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July 07, 2011
From ICCR, Fewer Shareowner Resolutions but More Effective Engagement
    by Robert Kropp

SocialFunds.com talks with Executive Director Laura Berry about the 2011 proxy season and her reasons for optimism over engagement with corporations.


When Social Funds.com spoke with Laura Berry following the 2010 proxy season, the Executive Director of the Interfaith Center on Corporate Responsibility (ICCR) provided a sobering context for the unprecedented percentages of shareowner support for environmental, social, and corporate governance (ESG) resolutions, saying, "The higher votes, while necessary, are not sufficient. Our influence is no greater now than it was twenty years ago."

There would seem to be little cause for optimism over the events that have occurred in the year since that conversation. As Berry told SocialFunds.com, "The fact is, we've blown the moment for financial regulatory reform and policies on climate change." The likelihood of meaningful legislation addressing climate change by the US has never seemed more remote, and efforts to derail many of the regulations in Dodd-Frank are in full swing. Yet, Berry continued, "In spite of the political environment in the US, I'm optimistic."

Why is Laura Berry optimistic? "We're seeing almost a cultural shift among the leading corporations," she said. "They are listening differently, and they're learning how to translate things to action."

"We're certainly not in a land of milk and honey," she cautioned, "But there's a lot more interest in how governance can set a framework for environmental and social issues."

For the 40 years of its existence, ICCR has done as much as any investment organization in using shareowner proposals "to bring attention to justice and sustainability issues," Berry said. ICCR members filed 200 shareowner proposals in 2011, and their corporate actions—including dialogues and engagement—totaled 332. In 2010, members filed 308 resolutions.

"The shareholder proposal has been and is still a very powerful tool to get the attention of corporations," Berry said. "There are a great number of institutions that have taken up the mantel of shareholder proposals. We've led people to using these tools, and now we're thinking, what are the next tools?"

One social issue that has been a focus for ICCR members for many years has been inclusiveness in the workplace. According to ICCR's 2011 Proxy Voting Guide, ICCR's work on inclusiveness began in 1971, with the filing of "ground-breaking resolutions challenging Apartheid in South Africa." In 1972, ICCR members first filed resolutions seeking to diversify all-white, all-male Boards of Directors of AT&T, Chrysler, and Ford.

Last year, 27 resolutions addressing the issue were filed; this year, the number dropped to 15.

Berry attributed the decrease in such proposals to rules established early last year by the Securities and Exchange Commission (SEC), which requires boards to disclose whether diversity was considered in identifying nominees for director.

"SEC guidance in February 2010 around board diversity has structured a top-down thinking about some of the profound social issues we've been working on for three or four decades," Berry said "This is why regulatory and policy guidance is so important. When annual reports and proxy statements include a directive from the SEC that boards explain why the people running for board seats are qualified to do so, boards have to think more clearly about diversity. It's bound to influence how managers think, and relieves some of the pressure to push to make the kind of change we want to see."

"Although there is a huge gap in the ideal inclusiveness of corporate America today, corporations know that we and the regulators are watching," Berry continued. "The arc of change in corporate behavior starts with corporations being aware that something is an issue."

On the other hand, two emerging human rights issues remain focal points for shareowner resolutions by ICCR members. Eleven resolutions requested that companies adopt human rights policies and "determine the potential for human rights abuses in the countries where they operate." In light of the Guiding Principles on Business and Human Rights recently endorsed by the United Nations Human Rights Council—as well as disagreements as to whether the Principles are sufficiently mandating—the issue of human rights policies by companies is likely to remain an important issue for shareowners.

An additional two resolutions, filed at Carnival Cruises and Delta Air Lines, requested that the travel companies adopt human rights policies prohibiting the sexual exploitation of minors. The resolution was withdrawn at Delta in March, when the company became the first major airline to sign the Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism.

About the focus of members on human trafficking, Berry said, "ICCR went through an intensive prioritization process that lasted about a year. When we talked about human rights, we asked which human rights issues needed the most attention. Modern-day slavery and human trafficking are clearly the most important, and we had the opportunity to bring a lot of attention to the terrible things that can happen at sporting events like the World Cup and the Super Bowl."

Focusing on a single airline like Delta, instead of an entire industry sector, is a relatively new tactic for ICCR, and evolved from its engagement with Walmart on the sourcing of cotton from Uzbekistan, where up to two million children are forced to work in the fields every year.

"If we get Walmart to change, not only does it affect the 100,000 companies in their supply chain, but it also sets a leadership tone for the rest of the big box sector," Berry said.

The involvement of individual investors in the proxy voting process remains an area of concern for Berry, who said last year, "I don't think the average retail investor really understands how to be a citizen investor yet."

Returning to the issue this year, she said, "I continue to be disappointed and frustrated that retail investors are still not participating. People need to understand that when they have a pooled investment like a mutual fund, a pension plan, or a variable annuity, they do have a voice and an opportunity to let the people who are running those funds know that they care about these issues and they hold them accountable for voting appropriately."

Berry remains optimistic that the efforts of ICCR members and other shareowner activists have contributed to increased awareness to ESG considerations by corporations.

"What fuels my optimism is that I see a commitment to monitoring change and understanding how these changes ultimately contribute to future value for the pioneering companies," she said. "The Wiki generation is watching. Global brands especially know there is a cohort of engaged global consumers who are watching and will call them out. There is a growing recognition of the link between reputational risk and future revenues."

"When we see that a company is making recognizable change that is directionally correct, we are the first to celebrate and laud the effort, because we know it makes a difference."

 

 
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