Investor.)
Stephen Viederman, the author of the post on RI, is a Strategic Advisor to the Christopher Reynolds Foundation and one of the few people I encountered early on in the field of social investing who was also keenly aware of the importance of corporate governance… the rules.
What if I told you I’d found a political group that for a hundred years had managed to be absolutely right on every crucial political issue? A political lodestone, reliably pointing toward true policy north at every moment. (Why the Chamber of Commerce Has Been Wrong on All the Issues — For 99 Years and Counting, Bill McKibben
Many leading companies strive to follow best practices in corporate governance, demonstrating responsiveness to investors and protecting shareowner value in the process. Paradoxically these same companies often appear to leave their commitment to good corporate governance at the doorstep when they serve on the board of the U.S. Chamber of Commerce (the Chamber). In so doing, they perpetuate a dismal failure of governance.
How so? Many of these companies demonstrate strong environmental and social policies and urge their suppliers to follow suit. Yet sadly, they are silent at Chamber board meetings despite the association’s aggressive actions to undermine sustainable business practices.
The Chamber has always been a powerful force in Washington, lobbying and influencing elections. In the last two years, led by CEO Tom Donohue, it has attacked a wide range of issues including healthcare, climate change, and financial market reforms. The Chamber announced it would spend $75 million in political campaigns in 2010 with one goal being to unseat all congressional members who voted for health care reform. The funds for this partisan political fight were raised and spent in secret, with no public accounting or transparency.
Similarly, the Chamber, allegedly on behalf of the business community, lobbies, speaks publicly and puts political dollars to work effectively challenging company positions on environmental matters. Recently, the Chamber sued the EPA to block its ability to mitigate climate change through regulation.
The Chamber’s website states:
Directors determine the U.S. Chamber’s policy positions on business issues and advise the U.S. Chamber on appropriate strategies to pursue. Through their participation in meetings and activities held across the nation, Directors help implement and promote U.S. Chamber policies and objectives.
Hence Walden, with other investors, has discussed with dozens of companies how membership on the Chamber board may be perceived as supporting the Chamber’s policies. Sadly, we are learning that Chamber board members rarely speak out publicly, or even privately at Board meetings, to challenge its anti-environmental positions. Nor do they confront the Chamber on its partisan political activities.
Clearly there are multiple contradictions between the environmental policies of Accenture, IBM, Pepsi, Pfizer, and UPS – all board members – and the Chamber’s antagonistic actions against climate change legislation and regulation. Yet, as Board members they set and oversee these very policies and campaigns that undercut their companies’ positions – a perplexing way to spend shareowner dollars.
It is time for Chamber board members to end this pattern of compliant and passive acceptance. It is not acceptable to allow anti-environmental policies to flourish and partisan political campaigns shrouded in secrecy to be the order of the day. A respect for good governance requires companies sitting on the Chamber board to stand up and be counted or head for the exit.
Guest post by Timothy Smith, Senior Vice President and Director of ESG Shareowner Engagement at Walden Asset Management, a leader in socially responsive investing since 1975. See also, Resolutions Challenge Chamber Board Members on Political Expenditures, 11/15/2010.
Investors recently announced filing of shareowner resolutions at several corporations with board members who also sit on the Board of the U.S. Chamber of Commerce, challenging these corporate boards to review their policies and oversight of political expenditures, especially through trade associations. The first filings are at Accenture, IBM, Pepsi and Pfizer.
The filers believe each of these companies has strong corporate governance records and is understandably proud of its leadership in corporate responsibility. In addition, IBM, Pfizer and Pepsi have strong vendor standards policies holding their suppliers to high standards of conduct through audits and engagement. However, according to Timothy Smith, Senior Vice President of Walden Asset Management and one of the lead sponsors of the resolutions:
Yet as Board members and major corporate contributors to the U.S. Chamber of Commerce they play a passive and compliant role, remaining silent while the Chamber reportedly poured $75 million into the 2010 election while working to unseat any member of the U.S. Congress who voted in favor of healthcare reform. The Chamber also works vigorously against legislation and regulation on climate change and financial reform. Ironically, the Chamber works to undercut the very leadership these companies demonstrate on sustainability.
