CHAPTER
7
Opportunities and Decisions to Make Real Change
You have now entered the phase of direct engagement with a public company, and there are many twists and turns in the road ahead. There will be decision points along the way, and each is an opportunity to stay true to your purpose and keep the long-term impact that you want as the focus of your efforts.
There are also many SEC guidelines and rules that will shape the form of the interaction with the company. After sending in your resolution and paperwork, you will probably have to wait at least a few weeks for the company to respond. If the company does not challenge your resolution, it should appear on the proxy ballot. However, as mentioned before, management may formally submit a “no-action letter” to the SEC, which requests that the resolution be rejected on technical or legal grounds.
Most likely the company will contact you and ask you to discuss withdrawing the resolution. There could be any number of reasons for this. For example, they might already have changed their cotton suppliers and stopped using material sourced by known human rights violators. In other words, they may have already directly addressed your concerns. Or, the board of directors might want to avoid raising the issue with shareholders and the press and publicly admitting that they’ve committed such a massive oversight. Naturally, you agree to a meeting, because it is a chance to present your case. Generally these are by conference call, although they can be also face to face.
When that day arrives, you are prepared. You have the text of your resolution, your rationale for why it is important, and all the research and data you’ve amassed in support of your cause.
THE WITHDRAWAL DIALOGUE
If you have co-filed, the withdrawal dialogue will be run by the lead filer, who may invite you to attend as an observer. If you want to participate, you should talk to the lead filer in advance so that your comments are in alignment, the agenda is set, and you know when it is your turn to speak.
Assuming that you are the lead filer and leading the dialogue, you should know that several things could happen at the meeting. Ideally, the company will tell you it has decided to implement all of the changes you suggest. In consideration of this, you generously offer to withdraw the resolution so long as they publicly state their planned changes along with a credible timeline. That way, if they do not make the promised changes, you have a reason to refile the resolution the following year. In addition, you have the option to make your case in the media that Puppy, Inc. does not keep their promises. This is something that their customers care about. By all measures, this is a sweet victory—but it is not common. Generally, if the company was ready to make the change, it would have happened in the dialogue before you filed.
A more likely scenario is that the company offers to implement some, but not all, of the changes you suggest. In that case, you have to decide whether partial implementation is substantive progress that will lead to the desired change and whether it is worthwhile devoting more time and resources to continuing forward with your resolution.
The company may also offer neither complete nor partial implementation of your resolution. You may be told that your concerns are unfounded, the allegations were incorrect, the suppliers they use have top-tier human rights and labor practices, or you don’t really understand the market or the competition. It may tell you that your resolution will be challenged at the SEC and that they will prevail. In effect, you may get a pat on the head and be shown the door, calculating, perhaps, that your resolution is fundamentally flawed or you really don’t have what it takes to push your resolution over the finish line.
The corporation may also tell you that even if your resolution goes to a vote and is supported by a significant number of shareholders, it has absolutely no intention of implementing any change. After all, in general, shareholder resolutions are non-binding (the legal term is “precatory”). So it may tell you to save all the time, money, and aggravation of promoting the resolution and go your merry way.
However the corporation plays it, don’t give up easily. You wouldn’t be at the table if the corporate executives didn’t feel that your request had some validity. But your goal as a shareholder is not to try and strong-arm the corporation into agreeing with you. Your goal is to make your resolution bring about change in the real world. Assuming that the allegations are true based on the assumption that you already double-checked and had them validated by a third party, the best path forward is to present a win-win scenario to reduce risk to the company and make the change you desire.
WHO HAS THE POWER IN THE NEGOTIATION?
That depends on the precise circumstances, but both parties—the shareholder and the corporation—have power. As a shareholder, you have the power of ownership. A corporation has the power to listen politely and then ignore you but possibly face consumer backlash, a devalued brand, and increased risk. The more coordination you do to build a coalition of shareholders and the more convincing your data and presentation is, the stronger your hand will be. Don’t forget that you have time on your side. Companies, where possible, would like to resolve issues before the day they print the proxy ballot.
HOW TO PRESENT YOUR CASE
Recent social science research conducted at the University of Toronto59, 60 indicates that coming in, rhetorical guns blazing with passion, is exactly the wrong route. Passion, the study showed, revs up those already committed to the cause, but it does not persuade your opponents.
