April 18, 2006
Voting Recommendations on Shareowner Resolutions Vary Widely at Proxy Advisory Firms
by Bill Baue
Part one of this two-part article compares Institutional Shareholder Services, Glass Lewis, and
PROXY Governance vote recommendations on resolutions at Citigroup and Chevron.
What is best practice for companies on a certain environmental, social, or
governance (ESG) issue presented in a shareowner resolution--say, on political contributions
disclosure? While it might seem there should be a single answer to this question, in fact there is
wide diversity of opinion between voting recommendations by three major proxy advisory
firms--Institutional Shareholder Services (ISS), Glass Lewis, and PROXY Governance.
Take, for example, their proxy voting recommendations for the annual meetings at Citigroup
(ticker: C) on
April 18 and Chevron (CVX) on April 26. Recommendations
vary not only between the different advisory firms, but also differ on the same resolution at the
two companies, and even differ at the same firm between its standard voting platform and its
socially responsible investing (SRI) platform.
contributions resolution, one of seven shareholder resolutions up for vote at Citigroup and one of
six at Chevron, illustrates this diversity of opinion vividly. The resolution, part of a campaign
coordinated by the Center for Political Accountability (CPA), asks for a report on political giving that
discloses dollar amounts of contributions, titles of the corporate decision-makers, and internal
policies guiding the political donation process. The rationale behind the resolution is that
shareholders should have access to the information necessary to assess whether political giving
puts shareholder value at risk by seeking to advance causes that may run contrary to the company's
Glass Lewis maintains the most consistency by opposing the resolution
at both companies, though it does not necessarily oppose the underlying rationale of the resolution
nor recommend voting against it at all companies.
"We really try to get a sense of what's
the right thing for this particular company in its particular circumstances rather than saying, 'is
this best practice that should be applied equally to all companies regardless of their
circumstances?'" said Bob McCormick, vice president of proxy research and operations at Glass
Lewis. "We felt the disclosure at both companies was sufficient--it certainly met all of the
regulatory requirements, and there are no allegations of misusing their corporate assets in
political ways to the detriment of shareholders--so we didn't think the additional expense of these
reports was worth it to shareholders."
PROXY Governance takes the same
company-by-company approach, but comes up with different recommendations at Citigroup (for)
and Chevron (against).
"What we're basically looking at is the degree of
disclosure the company is already providing, or if there is a willingness to provide information on
request from a shareholder," said Shirley Westcott, managing director of policy at PROXY
Governance. "We're also looking to see to what degree there's board oversight and
involvement in the process."
"So we generally support the proposal if the disclosure is
lacking or if there's no board oversight of the political giving process--it's usually one or the
other area where the company falls short," Ms. Westcott told SocialFunds.com
In the case
of Citigroup, PROXY Governance found its board involvement lacking.
ISS recommends voting against the resolution in its US Standard Voting Policy but recommends
voting for it in its SRI Policy. ISS recognizes that institutional investors' voting
policies reflect a wide range of political and financial philosophies, and that its role is to
provide recommendations that align with these voting policies that span the gamut. ISS thus offers
different voting platforms--in addition to its US Standard and SRI platforms, it offers one
tailored to Catholic investors as well as one specific to Taft-Hartley retirement plans for unions.
"We've got off-the-shelf policies such as our baseline US policy and our baseline SRI
policy, but the majority of our clients customize their own policies," explained Jim Letsky, senior
analyst with ISS. "On the political contributions resolution, we went against it in our US
Standard Policy at Chevron and Citigroup, but that's certainly not universal--we did support it at
Mr. Letsky points out that in 2006 ISS shifted its US Standard Policy
from voting against political contribution resolutions across the board to assessing the resolution
on a case-by-case basis. In contrast, the SRI Policy calls for supporting
political contribution resolutions unless the terms of the proposal are unduly restrictive or if it
calls for refraining from making any political contributions.
Part two of this
two-part article examines how Institutional Shareholder Services, Glass Lewis, and PROXY Governance
handle potential conflicts of interest.