Adam Kanzer, General Counsel at Domini Social Investments and a filer of the resolution at IBM, said:
The Chamber of Commerce is an aggressively partisan organization that is standing in the way of solutions to our nation’s most pressing problems, from health care to climate change. We are asking why these companies would lend their good names—and their implicit endorsement— to the Chamber’s agenda, which often runs contrary to their own, stated policies and practices. We are simply asking them to do what directors are supposed to do – ask hard questions and exercise meaningful oversight.
The resolution sponsors argue that a company serving on the Chamber’s Board can be widely perceived as supporting and promoting its policies and programs, which can have a negative impact on a company with a strong reputation for good governance and corporate responsibility, since the Chamber’s own website says:
Directors determine the U.S. Chamber’s policy positions on business issues and advise the U.S. Chamber on appropriate strategies to pursue. Through their participation in meetings and activities held across the nation, directors help implement and promote U.S. Chamber policies and objectives.
The resolution is also expected to be filed with several other companies on the Chamber’s Board, which has over 100 members including, AT&T, Caremark, Caterpillar, Deere & Company, Dow Chemical, FedEx, JPMorgan Chase & Co., UPS, and Xerox. Stephen Viederman of the Christopher Reynolds Foundation, one of the sponsors of the Pfizer resolution said,
As Chamber Board members these companies need to stand up and be counted; clarifying which side they are on. If they differ with the political positions of the Chamber, they need to speak out and make their positions clear.
Controversy about the Chamber’s role in thwarting environmental and climate change legislation led Nike to withdraw from the Board; and PG&E, Exelon, Apple and Levi Strauss to withdraw their Chamber memberships in 2009. In addition, several local Chambers of Commerce have withdrawn their national affiliation.
To date, the 25 filers of these resolutions include a broad range of investors, including Walden Asset Management, Domini Social Investment, the Christopher Reynolds Foundation, Catholic Health East, Catholic Healthcare West, Green Century Balanced Fund, the Funding Exchange, the Needmor Fund, Missionary Oblates of Mary Immaculate, Sisters of Notre Dame Toledo Province, Catholic Healthcare East, the Tides Foundation, Boston Common Asset Management, Zevin Asset Management as well as several individual investors. The list of filers is expected to expand as the proxy season progresses.
I encourage readers to support these resolutions and consider filing their own wherever there are gaps, following the example of the SIF members mentioned above, Shareowner Resolution. Not sure how to file? Sign up for a free class with USPX.
Ron Freund, of the Social Equity Group, wonders if similar resolutions should be placed at major TV owners requesting policies which prohibit political ads from non-disclosed donations.
Back in July, I signed onto a letter from the Center for Political Accountability, Walden Asset Management and Domini Social Investment asking companies about their use of new corporate political spending routes opened up by the Citizens United decision.
As of October 7, 2010, 68 companies have formally responded, with several more responses expected.
35 of the responders stated they do not plan to engage directly in any independent expenditure activity. However, relatively few companies have committed to hold their trade associations’ political spending to scrutiny by imposing conditions on dues payments or other means. Other notable trends and highlights in the responses include:
- Many smaller companies stated that because they generally do not engage in the political process, they do not see the need to implement a policy regarding independent expenditures or trade association monitoring.
- Several companies stated that they currently or will begin to inform their trade associations that no portion of their dues may be used for political expenditures. Philip Morris International included a template of the communication it sends with its dues payments stating that none of the dues may be used for election activity.
- Many larger companies declined to answer the questions posed or commit to any increased disclosure.
- 30 companies stated that they would not engage in independent expenditures, but were reluctant to monitor or impose conditions on their trade association payments or did not address the issue at all.
- All of the responders in the health insurance industry (Aetna, UnitedHealth, WellPoint) declined to outline their positions on independent expenditures.
- Several responders appear to still be reviewing the implications of Citizens United and were not in a position to comment on the questions posed in the letter. Some of these responders say they will consider our ideas when formulating their policies.