The best approach is to use arguments that speak to the intersection of your concerns and the company’s. In other words, be honest and offer a business case that is a win-win. Naturally, at the top of the list in terms of its appeal to business people is profit. Your argument should demonstrate that your resolution will improve the bottom line and simultaneously reduce risk for the company and shareholders.
Even if your proposal is going to cost money to implement, the bottom line is the bottom line. However, as in the case of the McDonald’s foam cup program, which did cost money to implement, public perception plays strongly on the minds of business people. Consumers want to patronize a company that is behaving responsibly. Toward that end, the corporation can trumpet its behavior and win loyalty and new customers. This has bottom-line value of new customers, plus earned media is far less expensive than paying for advertising. So there is a calculation involved, and the more you have thought this through, the better.
Perhaps your program, though it may be a continuing expense, has the potential to improve public perception of the corporation to such a degree that its markets will expand, investors will be attracted, and in time the extra costs will be more than compensated for. Studies have shown that brand perception can be calculated in dollars. Fortune and Bell Pottinger states that, “A study of FTSE 250 companies shows that, on average, reputation accounts for 27 percent of a company’s market capitalization.”61 Do the math: you are negotiating for a lot of value.
A GREENER APPLE
A classic example of a negotiation with a notoriously tough corporation that was quite heated (but ended up with a positive change) took place leading up to May 2, 2007, when Apple CEO, Steve Jobs, made the public statement on the Apple website, “Today is the first time we have openly discussed our plans to become a greener Apple. It will not be the last. We apologize for leaving you in the dark for so long.”62
This was the first time that Apple had publicly addressed the issues of electronics waste and hazardous materials. How did this change come about? Jobs’s reputation as a corporate leader that refused input from anyone—especially his shareholders—is famous. Yet, this announcement came shortly after shareholder resolutions on electronic waste were filed and he had a meeting with the lead proponents. What happened in that negotiation?
Some background first: as the information age got into full swing, it became apparent that a mountain of electronic waste (e-waste) was forming. The manufacture of one computer workstation required more than 700 chemical compounds, about half of which were hazardous, including arsenic, brominated flame retardants, cadmium, hexavalent chromium, lead, and mercury. Tens of millions of computers, monitors, and cell phones were being discarded every year, most headed straight to the landfill even though they contained valuable precious metals like gold and silver, as well as problematic ones like lead and cadmium that leached into the water and air.
Pioneering work by Basel Action Network63 revealed that large quantities of obsolete electronics were exported to China and Nigeria for “recycling,” which often meant dumping e-waste in areas where a few valuable materials were extracted by poor people using primitive methods in a manner that posed a threat to their health. Workers openly burned plastic wiring and circuit boards to obtain copper, gold, and silver, producing harmful fumes. Tons of residual materials deemed not to have economic value lay strewn around the area, polluting local rivers.
As You Sow’s work on e-waste began in 2003, led by Senior Vice President Conrad MacKerron, who formed a coalition of SRI allies including Calvert, Green Century, Pax, and Walden Asset Management to press major brands like Dell, Hewlett-Packard (HP), IBM, and Apple to set e-waste take-back goals. Dell, already under pressure from a grass roots campaign, committed to a take-back goal in 2004. Later that year HP, which had an initial take-back program operating, accelerated its goal, pledging to recycle one billion pounds of e-waste by 2007.
But Apple, in the process of moving from innovative creator of the Mac to a global electronics powerhouse dominating the personal electronics market, was typically silent and not open to dialogue. MacKerron reached out to former Vice President Al Gore, who was on the Apple board. Several shareholder proposals were filed. Still, there was no progress. Finally, at the 2006 shareholder meeting, Executive Director Larry Fahn was able to engage Steve Jobs in a friendly discussion as the resolution was presented, and Jobs agreed to meet and see if progress could be made. The shareholder proposal asking Apple to improve its e-waste policies received a decent vote of 10 percent of shares voted.
