March 28, 2002
Shareowner Resolutions Fuse Corporate Governance with Social Issues in 2002
by William Baue
A new study offers insights to how this year's proxy season is shaping up.
Yesterday, the Investor Responsibility Research
Center (IRRC) and the Social Investment
Forum (SIF) released a joint study of this year's crop of shareowner resolutions. The report,
entitled "Towards a Shared Agenda: Emerging Corporate Governance and Social Issue Trends for the
2002 Proxy Season and 2001 Issues Review," documents both progress and stagnation on key shareowner
issues. IRRC's list of social and environmental shareowner resolutions is accessible through an interactive database at the Shareowner Action
Center on the SocialFunds.com website.
"One notable trend is that the Enron
disaster is accelerating a merger of interests between the worlds of corporate governance and
social resolutions," said IRRC Director of Social Issues Meg Voorhees.
Of the 712
shareholder resolutions filed in the 2002 proxy season, the report identified 261 that involve
social issues and 23 that fuse corporate governance with social issues. This crossover category
consists of resolutions asking for increased racial and gender diversity on corporate boards, and
those asking for executive compensation to be linked to corporate social responsibility (CSR).
The report recognized a decline in the number of resolutions involving executive compensation.
However, such statistics do not necessarily reveal whether progress is being made on the issue or
"Shareholder resolutions are not so much intended to pass (which virtually never
happens for social policy resolutions) as they are to exert pressure on companies to change
objectionable practices," the report states. "Many shareholder advocates also view withdrawal of
their proposals as victories, for proponents typically withdraw only when a good portion of their
demands have been met, or when management show sincerity and legitimate progress towards meeting
For example, Responsible Wealth, an affiliate of the
non-profit United for a Fair Economy, withdrew its resolution from AOL/Time Warner (ticker: AOL) on
February 12 after the company demonstrated a commitment to freeze CEO pay when downsizing. Similar
resolutions linking executive compensation to social criteria are on file at eleven other
companies, including Boeing (BA),
Coca-Cola (KO), and Unocal (UCL).
resolutions show little promise of achieving mutual agreements. Responsible Wealth filed a similar
resolution with Illinois-based lender Household International (HI) linking
executive compensation to the elimination of predatory sub-prime lending practices that gouge
low-income people. The resolution cites the company's lobbying against state and local legislation
to curb predatory lending practices as a reason for the need to secure a tangible commitment from
Household to end its predatory lending.
The vast majority of resolutions fall squarely
into the corporate governance or social issue categories. The number of resolutions involving
global warming, a social issue, increased significantly this year, with 18 such resolutions on
file. Progress has been made on some of these resolutions, though not necessarily enough progress
to warrant withdrawing them.
For example, shareowner pressure has prompted Virginia-based
CSX (CSX) to post on its website
information regarding greenhouse gas emissions from its rail operations. CSX is not only reducing
its emissions, but also it has developed a power unit that moves trains in rail yards more
efficiently than full-size diesel engines. Wisconsin Energy (WEC) similarly
responded to continuing shareowner action, pledging to use World Resources Institute protocol to
report on its power plant emissions. However, even these resolutions remain on file, as do the
other sixteen resolutions on global warming.
Traditionally, shareholder resolutions garner
minority support because management often controls a large portion of shares, and most
institutional investors and money managers automatically vote in accordance with management. More
and more shareowners are recognizing that their interests may not be synonymous with management's,
and may start voting independent of management. Such a trend would imbue shareholder resolutions
with increased relevance.
"The 2002 proxy season is unusual, in that Enron reminded us
that ordinary votes--like auditor approval--are far from ordinary," said SIF Chairman Timothy
Smith, who also serves as senior vice president and director of social responsible investing at
Walden Asset Management. "Voting mindlessly with management is no longer classified as the
responsible thing to do."