Further information at Companies spend indirectly on politics (USA Today, 9/8/2010) and in this summary document (pdf) with 2-3 prominent quotes from all of the responsive companies. Contact: Aaron W. Stanley, Staff Associate, Center for Political Accountability.
Walden Asset Management filed a letter and resolution (WaldenHPLetterSepChairCEO8-10-10) with HP seeking separation of CEO and chair positions. Given the recent resignation of Mark Hurd (Mark Hurd’s Termination from HP: Case Study), timing seems ripe and important as HP searches for a new CEO. Walden cites Chairing the Board: The Case for Independent Leadership in Corporate North America by the Millstein Center for Corporate Governance and Performance at Yale’s School of Management. HP should take this opportunity to transition to this growing successful model of corporate governance and leadership.
John Chevedden recently had one of his more common shareowner proposals at Devon Energy (update at bottom):
Resolved, Shareholders request that our board take the steps necessary so that each shareholder voting requirement in our charter and bylaws, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal to the fullest extent permitted by law. This includes each 67% supermajority provision in our charter and/or bylaws.
Chevedden has assisted me on such proposals. They have typically been winning strong support, often in the 70% and 80% range. His proposal included a supporting statement that noted several other issues with the company. For example, The Corporate Library rated the company “D” with “High Governance Risk,” “Very High Concern” for our takeover defenses and “Very High Concern” for executive pay. See proxy item 3.
Julie Skye presented Chevedden’s proposal at Devon’s Jun 9th AGM. Imagine her shock when the meeting Chair asked if there was a second (there was none) and the Inspector of Elections failed to report out voting results? Fortunately, with assistance from the United States Proxy Exchange, Chevedden was able to cite the fact that in response to Motorola (1987), SEC staff affirmed there is no need for a second on shareowner proposals.
Timothy Smith, of Walden Asset Management, also wrote protesting Devon’s “parliamentary maneuvers to prevent hearing the views of stockholders on a legitimate corporate governance matter” and urging them to “put the vote on the record and properly identify the tally in the 8K form required by the SEC.”
According to Chevedden, the Devon Chair called him and said the proposal passed overwhelmingly and it will thus be reported in the 8-K. Devon had earlier requested a no-action letter from the SEC, relying on Apache and was denied. Interesting coincidence that Apache recently completed its acquisition of Devon Energy’s oil and gas assets in the shallow waters of the Gulf of Mexico Shelf for $1.05 billion.
It is hard for me to believe Devon’s counsel didn’t know that no second is required to present a shareowner resolution at an AGM. Why would a company bother with such fruitless maneuvers? Is anyone grading companies on their performance at AGMs like Lewis Gilbert used to do? If so, they should certainly get a failing grade. Unfortunately, obstruction of shareowner rights, especially at the procedural level, doesn’t get much press. I doubt you’ll be reading of this incident in the mainstream press.
The SEC just posted Devon’s 8-K as this post was scheduled to go live. Here is Devon’s explanation:
A shareholder proposal for a Simple Majority Vote was presented. The Company, in accordance with normal Annual Meeting procedures, asked for a second to the motion for the proposal. There being no second, the vote on the proposal was not called. Subsequent to the meeting, the Company determined upon further investigation that the staff of the Securities and Exchange Commission had actually provided informal guidance on this issue in the form of correspondence issued twenty-three years ago, in which the staff indicated that the voting of proxies received with respect to a shareholder proposal included in a company’s proxy material pursuant to Rule 14a-8 should not be conditioned upon the proposal being seconded at the meeting, absent a second being required by state law or by a company’s governing instruments. Based on this earlier guidance, a second to the motion in support of the shareholder proposal was not required and, accordingly, the vote on the proposal has been certified. A total of 72% of all voted shares were cast in favor of the shareholder proposal. The results of the vote are as follows:
Ted Allen, writing for the RiskMetrics Group, Devon Energy Drops Objection to Shareholder Proposal, infers that presenting a proposal at a meeting or getting a second, if required by state law or corporate bylaws, seems like a needless formality, given that the vast majority of votes are cast before a shareholder meeting. Perhaps the SEC should address this relic in its proxy plumbing concept release.
