CHAPTER
3
What You Can Ask a Corporation to Do
In 1971, the British blues-rock band Ten Years After had a Top-40 hit with the lyrics “I’d love to change the world / But I don’t know what to do / So I’ll leave it up to you.”
The song may reflect the frustration and confusion of the time. Ironically, perhaps, it also surrenders to confusion and leaves it up to others to take action.
Fortunately, hundreds of thousands of people have chosen to not leave the work up to others and have taken action themselves. Whether you are voting your proxies, contacting legislators, calling and writing to corporate leaders, signing petitions, participating in demonstrations, boycotting certain products or companies, filing or co-filing a resolution, or divesting, your participation in bringing about positive reforms has an impact around the world and across the global economy.
CIVIL SOCIETY COMING TOGETHER
As Mahatma Gandhi said, “When the people lead, the leaders will follow.”24 Contrary to popular belief, policy makers in general follow civil society. Our “leaders” are actually our followers, and there are many ways for each of us to lead, but it takes coordination and strategy to build a movement.
An example of a global problem that brought people together to analyze and solve it occurred when in May of 1985 scientists discovered a hole in the ozone layer caused by human-made chlorofluorocarbons (CFCs). Global leaders rapidly came together, and by September 1987 (yes, just 28 months later) The Montreal Protocol on Substances That Deplete the Ozone Layer25 was ratified. Today, according to National Geographic, the problem appears to be abated, as it reported, “What would the 1980s have been without ‘big hair’ and ice-cold wine coolers? Luckily no one had to find out. Key substitutions in hairsprays and refrigerants allowed such products to exist without CFCs, which were found to beripping a huge ‘hole’ in Earth’s protective ozone layer.”26
Corporate action to stop a solution can also happen. Climate change was also identified as a global risk by scientists in the mid-1970s. It has taken the world four decades to come to agreement that there is a problem and develop a plan for action. This is a testament to the power and influence of corporations to stop progress. Many resources were spent to create scientific confusion and block a solution.
The good news is that students, the faith-based community (including the pope, the World Council of Churches, and a conference of Muslim Mullahs27), policy makers, litigators, a broad civil society movement, and shareholders have come together to address this global problem. Like South African divestment, there is a huge moral contradiction for shareholders who own companies that continue to dump carbon pollution into the atmosphere, destroying humanity’s shared commons. The difference is that these companies also have unprecedented financial risk. The moral issue plus the fiduciary risk has pushed this issue to the forefront of today’s global consciousness, and there is now a coordinated global movement to demand action.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE POLICIES
By asking for action on ESG policies, a lot can be accomplished by active, thoughtful shareholders. But there are rules and limitations—micro-management is not allowed. Asking Chevron to change the colors of its logo, suggesting that Burger King introduce hot-fudge French fries, or petitioning Google to delete some embarrassing images may be omitted by the company from the proxy statement as the Securities and Exchange Commission (SEC) would probably construe those things as “ordinary business”—how a company runs its business on a daily basis. These are not allowed in a shareholder resolution, but we’ll take a deeper look into the nuances of SEC rules later.
For now, let’s look at the broad areas in which shareholders do have considerable influence with corporations. Whether you are working independently or with an advocacy nonprofit organization, a faith-based institution, a pension fund, or a socially responsible asset manager, these issues pertain to a corporation’s ESG policies. In the broadest sense, here’s what those words mean in the context of shareholder advocacy.
