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August 09, 2006
Shareowners Push TimeWarner on Movies Depicting Smoking, Recycled Paper, and Pay Disparity
    by Bill Baue

Part two of this two-part article documents steps forward made by TimeWarner, as well as areas where shareowner activists continue to press for progress.

Shareowner resolutions that appear on corporate proxies and go to vote at annual meetings often represent merely the tip of the iceberg in terms of shareowner engagement with companies on environmental, social, and governance (ESG) issues. Case in point: shareowner activists associated with the Interfaith Center on Corporate Responsibility (ICCR) have engaged TimeWarner (ticker: TWX) for years on issues such as smoking-related concerns, environmental concerns around paper, and pay disparity.

For example, activists first filed a resolution asking TimeWarner to create a cigarette advertising code in 1993, then shifted to focus on tobacco advertising contracts in 1994 and 1995, and again shifted to focus on tobacco advertising to youth in 1996, according to ICCR's EthVest database. In the 2000s, shareowner activists resurrected this campaign to address the depiction of smoking in movies, particularly those aimed at youth audiences in light of new research from Dartmouth Medical School correlating smoking in movies to youth smoking rates.

TimeWarner responded by creating a policy on the depiction of smoking in movies that it communicated earlier this year in its first corporate social responsibility report. While shareowner activists welcome this development, they also express concern about its vague wording, potential loopholes, and lack of discussion on implementation and enforcement.

"It should be noted that many of the films being released this year and next were in production before the Policy on the Depiction of Smoking in Films went into effect," said Susan Duffy, vice president of corporate communications at TimeWarner. "For this reason, we are cautious about predicting an immediate downturn in smoking in our first reporting cycle and due to the nature of the creative filmmaking process, we do not anticipate that smoking will ever be completely absent from all of TimeWarner's films."

"Regarding enforcement, Warner Bros. has included the Statement in their production manuals and held formal meetings to discuss the policy with appropriate personnel," Ms. Duffy told "The Director of Corporate Responsibility at Warner Bros. is in ongoing communication with the production teams to discourage the depiction of smoking in films where it is not necessary for historical accuracy or is not a crucial part of the character or story."

Other issues have a long history, even if it is not reflected in direct engagement or resolution filing. The As You Sow Foundation first asked Time Inc. to set goals for recycled fiber content in its magazine paper in 2003, but there was a long history behind this move, which has yet to result in a resolution filing due to ongoing dialogue. Conrad MacKerron, director of the corporate responsibility program at As You Sow (an ICCR member), points out that Time Inc. was a leading participant in a 1995 Paper Task Force study that recommended how to reduce environmental impacts while meeting business needs. The year before, in April 1994, Time Inc. announced plans to switch some of its magazines to recycled content paper, but by December 1995, the company dropped purchases of recycled content paper, stating that costs were 10 percent higher for recycled stock.

"In 2003, we told the company that the Educational Foundation of America, a funder of the Paper Task Force study and TimeWarner shareholder that we represent, was disappointed that there was no indication in the last eight years that Time has sought to renew its earlier commitment to recycled content paper for its publications," Mr. MacKerron told

On page 14 of its 2005 sustainability report, Time Inc. explains the "seismic shift" in the paper recycling market that led to a dearth of recovered paper to recycle.

"Time Inc., with its partners The National Recycling Coalition and International Paper, launched ReMix, a program to boost the recovery rate for magazines and catalogs from the home," said Ms. Duffy of TimeWarner. The program is currently in four cities: Boston, Washington, DC, Milwaukee, and Portland, Oregon, with plans to launch in two more cities by the end of 2007.

Mr. MacKerron recognizes TimeWarner's leadership role on many environmental issues, such as using lighter paper that consumes less resources and barring chlorine bleaching of pulp (in response to ICCR resolutions in 1996 and 1997 on this issue.) While acknowledging these strengths as well as the market conditions in which the company must operate, he also takes exception with the company's stance on recycled paper content.

"We recognize the volatility of paper markets but do not believe that is the main problem, but rather a lack of will to address the issue," said Mr. MacKerron. "It has not shied away from using its influence to push timber suppliers to adopt certification systems--why not use that same influence to demand recycled content paper at the same or similar price points as virgin paper?"

There is a similarly long history of shareowner engagement with TimeWarner on the issue of executive compensation. ICCR members filed resolutions on this issue in 1996 and 1999 (according to ICCR's EthVest database), and in 2002 United for a Fair Economy (UFE) resurrected the issue in a resolution asking the company to freeze executive pay in periods when workers are getting laid off.

Interestingly, this issue has not disappeared: just last week, TimeWarner announced that its AOL division would lay off 5,000 workers (more than a quarter of its staff of 19,000) within six months. Meanwhile, the company's executive compensation schemes continue to garner criticism. In its recent Pay for Failure study, The Corporate Library (TCL) spotlights TimeWarner as one of 11 companies whose CEOs earned over $15 million the last two years while generating negative returns to shareholders and underperforming compared to peers over five years.

And ICCR members continue to address excessive executive compensation and disparity between executive and worker pay, filing resolutions on these issues from 2003 to 2005. This most recent season, the campaign shifted by filing a new resolution seeking a separation of CEO and board chair duties as a means of addressing executive compensation and pay disparity issues.

"While TimeWarner did take a step in the right direction in March by appointing Frank Caufield as the independent lead director, bringing the company in line with its peers, we do not feel this is sufficient for a company dealing with such complex issues as Time Warner and the company would be better served with a separate and independent Board Chairman," said Julie Tanner, corporate advocacy coordinator for Christian Brothers Investment Services (CBIS).

CBIS, an ICCR member, filed the CEO/Chair separation resolution, which received 16.6 percent support from voting shareowners to readily surpass the three percent threshold needed to re-file. CBIS notes that the notion of splitting the CEO and board chair roles has been endorsed as corporate governance best practice by the Conference Board, the Council of Institutional Investors (CII), Institutional Shareholder Services (ISS), and the California Public Employees Retirement System (CalPERS).

Ms. Duffy points out that the board did separate the CEO and chair roles for two years, but in 2003 decided to re-combine them.

"As explained in the Company's proxy statement issued in connection with the Company's 2006 annual meeting of stockholders, the Board opposed that stockholder proposal because, in the Board's view, it is appropriate for the Board to retain the flexibility to determine whether to combine or separate the positions and the Board has taken a number of steps to help provide for effective Board oversight of management," said Ms. Duffy. In addition to appointing the lead independent director, the TimeWarner board includes 10 independent, non-management directors among its 12 members. "The Board currently has no plans to separate the positions."

Part one of this two-part article addresses shareowner activists' praise and concerns over TimeWarner's development of its supply chain code of conduct.


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