The Devon case is another example of the various SEC, state, and corporate procedural rules that can thwart shareholders in their efforts to bring resolutions to a vote. While most investors vote in advance through electronic means and seldom attend meetings in person anymore, some of the SEC’s requirements for proponents still reflect the ways that shareholder meetings used to be conducted. For instance, under SEC Rule 14a-8(h)(3), a company may exclude a proponent’s resolution for two years if the proponent (or a qualified representative) fails to appear in person to present the proposal and cannot demonstrate “good cause” for failing to attend.
Last year Walden Asset Management filed a resolution at State Street Global Advisors (SSgA) seeking a proxy review. While SSgA successfully obtained a “no-action” letter from the SEC, their voting practices were still the subject of a debate at the annual meeting. This year United for a Fair Economy picked up the torch and filed a similar appeal. This time, SSgA responded positively and UFE has withdrawn its resolution.
Previously, SSgA voted automatically Against ALL shareholder resolutions on environmental and social issues, whether the issue affected shareholder value or not. Over the years this record had become increasingly controversial and was challenged by a number of SSgA clients including pension funds in Europe as well as investors and environmental groups here in the USA. An internal review found SSgA found its voting in stark contrast to State Street’s own forward looking record on the environment and other CSR issues.
State Street’s review included a comparison to other mainstream investment firms which are competitors. It found that the SSgA proxy voting was an “outlier” in comparison to these firms records. According to Timothy Smith of Walden Assets, SSgA will now abstain if the resolution’s economic impact case is not clear, but will vote FOR resolutions where a strong case regarding how this affects shareholder value is made. This is very similar to Risk Metrics position. SSgA notes it is understaffed to do robust proxy voting so may add staff and of course will look seriously at recommendations of proxy advisory firms they use.
Our congratulations to Walden’s Timothy Smith and to Mike Lapham of Responsible Wealth. This is a significant shift in proxy voting by a major firm. It is great to see SSgA now more fully addressing its proxy voting responsibilities.
From a IntelOurPublicStatementRegardingVirtualMeeting: “In the fall of 2009 Intel indicated it was going to attempt an experiment and hold its’ 2010 stockholders meeting entirely on the web, moving from a physical annual meeting to a virtual meeting.
A number of shareholders expressed support for the expansion of the annual meeting via the web, but voiced concerns about the elimination of the physical meeting and the lack of accountability of the Board and top management if there was no physical meeting with in-person interaction possible. This would be particularly true if stockholder resolutions were being presented or probing questions asked of Board members.
Intel discussed this issue with investors seeking advice on ways to make the virtual meeting as fair and transparent as possible and also discussed concerns about the downside of eliminating the physical meeting.
Concerned investors wrote letters, talked to management and several actually filed a shareholder proposal urging a continuation of physical stockholder meetings.
After deliberation, in January Intel reported to concerned investors that they had decided to continue to hold a physical annual meeting in 2010 and were putting aside the virtual only meeting.
Investors led by Walden Asset Management and United for a Fair Economy (UFE) commended Intel and UFE withdrew the shareholder resolution on the issue. A UFE member had filed the resolution along with Walden clients.
They indicated support for creative expanded virtual access to the stockholders meeting stressing it must be combined with an in-person meeting.
In addition, two other resolutions were withdrawn after discussions with Intel, one asking for increased transparency on succession planning and the other on Board diversity.”
We congratulate Timothy Smith and others involved in these negotiations. Intel made made the right decision. Another important factor in Intel’s decision many have been a threatened “withhold proxy campaign,” from the Investor Suffrage Movement. (see our prior coverage, Guest Commentary From Glyn Holton: Emergency at Intel, 12/2/09) That group is planning to hold a conference later this year to discuss what safeguards are necessary before they would consider endorsing virtual shareowner meetings. Intel has agreed to participate in that upcoming conference.