The meeting with Jobs would not occur until almost another year passed. In February 2007 MacKerron, Fahn, research associate Nishita Bakshi, and As You Sow board chair Thomas Van Dyck met with Jobs in his Cupertino office. True to form, Jobs offered brilliant insights but was also caustic, at times berating his visitors for overstepping their boundaries and railing against Greenpeace, which had launched a campaign for Apple to phase out toxins in its components, before acknowledging the recycling problem. The shareholder team held firm that an e-waste take-back policy was good for Apple and that competitors were way ahead.
At one point, Jobs dismissively tossed a presentation the group’s staff had spent weeks preparing back across the table at them. It was time to improvise. Van Dyck and other team members launched into a series of questions during the meeting to find out where his top concerns were. They recall asking Jobs if he believed having a greener Apple would sell more products. He said no. The team asked, if Apple was perceived as an environmental laggard, might it sell less products? Jobs said, yes. He felt that his shareholders, employees, and community deserved better from Apple, and he wanted to beat his competitor Michael Dell of Dell Computers, which had already announced strong electronic waste take-back goals. The team saw that he was frustrated by Dell as a competitor, and despite his ire, by the end of the meeting, Jobs agreed to develop a strong recycling commitment. Three months later, the company announced goals as part of a broad set of environmental commitments known as “A Greener Apple.”
The move came just a week before shareholders would have voted on another resolution asking Apple to report on improving e-waste take-back efforts, underscoring the importance of shareholder pressure. As You Sow withdrew the proposal in acknowledgement of the company’s commitments, and an un-characteristically chastened Jobs apologized to shareholders for not previously sharing its environmental policy plans when he was quoted in Waste News, on May 14, 2007: “It is generally not Apple’s policy to trumpet our plans for the future. Unfortunately, this policy has left our customers, shareholders, employees, and the industry in the dark about Apple’s desires and plans to become greener. So today we are changing our policy.”64
WHEN TO END NEGOTIATIONS
Naturally, every negotiation is different, but as Kenny Rogers sings in “The Gambler,” “You gotta know when to hold ’em, know when to fold ’em.” Asking for too much out of moral indignation may result in getting nothing. Ask for too little, and you may leave the meeting bitterly disappointed. Timing is also very important. As you approach the deadline for no-action letters to be filed, for the proxy to be printed, and for the annual meeting, you can expect negotiations to heat up. These are three opportunities to withdraw the resolution in exchange for some progress.
Also, you are dealing with people. If you are unreasonable or obnoxious, they may not want to deal with you at all. If you present a well-thought-through business opportunity for the company to improve its brand, its disclosures, its policies, and its bottom line, you may come to an agreement and withdraw. Remember that companies cannot change practices on a dime. Current procedures and practices will need to be reviewed and possibly changed, research will need to be conducted, various stakeholders within and outside the company will need to be consulted, contracts with vendors may need to run their course, and trials may need to be implemented. Progress may be slower than what you would like, and the realities of changing a large corporation means that you want it implemented in a robust and thoughtful way so that the change can withstand the test of time. Your negotiations and expectations should account for this reality.
HOW DOES THE SEC RESOLVE NO-ACTION CHALLENGES?
If a company chooses to not take action (no-action) on the request for a resolution to be placed on the proxy, one of the main ways they do this is to challenge the proposal as “substantially implemented.” If you file a resolution asking for a report on greenhouse gas emissions and the company writes a no-action letter to the SEC showing that a report satisfying the request is publicly available on its website, then you will need to make the case that you were aware of the report but that it is insufficient, and even then you may not win.
Some companies create marginal reports that are just good enough to appear to disclose “material information,” but not quite enough to be really useful to a shareholder making a business decision. So the argument may get into the nuances of the report; however, the SEC is generally just looking to see if there is a report or not.
The other primary rationale for a no-action letter is the “ordinary business”69 rule, which is much more complex. In its simplest terms, just because you love jelly beans, a shareholder resolution asking that they be displayed by the checkout counters of all Walmart stores will be rejected through a no-action letter. Although that’s fairly obvious, it turns out that the definition of “ordinary business” is a frequent source of debate.
