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August 14, 2003
Institutional Investor Practices SRI Through Shareowner Action
    by William Baue and Mark Thomsen

The Nathan Cummings Foundation prioritizes shareowner action by actively voting its proxies, filing shareowner resolutions, and dialoguing with companies on social issues.

Socially responsible investing (SRI) is often considered to be synonymous with screening, or the exclusion and inclusion of companies in portfolios based on their social and environmental profile. Shareowner action, which encompasses proxy voting, filing shareowner resolutions, and dialoguing with companies on social, environmental, and corporate governance issues, is also a defining aspect of socially responsible investing. While many investors practice both screening and shareowner action, the Nathan Cummings Foundation, a nonprofit that promotes Jewish tradition and democratic values, focuses exclusively on shareowner action.

The foundation has been increasing its commitment to SRI recently. Cummings began filing shareowner resolutions this year by co-filing at Merck (ticker: MRK) on the affordability of prescription drugs and at Smithfield Foods (SFD) on the environmental impacts of hog factories.

Although Cummings has participated in proxy voting in the past, this mechanism has become an even more important aspect of its shareowner action of late.

"The Cummings Foundation's proxy voting policy dates back to the early '90s," said Caroline Williams, chief financial and investment officer at the foundation, which has about $350 million in assets. "We would vote when there was strong programmatic interest involved."

Exactly what "strong programmatic interest" meant was never spelled out explicitly, however. The foundation's program areas include arts and culture, health, environment, and Jewish life and values, with overarching themes of economic and social justice. In practice, the foundation voted for directors and auditors, and otherwise generally abstained, according to Ms. Williams.

In April of last year, the Cummings board revised its Shareholder Activity Guidelines. This revitalized the foundation's commitment to shareowner action by more clearly defining the protocol for proxy voting and direct engagement with companies.

"Lance Lindblom, the new CEO of Cummings instituted new guidelines for the whole organization that focused on economic and social justice and transparency and accountability, so we now look at proxies in those terms," Ms. Williams told "If you look at the proxies that land on my desk, they involve between $80 and $100 million of our assets."

Ms. Williams votes the proxies, but before she does so, she solicits the opinions of not only the foundation's program managers but of the grantees as well.

"If the issue is affordability of prescription drugs, that is an area where the foundation is very active and we talk to grantees to get their input," said Ms. Williams. "It is a way to get the program directors to think about not only the nonprofit grantees but the role corporations play in the bigger picture."

Ms. Williams has started an ad-hoc group of 20 or so foundations to discuss proxy voting. She said many foundation trustees are becoming more interested in proxy voting because they believe the SEC eventually will require foundations to disclose their proxy voting policies and actual proxy votes, as it recently did with mutual funds.

Such a requirement could have the effect of encouraging foundations to assess and monitor corporate social and environmental performance more closely. Relatively few investors felt the need to do that a few years ago, but events since then have changed some minds.

"The market was so distorted in its exuberant days, people didn't see any link between corporate conduct and profitability and stock prices," said Ms. Williams. "Now that the exuberance is over and people are more focused on actual earnings and real risks, we're starting to see the impact of governance failures as well as the cost of environmental issues, the cost of labor issues."

"We are owners of the company," she added. "We should be focused on the company's profitability, and the profitability is impacted by the company's behavior."


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