November 21, 2008
Shareowners Prepare for the 2009 Proxy Season
by Robert Kropp
SRI leaders reflect on successful shareowner advocacy programs while preparing for increased
engagement with corporations in new proxy season.
The socially responsible investing movement has always been about more than simply choosing to
invest in companies that share the sustainable values of the responsible investor. Since 1971, when
activist shareowners took on General Motors for its involvement in the apartheid policies of South
Africa, shareowner advocacy has played an equally important part. Socially responsible investors
have always taken their corporate ownership responsibilities seriously, and have taken the lead in
advocating for more responsible corporate citizenship.
SRI funds have targeted a
range of issues in their shareholder advocacy programs, from environmental considerations to
executive compensation. Considering how they have had to contend with a widespread corporate
culture of entitlement and secrecy, shareowner advocacy programs have performed with increasing
effectiveness, pressuring for engagement with corporate management and extracting from management a
growing responsiveness to their concerns.
Shareowner advocacy programs at SRI fund
companies indicate the breadth of concerns and the variety of strategies employed. Green Century Capital Management, a
Boston-based environmentally responsible investment advisor whose mutual funds are screened to
include companies with strong environmental performance records, acts on the belief that shareowner
value is increased when companies reduce environmental risks.
Emily Stone, Shareholder
Advocate at Green Century, told SocialFunds.com, "Shareholder activism has always been a
fundamental part of our vision, since Green Century's inception in 1991." She continued, "Our
priorities in our shareholder advocacy program are determined by what we see as the most pressing
According to Stone, one such issue that has remained a Green Century priority for
years is that of Bisphenol A (BPA), described by the Journal of American Medicine as "the
ubiquitous estrogenic chemical used to make polycarbonate plastic food and beverage containers, the
resin lining of cans, and dental sealants." Canadian regulatory agencies have recently declared BPA
a "toxic chemical" requiring aggressive action to limit human and environmental exposures. But in
August of 2008, the US Food and Drug Administration concluded that "an adequate margin of safety
exists for BPA at current levels of exposure from food contact uses, for infants and adults."
Stone finds the FDA conclusion controversial, to say the least, and pointed to a report by a
panel of scientific advisers that included environmental health, toxicology and statistics experts
from three major universities, the Environmental Protection Agency and the Centers for Disease
Control and Prevention. This report found that the FDA's margin of safety for BPA exposure was
Regarding Green Century's campaign against BPA, Stone said, "In 2005, we
engaged Whole Foods Market on the issue of BPA in baby bottles it sold. Shareowner pressure led to
the removal of those baby bottles from the shelves of Whole Foods stores in 2006, and subsequently
to a transition from BPA to other materials in many of the products it carries."
continued, "We have sent letters to 15 major food packaging companies and will engage with them to
find alternatives to BPA in their products. We will work with As You Sow (a non-profit organization dedicated to promoting
corporate social responsibility) to develop a scorecard of corporate performance in the removal of
BPA from products."
In order to allow for engagement in a wider range of important
environmental issues, Green Century also maintains holdings in companies that do not qualify for
its SRI funds. One such company is Chevron, whose oil sands project in Alberta, Canada, led to a
resolution requesting a report on environmental damage which received 24.7% of shareowners' votes
in 2007. This year, a coalition of over 20 international investors requested a meeting with Chevron
executives to discuss the issue.
At Christian Brothers Investment Services (CBIS), a socially
responsible investment adviser to Catholic organizations, a primary focus of its shareowner
advocacy program has been executive compensation. Julie Tanner, Assistant Director of Socially
Responsible Investing at CBIS, spoke with SocialFunds.com about a recent achievement in this area.
"We have engaged with Cisco Systems on the issue of executive compensation for five
years," said Tanner. "Considering that CEO John Tanner has received an annual compensation of $58
million, we thought our engagement was appropriate!"
Tanner said, "At first, we focused on
a shareholder resolution linking pay disparities at Cisco with executive compensation, but the
company would not engage. It was frustrating for us. But when we refocused on a say-on-pay
referendum, it received 48 of shareholders' votes in 2007."
The strong showing brought
Cisco management to the table for discussion with CBIS and its partner on the issue, the Interfaith Center on Corporate Responsibility
(ICCR), an association of 275 faith-based institutional investors that is a leader in the
corporate social responsibility movement.
The company proposed initiatives on engagement
between CBIS and Cisco’s management and the Chairman of its Compensation Committee to discuss
increased communication with shareowners regarding executive compensation, shareowner input on
executive compensation, and a review of industry best practices on executive compensation.
As a result of the company's willingness to engage with CBIS, the shareowner resolution
requesting that investors be given an advisory vote on the company’s executive compensation
policies and practices was withdrawn.
"We pulled the resolution because Cisco was
proactive in meeting with us, and because long-term dialogue seems more productive," said Tanner.
"We are scheduling a meeting with board members, and have requested a report from the Cisco board
within nine months that details the board’s recommendation on say on pay."
continued, "There will be many investors watching closely to see how Cisco follows through on our
Another company cited by Tanner as taking steps to address shareowner
concerns is Schering-Plough, which announced that it will undertake a shareholder survey on
director and executive pay.
CBIS is also working to engage with Time Warner on the issue
of separation of the positions of Chairman and CEO, Lowe's on the environmental impact of site
selection for its home improvement stores, and Newmont Mining on the risk to shareowners of poor
community relations at many of its locations around the world.
At Domini Social Investments, the plan for the coming proxy season
is in line with its traditional areas of concern, according to Karen Shapiro, Shareholder Advocacy
Since her area of expertise is forestry and global warming, Shapiro addressed
some of Domini's plans in this area in a conversation with SocialFunds.com.
our advocacy in the area of sustainable forestry led to engagement with Home Depot and Lowe's, and
withdrawal of shareholder resolutions after the companies agreed to public reporting on their wood
and fiber procurement practices."
A similar proposal directed at International Paper
received 5.3% of shareowners' votes last year, and will be refilled this year, Shapiro said.
Shapiro was quick to mention that areas of advocacy by Domini ranged beyond those related to
sustainable forestry to include human rights and governance as well.
According to its
report entitled "Proxy Season Preview 2008",
As You Sow distinguishes between two types of shareowner proposals. Governance proposals focus on
management issues, while social proposals address social and environmental issues. While say-on-pay
is the fastest-growing issue among activist shareholders, environmental proposals remain the
The As You Sow report also found that the concerns of SRI shareowners
are going increasingly mainstream, as proposals that formerly gained votes in the single digits now
garner enough to draw the attention of corporate management. In the success stories related by
Stone of Green Century and Tanner of CBIS, as well as many others, further evidence can be found
that SRI concerns can no longer be ignored.