For example, is it an infringement on a pharmacy chain’s ordinary business if a shareholder resolution asks the company to disclose to shareholders the health impact of the tobacco products70 it sells? Such a resolution may impose a burden on the chain’s ability to sell the products that it wants to sell, so that would seem to be in the realm of “ordinary business.” On the other hand, it seems to transcend day-to-day operations by dealing with the larger health impact of a product on consumers, which is a good argument to counter the claim of ordinary business. Isn’t it reasonable for such a company to know—and to report to its shareholders—the risks of selling harmful products that may kill its customers?
Taking this idea a step further, what if a proposed shareholder resolution asked the company to disclose the effects of its candy sales, on the grounds that sugar is a major contributor to obesity and tooth decay? Is it reasonable to ask the pharmacy chain to disclose the impact of its sales of beer and wine, due to alcohol’s obvious potential for abuse? Should it measure and report on the health effects of all scented products it sells because many people are allergic to perfume? What about selling firearms?
To a degree, the definition of “ordinary business” depends on who’s doing the defining. In the text of a shareholder resolution, the inference of “ordinary business” may also rest on subtle nuances in the wording of the resolution. In any of the previous hypothetical examples, if the company objected to a resolution, claiming it pertained to ordinary business, it would take its concern to the SEC in the form of a no-action letter. You as a proponent would have the opportunity to make an opposing argument, and then the commission would give its opinion on the issue.
As discussed before, the SEC will likely support a corporation if a shareholder resolution pertains to a personal grievance. For example, just because your Internet provider’s customer service rep was rude to you does not give you grounds to file a shareholder resolution asking the company to fire him. The company will challenge it. Also, another exclusion exists if the issue represents less than five percent of a company’s revenue and assets and is not significantly related to the company’s business. This is often hard to calculate for a big multinational if you are asking for a change related to one brand or product line, as the company may not break out this data.
HOW TO SUBMIT A DEFENDING BRIEF
If a company sends a no-action letter because it seeks to omit a resolution from the proxy ballot, the filer will receive a copy of the letter for review and have a chance to submit a defending brief to the SEC. Then SEC staff will have to make a decision, so the determination of what constitutes ordinary business is often a matter of interpretation based on previous case decisions. The arguments laid out in the no-action letter and defending brief are critical, so if possible, you should work with an attorney with experience defending proposals at the SEC. If you can’t afford one, you can try writing the response yourself, especially if it’s a fairly simple and straightforward argument. In the case of Alan Farago, described earlier, he simply tweaked his resolution and won, indicating that the company had a weak case but tried to block it regardless.
In 2015 As You Sow filed very similar Carbon Asset Risk resolutions with Chevron and ExxonMobil asking for “the Board of Directors to adopt and issue a dividend policy increasing the amount authorized for capital distribution to shareholders in light of the growing potential for stranded assets and decreasing profitability associated with capital expenditures on high cost, unconventional projects.” Both companies challenged the filing. We defended as appropriate. The outcome was that the SEC supported ExxonMobil to omit the resolution and issued the opinion that Chevron could not omit, so only one of the two resolutions went to a vote. Unfortunately, the SEC decisions do not provide any rationale for why either decision was made.
CAN THE SEC DECISION BE CHALLENGED?
The SEC decision is only a recommendation advising the corporation that it is within its rights to omit the resolution from the proxy. However, the SEC ruling can be brought to a federal court where both parties can present their cases, and these decisions can then be appealed.
This happened in April 2015 where the 3rd US Circuit Court of Appeals vacated a permanent injunction imposed in November by US District Judge Leonard Stark that would have required a vote at Walmart’s annual meeting in June of that year.71
This was a very high profile case where Walmart was asked by Trinity Church (the historic institution in the heart of Wall Street given its charter by King William III in 1697) to let shareholders vote on a proposal to tighten oversight of its sale of guns with high-capacity magazines.72 Walmart had objected that allowing the Trinity Church proposal would “open the flood-gates” to more resolutions and cause interference in day-to-day business operations. The proposal asked Walmart’s board to more closely examine the sale of products that might endanger public safety, hurt Walmart’s reputation, or offend “family and community values” integral to brand.
Trinity’s proposal argued that these products might include guns that enabled “mass killings in Newtown, Connecticut and Aurora, Colorado,” with magazines holding more than 10 rounds. The resolution never made it to the proxy, but through the entire process, the public became very aware that Walmart’s family values had been challenged. Because of the substantial costs involved in litigation, very few shareholders pursue a lawsuit to overturn an SEC decision.
