December 05, 2008
Shareowner Advocates Find Hope Despite Troubled Economic Times
by Robert Kropp
SRI community looks beyond traditional methods of corporate engagement to realize opportunities
presented by the financial crisis and a new administration.
Shareowner advocacy by socially responsible investors often originates with the formulation of
proposals on matters of importance to the investors. Current high-profile issues include climate
change and executive compensation. In many cases, these proposals are withdrawn before coming to a
vote at annual shareowner meetings, usually when the companies targeted indicate a willingness to
engage with activist shareowners in order to come to an acceptable plan of action.
"Challenging companies via shareowner proposals is an important tool in the toolkit, but
only a small part," said Laura Berry, Executive Director of the Interfaith Center on Corporate Responsibility (ICCR), an
association of 275 faith-based institutional investors.
"A proposal can gain 4% of the
shareowner vote the year it is introduced, 7% the next year, and 11% the year after that, and be
considered successful," said Berry. "Even if more than half the shareowners vote in favor of a
proposal, the company is under no obligation to honor the vote."
Because proposals often
advance in such incremental steps, activist shareowners often consider engagement a more effective
alternative. SocialFunds.com spoke with prominent members of the SRI community about their plans
for engagement with companies on a number of critical issues.
Julie Gorte, Senior Vice
President for Sustainable Investing at Pax
World, a mutual funds company recognized as a leader in sustainable investing, highlighted
several areas in which Pax World will concentrate its efforts.
"Pax World identified 16
companies held in the Women's Equity Fund that have operations in countries identified by the US
Department of State as "Tier 2 Watch List" countries," Gorte said. "These countries have a
significant number of victims of severe forms of trafficking, and fail to provide evidence of
efforts to combat severe forms of human trafficking. Pax World sent letters to the companies
expressing our concern regarding the added risk exposure these companies face and to ask them to
address the issue, and received responses from several companies. All of the respondents shared Pax
World's concerns regarding human trafficking."
As an advocate for workplace diversity, Pax
World plans to address problems with compliance found at some companies. Gorte said, "Pax World
plans to engage with companies on the issues of workforce diversity data disclosure, representation
of women on boards and in management, and about programs to attract, hire, retain, and promote
women in the workforce. We also plan to continue to withhold votes from slates of directors that do
not include women."
Stu Dalheim, Director of Shareholder Advocacy at the Calvert Group, a fund company that includes
a number of prominent SRI funds, envisioned an expanded role for shareowner engagement.
"Calvert is a member of the multi-stakeholder Global Network Initiative, which is committed to
the principles of privacy and freedom of expression in the information and communications
technologies," said Dalheim.
According to the Center for Democracy and Technology (CDT), the Global Network
Initiative, launched in October, provides guidance for companies, NGOs, investors, academics and
others working together to resist efforts by governments that seek to enlist companies in acts of
censorship and surveillance that violate international standards.
"The members of the
Initiative met several times to develop the set of principles that were published this fall," said
Dalheim. "It made for an interesting model," he said, referring to working toward a common goal in
collaboration with companies.
Dalheim also noted with approval the maturation of the issue
of Corporate Social Responsibility (CSR). "More and more often, companies recognize the need for
good governance, and choose to get a dialogue going with us so shareowner proposals don't have to
Dalheim sees a silver lining in shareowner action on the issue of subprime
mortgage lending. "Calvert has written to nine companies asking for information on consumer lending
policies," he said. "We have received responses from some, and will file shareowner proposals to
force accountability from the others." An enthusiastic supporter of the Community Reinvestment Act (CRA), Dalheim maintains that "The
CRA had nothing to do with" the subprime lending crisis that led to the current global financial
Berry of ICCR also referred to the subprime lending crisis as a benchmark for
the empowerment of socially responsible investors.
"In 1993, ICCR members combed through
publically available data from HUD on the housing sector, and raised warnings about the economic
implications of predatory mortgage lending practices," she said. But ICCR was but a small voice in
the wilderness then—even though the hard data with which it supported its conclusions were
available to all—and its warnings went largely unheeded.
But today, Berry asserts,
"Represents a great opportunity for the institutionalization of hope. The stakes are higher now,
with the natural world melting and the financial markets melting. It's as if we received a sweet
slap upside the head, and everything is starting to converge."
For shareowner advocacy,
the convergence to which Berry refers is of special interest in her insistence that there can no
longer be an entity known as a private company, whose activities are shielded from the public
"We have to start demanding a more consistent framework for corporate reporting,"
she said. "A commitment to rigorous analysis of externally required data could lead to the
monetization of social capital," resources that are linked to relationships of mutual recognition.
As an example of monetizing social capital, Berry referred to a study of early childhood
education by the Federal Reserve Bank of Minneapolis, which found that "the return on
early-childhood-development programs that focus on at-risk families far exceeds the return on other
projects that are funded as economic development. Cost-benefit analyses showed returns ranging from
$3 to $17 for every dollar invested. This implies an annual rate of return, adjusted for inflation,
of between 7 percent and 18 percent."
Both Berry of ICCR and Dalheim of Calvert find cause
for optimism in the arrival of a new administration in Washington DC. Berry said, "Ronald Reagan
changed the question from 'Are we better off?' to 'Are you better off?' At this point in time, I
think we can safely say, 'I'm not better off. You're not better off. And we're not better off.'"
It may seem counter-intuitive to proclaim the current economic crisis as a cause for
optimism. Yet prominent voices in the SRI community find in the crisis an opportunity to evolve
from isolated voices in the wilderness to collaborators in a new paradigm, in which the crises we
face lead to a shared responsibility among government, corporations and shareowner advocates. The
mutual acknowledgement among all parties that nothing less will prevent social and environmental
disaster should magnify the prescience of the SRI community in an environment no longer in thrall
to an untrammeled ethic of deregulation.