October 23, 2006
Votes for Social and Environmental Resolutions Rising, But Proxy Firm Support Still Lagging
by Bill Baue
Over a quarter of social and environmental resolutions topped 15 percent support this proxy season,
but proxy advisory firm recommendations supporting such proposals remain low.
The 2006 proxy season saw record levels of support for shareowner resolutions addressing social and
environmental issues. Of the nearly 180 such resolutions that came to vote through June 30, 27
percent received over 15 percent support from voting shareowners according to Institutional
Shareholder Services (ISS), a
leading proxy advisory firm that makes voting recommendations on resolutions. This result almost
doubles the percentage of resolutions surpassing this 15 percent threshold compared to the 2004 and
2005 proxy seasons, and represents a record high in support since 1973, when this information first
began to be tracked by ISS's Social Issues Service.
Interestingly, ISS recommended support for roughly 28 percent of all social and
environmental resolutions in the 2006 proxy season under its US Standard Platform, according to
Cheryl Gustitus, senior vice president of communications at ISS. ISS also has a platform geared
toward socially responsible investing (SRI), as well as other niche platforms such as one serving
pension funds governed by Taft-Hartley regulations.
"Of course, the recommendations coming
out of our SRI policy are significantly higher," Ms. Gustitus told SocialFunds.com, though she did
not provide specifics.
PROXY Governance (PGI), a proxy advisory firm founded
in 2004 largely funded by a two-year bulk subscription from the Business Roundtable (a corporate CEO organization),
supported almost 22 percent of social and environmental resolutions this season.
percent doesn't tell the whole story of what we did this year, because there were probably more
than a dozen close calls where we didn't feel comfortable supporting the proposal but also didn't
feel very comfortable with the company's responsiveness to it," said Scott Fenn, managing director
of policy at PGI. Mr. Fenn worked for 24 years at the Investor Responsibility Research Center (IRRC), which ISS acquired last year. "We
effectively issued warnings to companies saying, 'this isn't a very good response, we expect it to
get better,' and giving them one more year to shape up."
"I could see our numbers going
up next year, depending on what companies do, of course--if they reiterate the same thing they did
this year, I can almost guarantee you that some of those will be support votes next year," Mr. Fenn
Leslie Lowe, program director on energy and environment at the
Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors that
files some 80 percent of social and environmental resolutions, finds these levels of support
"I'm a little surprised that PROXY Governance is not all that
much more conservative than ISS, but looking at it the other way, I'm a little surprised ISS
supports so few resolutions," Ms. Lowe told SocialFunds.com. "I certainly think that more than 28
percent of our resolutions are worthy of support."
Beyond its recommendations, ISS has a
strong record of support for SRI, with a member of its senior management team (Meg Voorhes) serving
on the board of the Social Investment Forum (SIF) and ISS hosting meetings with SRI firms for input on
its 2007 voting policies. Ms. Lowe acknowledges that proxy advisory firms have come a long way in
supporting social and environmental resolutions, a sentiment echoed by Pat Doherty of the New York
City Employees' Retirement System (NYCERS).
"Years back, there were virtually no "Yes" recommendations given for social and
environmental resolutions--there had been the idea that anything relating to social or
environmental issues did not have a bottom-line impact," Mr. Doherty told SocialFunds.com. "We
have always argued that the social and environmental resolutions we file and support involve
"We're seeing increasing levels of support for these resolutions on
the part of some of these proxy advisory organizations, but we believe they have a long way to go,"
Mark Bateman, an eleven-year veteran of the proxy advisory field as vice
president for research and operations at IRRC who now works outside the field as director of
research at IW Financial, frames things
"I think there is a thoughtful middle ground in evaluating social
and environmental resolutions," Mr. Bateman told SocialFunds.com. "The proxy advisory
firms--reflecting mainstream investor thinking--are too likely to vote against a resolution, while
blanket support for these resolutions is probably not appropriate either."
decisions should be made based on company and resolution specific analysis," he added.
McCormick, vice president of proxy research and operations at Glass Lewis, a proxy advisory firm founded in 2003, did not
respond to SocialFunds' requests initiated a month ago for information on its recommendations on
social and environmental resolutions.
"Any time somebody won't disclose information, it
raises the question, what do they have to hide?" said Ms. Lowe of ICCR.
In addition to
providing its overall record, PROXY Governance broke results down by category, supporting 23
political contribution, eight environmental, four human rights, and four diversity-related
resolutions. ISS did not provide SocialFunds.com with a breakdown by category.
advisory field is coming under scrutiny, as Representative Richard Baker (R-LA) has requested that the Government Accountability Office
(GAO) prepare a report arguing that conflicts of
interest and lack of competition in the industry could lead to biased advice. The GAO will examine
whether having corporate clients, as ISS and PROXY Governance do, could prevent firms from
offering independent advice on how to vote resolutions at these companies.