HOW TO PROMOTE YOUR RESOLUTION
Assuming you either did not get a no-action letter or you won at the SEC, you can now turn your attention to get-out-the-vote strategies as even a low vote can have an impact if you can associate a brand with a specific issue.
If your resolution makes it to the proxy ballot, then the news media is a critical aid in gaining attention and support for your proposal. The goal, of course, is to get your point of view widely disseminated, and if you have the budget, you may want to hire a public relations agency to assist you.
The primary tool is the press release that has all of the essential information about the initiative or event you are promoting. It’s important to know that everyone in the news business—from newspaper reporters to business columnists to bloggers to website mavens—is busy. Consequently, a press release written in news style, thus requiring them to do little or no work, is more likely to be published by Reuters, wire services, and many bloggers. Major newspapers tend to take a release as a starting place. This is of great benefit to you, because it gets your point of view out to the public.
You can also blog and plunge into the social media melee, generating content on platforms like Twitter, Instagram, YouTube, and Facebook, which give your cause instantaneous global reach at no cost. You can also create an electronic press kit (EPK) so bloggers can grab an image or short summary of the story easily.
POSTING PROXY BRIEFINGS ON EDGAR73
Along with these promotional tools, there is another way that is more focused on the specific needs of investors. The same database that you may have used to look up shareholder resolutions, the Electronic Data Gathering Analysis and Retrieval system.74 (EDGAR) performs automated collection, validation, indexing, acceptance, and forwarding of corporate submissions that are required by law and is freely available to the public via the Internet. Thanks to EDGAR, your shareholder resolution and any additional information you would like to file as part of an “exempt solicitation” or proxy memo will be available electronically for all shareholders to examine.
There is a fee based on word count to file this additional information, but using EDGAR gives you a chance to fully explain the rationale for your resolution and to include data, graphs, charts, links to other information online, and whatever other corroborating information you feel is important. Other than the fee for the word count, there is no word limit, so you can extoll the virtues of your resolution to your heart’s content. The downside is that there’s no interactivity or way to determine who’s actually reading this material.
PROXY VOTING SERVICES AND INSTITUTIONAL SHAREHOLDERS
Institutions, foundations, philanthropic trusts, and investors who own a great variety of publically traded equities or who feel that they don’t possess the time, tools, or expertise to vote their proxies appropriately can hire a proxy voting service to do it for them.
There are two major companies mentioned earlier that provide their services to vote your proxies, ISS (Institutional Shareholder Services) and Glass Lewis. Besides voting the shares of those they represent, the services evaluate and make voting recommendations on shareholder proposals, analyze issues, and maintain records of the votes. Many mutual funds, pension funds, and insurance funds vote according to the proxy services recommendations. If ISS endorses your shareholder resolution, you’re likely to receive at least a ten percent favorable vote.
As mentioned before, the proxy voting services have guidelines on almost all issues, and although these firms overwhelmingly vote with management, they are open to being briefed on new issues, resolutions, and approaches outside of their published voting recommendations.
The vast majority of votes for proposals are often cast two weeks or more prior to the meeting, so it is important to ensure arguments for supporting your proposal are prepared at least one month in advance of the vote. As the sponsor of a shareholder resolution, you would contact, at minimum, both ISS and Glass Lewis. Beforehand, review their guidelines and tailor your presentation to address their historical concerns, because having them on your side can be an enormous help. If they decide to support your proposal, it is a major step forward in terms of your resolution being taken seriously by corporate management. Thus, your briefing for these proxy voting services is very important, and you should take the time to prepare thoroughly.
THE ANNUAL GENERAL MEETING
You or a representative must attend the AGM in order to “move,” or present your resolution by reading a prepared statement. If you are a co-filer, the lead filer or their representative will be there, or if you happen to live in the city where the AGM is taking place, you may be asked to represent the group. It’s a good idea to call the corporate secretary and ask in advance how much time you will have to speak. Three minutes is typical. Also, let them know who will be showing up on your behalf so they can expect you or one of your colleagues and check whether you’ll need your verification of stock ownership, proxy letters, or other documentation. Just to be on the safe side, it’s not a bad idea to bring them along. In addition, bring your personal identification, such as a driver’s license.