Environmental: Nearly all corporations have an impact on the environment. If they manufacture or sell products, their operations affect the environment at some point in their production, transportation, or supply chain. The way a given corporation handles supply-chain issues under the umbrella of the environment is of concern to investors because the company may be, for example, using environmentally damaging mining, farming, or logging operations, thus creating risk and liability, which would affect shareholder value. The company has choices to make, and if its policies are clear and it considers looking at the larger system in which it operates, it can create great products with far less impact. These are some examples of environmental issues:
• Energy use and its impact on climate change
• Hydraulic fracturing (impact on water and air)
• Methane emissions and flaring
• Air pollution
• Water pollution
• Waste disposal and incineration
• Recycling
• Chemicals in consumer products
• Pesticides and herbicides
Social: By being in business and hiring people to work either directly or through suppliers, corporations intrinsically have a social impact, and investors have a legitimate concern about this impact. If, for example, a corporation’s hiring practices are discriminatory, they do not pay a living wage, and abuses or physical risks exist at company facilities, the corporation is exposing itself to potential liability, litigation, or regulation. If a corporation or its suppliers use abusive labor practices in their operations, here or abroad, this can harm the brand’s reputation and standing in the community and therefore its value. These are some examples of social issues:
• Human rights
• Indigenous rights
• Human trafficking
• Slave labor
• Fair pay
• Political spending
• Workplace diversity
• Decent work
• Conflict zone operations
• Tobacco
• Prison and executions
• Guns
• Data privacy
Governance: Publicly traded corporations have a board of directors and various executives who direct and manage the operation of the company. If board members or executives are underqualified, not diverse, overcompensated, have conflicts of interest, or are neglecting their fiduciary duties, investor value may be harmed, and the company may create legal liabilities. These are some governance issues:
• Executive compensation (CEO pay)
• Reporting and transparency
• Business ethics
• Board diversity
• Board oversight
• CEO / board chair split
• Shareholder right to nominate board candidates
• Stock buybacks
• Political spending and lobbying
• Unlimited and untraceable “dark money” given by corporations to influence elections
CAN’T I JUST STATE MY CASE TO THE BOARD OF DIRECTORS?
In short, yes. One way to make a statement is to vote your proxy. Another is to file or co-file a shareholder resolution. You can also attend the annual general meeting (AGM) where you may get a few minutes at the microphone. These few moments, in which you are speaking directly to management and the company’s board of directors, can be used to raise key—and sometimes unforgettable—points.
One memorable and dramatic statement occurred in 1992 at the AGM of Time Warner Corporation. There, the late actor Charlton Heston—a minor shareholder—took his turn at the open microphone, and before the assembled executives and shareholders, he read aloud the lyrics to the song “Cop Killer,” released on a Time Warner record label.
The song had already ignited robust social controversy, with critics including President George W. Bush, Tipper Gore, and police organizations across the country citing concerns that it promoted violence against police. The song’s writer, rapper Ice-T, defended the song as an anthem of protest against police brutality and denied that it posed any risk to law enforcement.
It must be remembered that Heston portrayed Moses in Cecil B. DeMille’s 1956 blockbuster The Ten Commandments, and in one memorable scene he parted the Red Sea. Though not quite as dramatic, his performance before Time Warner shareholders generated its own divide—a cultural one about violence in the media. Gun rights advocates took one side. Civil libertarians squared off against them. The ultimate result wasn’t any dramatic change in Time Warner’s corporate culture, but it did bring into focus a significant social conflict that the company’s product had created.
In a more recent example, at the Walt Disney Company’s AGM in March 2015, Dr. Stan Glantz,28 the American Legacy Foundation Distinguished Professor of Tobacco Control at the University of California San Francisco, and Gina Intinarelli,29 Executive Director, Office of Population Health and Accountable Care at UCSF and a registered nurse, took the podium during a period allocated for public comment and delivered impassioned statements about the public health crisis that portraying images of smoking in youth-rated movies is causing, implicating all Hollywood studios.
They cited, among other evidence, published reports from the US Surgeon General and the Centers for Disease Control (CDC) that showed how Hollywood’s portrayal of smoking leads children to take up the habit and begin a life-long addiction, and that an R rating for all movies containing smoking imagery could save 1,000,000 lives.30, 31
Disney CEO and Board Chair Bob Iger was so moved by their comments that he announced from the podium that Disney would put an “ironclad policy in place” to remove all smoking for any films rated G, PG, or PG-13 that Disney produces.
The remarks made by Glantz and Itinarelli followed more than a decade of concerted effort on the part of a coalition of faith-based shareholders who had worked together to pressure Hollywood studios to stop showing images of smoking in youthrated movies. This coalition included Father Mike Crosby of the Midwest Capuchin Franciscans; Cathy Rowan, a Maryknoll lay missioner and Director of Socially Responsible Investments at Trinity Health, a Catholic health care system; and Thomas McCaney and Sister Nora Nash of the Sisters of St. Francis of Philadelphia, along with As You Sow.
These are, of course, dramatic moments, notable in part because they are relatively rare. Change often comes incrementally and often takes a coordinated campaign involving building a coalition of shareholders, the media, and consumer groups.