October 31, 2006
Glass Lewis Adds KLD Proxy Voting Guidelines to Proxy Voting Platform
by Bill Baue
The move increases the availability of socially responsible investing proxy voting guidelines, but
it remains to be seen if it inspires Glass Lewis to support more SRI resolutions in its own
Last week Glass Lewis (GL), a proxy
advisory firm founded in 2003, announced the addition to its ViewPoint proxy voting platform
of voting guidelines from KLD Research &
Analytics, a leading socially responsible investing (SRI) research firm. Since 1995, KLD has
issued SRI proxy-voting recommendations for its index clients, but this move represents the first
time it will make these recommendations more widely available. It also represents the first time
GL will offer formal SRI recommendations, beyond implementing its clients' own guidelines.
"There's an increasing use of custom guidelines by institutions--they're relying less on
third-party opinions and more on customizing their own views," said Greg Taxin, CEO of Glass Lewis.
"This move falls into that trend--it allows funds that want to vote in a manner that's
SRI-sensitive to do so."
The move raises the visibility of environmental, social and
governance (ESG) issues amongst GL's 275 institutional clients, which includes mostly mainstream
investors along with a number of religious organizations, labor unions, and SRI funds. It also
introduces competition for SRI voting recommendations into the proxy advisory field. Institutional Shareholder Services
(ISS), the granddaddy of proxy advisory firms, has been offering SRI voting guidelines since 2002.
"Our partnership is a reflection of the growing demand for ESG proxy voting guidelines and
the increased support for ESG resolutions," said KLD's director of research Eric Fernald. "Through
the guidelines, shareholders will not have to seek out the relevant recommendation to an ESG
resolution--the guidelines make ESG more accessible and applicable in the proxy voting process."
"More players in the market means more choices and more competition, which will only
serve to raise the level of awareness about ESG resolutions," Mr. Fernald told SocialFunds.com.
KLD usually endorses ESG resolutions sponsored by members of the Interfaith Center on
Corporate Responsibility (ICCR), a coalition of 275 faith-based and SRI institutional investors
that file the majority social and environmental resolutions. In the first three quarters of the
2006 proxy season, KLD supported 100 percent of 40 social and environmental resolutions, and 72
percent of 192 non-social and non-environmental resolutions. Glass Lewis did not respond to
SocialFunds.com's requests for its 2006 record on supporting social and environmental resolutions.
The SRI community represents a distinct client base for proxy advisory firms, because they
not only vote on shareowner resolutions, but also they file and actively support shareowner
resolutions. Proponents of resolutions on social and environmental issues from the SRI community
have expressed frustration with Glass Lewis' own voting recommendations. Conrad MacKerron,
director of the corporate social responsibility program at the As You Sow Foundation and a primary
filer of many social and environmental resolutions, points out that Glass Lewis recommendations on
these issues often present boilerplate language.
One example is the Glass Lewis
recommendation on a resolution asking Wal-Mart to produce a sustainability report: "Glass Lewis
believes the handling of social and environmental issues associated with business operations is
best left to management and the board, absent a showing of egregious or illegal conduct that might
threaten shareholder value."
"Glass Lewis is nowhere near being adequately developed in
terms of having the resources necessary to conduct proper social and environmental analyses," Mr.
MacKerron told SocialFunds.com.
This raises the question of whether GL will adopt deeper
attenuation to ESG issues in its own recommendations as a result of the KLD partnership.
"I don't know the answer to that," GL's Mr. Taxin told SocialFunds.com. "Our interaction with
KLD will certainly be helpful as we contemplate our policies going forward."
it is possible that attention to ESG issues will become ghettoized and Balkanized in the KLD
guidelines and clients' own guidelines within the Glass Lewis system.
"I don't think
ghettoizing or Balkanizing applies," Mr. Taxin continued. "The KLD guidelines will be in our
system for any institution that chooses to vote in that manner."
institutions of all ilk and flavor to adopt any of the policies in the system," he added. "We do
have situations where an institution votes some of its accounts using one policy, and other
accounts using a different policy."