The meeting may be in the corporate headquarters, a huge auditorium, a sports arena, a hotel conference room, or sometimes the restaurant of a country club. It may be attended by hundreds of people or only a handful of long-time shareholders and ex-employees. Whatever the setting or attendance, the AGM is a formal, scripted affair. In front of the attendees, the members of the board of directors will be seated in the front row or at a table. The corporate secretary will first welcome the audience and take care of SEC housekeeping. Next, the CEO usually gives a short talk about how the company is doing. Sometimes a video about the company is shown. In some rare cases, the first item of the day will be the proxy votes.
Proxy votes also proceed in a formal order. Voting to approve the auditors, board nominees, and executive compensation come first. Then, the shareholder resolutions are taken up. When your moment arrives, you are asked to go to the microphone, which is generally in an aisle facing the stage and podium. In some meetings, a security guard will hold the microphone. Most often, your time is kept informally; that is, if you speak too long, the CEO will ask you to wrap up. In other cases there is a countdown on the screen, and the microphone goes dead when time runs out.
Don’t be late! Some meetings are very brief and can conclude within 15 minutes. If you are not present when called, the proposal will not have been legally presented for consideration, and the company is not obliged to release the vote total, which could negate all of your hard work.
Andy Warhol said that in the future, everyone will be famous for fifteen minutes. Speaking at a corporation’s AGM may not really be equivalent to world fame, but this is your opportunity to directly address the management and the board, so make the most of it.
Proponents of shareholder resolutions typically read a prepared statement, which may or may not contain the actual text of the resolution. Remember, your resolution has already been distributed, and the vast majority of voting will have already taken place, too. Shareholders, or their representatives, will likely have submitted their votes well ahead of the AGM.
Votes cast in advance can be changed as long as they meet the stated deadlines—usually 24 hours before the meeting. Those attending the annual meeting in person can change or submit their votes up to the very last minute. When you take the microphone, it is your chance to put a human face to the cause you feel so passionately about, and that’s significant, as you are speaking directly to the board and management of the company—the people who have the final decision regardless of the vote.
TALLYING THE VOTE
Proxy votes aren’t like the returns on election night because they are not simply Yes or No. Shareholders can vote either For, Against, Abstain, or Not Voted. Shares that are not voted are automatically voted by management. This is why you always want to vote your shares. If an investor is unsure about an issue, it is best to abstain, as these votes are not cast for or against a resolution and are not counted in the final legal tally.
The SEC calculates the Yes vote divided by Yes plus No votes to determine if the resolution made the thresholds to be resubmitted (three percent the first year, six percent the second, and 10 percent in subsequent years.) Often at the AGM, the corporate secretary will do the math differently, making the vote seem lower by adding the abstentions to the denominator. But within four days of the AGM, the actual numbers must be publically reported in what is called a form 8-K, and you will see the actual counts and can check the calculations yourself.
Your shareholder resolution at Puppy, Inc. receives a very respectable favorable vote of 25 percent, which is excellent. Although it is nonbinding and management and the board of directors is not obligated to institute the changes your resolution suggested, if it ignores the resolution, it risks alienating one quarter of its shareholders, which it probably doesn’t want to do.
Years ago, shareholder resolutions that achieved a 10 percent favorable vote were a rarity. But in the past couple of decades, as more shareholder advocates have gotten active and better at making their case and as shareholders generally have become accustomed to the process, favorable votes of 20 percent, 30 percent, and 40 percent have been achieved. That’s a good thing. This means that shareholders are taking greater responsibility for the values that their investments represent and are no longer willing to silently let the status quo persist when it threatens those values.
However, even if you are carried out of the meeting on the shoulders of your supporters, flush with victory, now is the time to evaluate whether you have actually had an impact and made the change you desired. Often to truly implement and verify a transition takes tenacity and years of persistence.
THE COMMUNITY OF SHAREHOLDER ADVOCATES
Although you may have worked diligently and felt somewhat isolated, in fact you are part of a community of shareholder advocates working in a coalition and supporting each other. It is critically important to coordinate your efforts with this larger community especially as seeing the process through to make real change may take several years and require shifting tactics across filings at many companies.
That’s why the majority of resolutions are submitted by professional organizations, such as socially responsible investing firms including (alphabetically) Arjuna Capital Management, Boston Common Asset Management, Calvert Investments, Christian Brothers Investments Services, Clean Yield Asset Management, Domini Social Investments, First Affirmative Financial Network, Green Century Capital Management, Harrington Investments, Jantz Management, Miller/Howard Investments, Newground Social Investment, Northstar Asset Management, Pax World Funds, Sonen Capital, Trillium Asset Management, Walden Asset Management, and Zevin Asset Management. Many corporate engagements leading to resolutions being filed are conducted by pension funds such as The California Public Employees’ Retirement System (CalPERS), The California State Teachers’ Retirement System (CalSTRS), New York City Public Pension Funds, New York State Common Retirement Fund, and the Connecticut Office of the State Treasurer as well as by nonprofits like The Humane Society, As You Sow, and SumOfUs, and foundations like the Nathan Cummings Foundation, the Christopher Reynolds Foundation, and the Needmor Fund. Organizations including Ceres and ICCR both coordinate filings; Ceres focuses mostly on climate and related environmental issues, while ICCR covers a much wider range of social and governance issues for their faith-based members. The most important take-away is that there is a robust community of shareholder advocates, and it is critical to coordinate your activities with them.
Your hypothetical shareholder resolution may not motivate a sudden about-face, and your appearance before the annual general meeting may not have been as galvanizing as Charlton Heston’s appearance at Time Warner. However, an engagement that escalates to a well-crafted resolution is about putting forth a new idea. And ideas have power.
DRIVING CHANGE WITH NEW IDEAS
Nearly every major shareholder-driven corporate change started with a novel resolution. These resolutions push the envelope and can require time and investor education to resonate and build consensus; they highlight important areas of business risk and often see increased shareholder support in subsequent years, resulting in critical corporate changes that benefit both the corporation and shareholders. Also, the process of submitting shareholder resolutions is a critical part of expressing your rights as a shareholder and continues to expand in scope and importance.
Sometimes ideas like “Say on Pay,”75 in which shareholders are empowered to vote on executive compensation packages every one, two, or three years, started as a shareholder resolution that was filed at enough companies, for enough years, with enough substantial votes that it became law. It is now required by the SEC under the Dodd-Frank Act. There are petitions at the SEC to consider other issues like disclosure of corporate lobbying and political spending to become a requirement for every company.
In fact, proxy access, which empowers long-term shareholders to nominate board candidates for the proxy ballot, was set to become an SEC rule for all public companies in 2010. The Chamber of Commerce challenged it in court and won,76 so it was not implemented as a rule for all public companies. Instead, shareholders, led by the New York City Pension Funds, brought it forth as a resolution at hundreds of companies and had it voted on. After one year, it has already been adopted by and is in the by-laws of over 70 companies, and it looks like it may spread to all public companies soon.
The power of an individual shareholder is to bring forth new ideas. However, it often takes building a coalition to change a company and an industry. A recent example of this is the idea of stranded carbon assets. This concept was first introduced by the Carbon Tracker Initiative in their seminal 2011 Carbon Bubble report.77 It was used as the foundation of a shareholder resolution filed in 2012 for the first time by As You Sow at CONSOL Energy.78 Simultaneously, Ceres organized 70 investment entities with $3 trillion of assets under management to sign a letter to 45 of the world’s top oil, gas, coal, and electric power companies.79
This led to 11 companies receiving similar resolutions the next year from a coalition of faith-based, pension, SRI, and nonprofit shareholder advocates. As You Sow’s work led ExxonMobil to agree to prepare the first report by a major oil company in response to investor concerns about climate asset risk. The concept of stranded assets was one of the main drivers at the Paris COP 21 climate talks. It has been adopted by The Bank of England and major reinsurers and is a fundamental concept underlying a global coalition on climate finance analyzing the risks of climate change and the transition to a clean energy future.
Filing shareholder resolutions is part of the ecosystem of change, and as long as you are transparent and communicate your intention to other advocates working in the space, you will be welcomed to play a part.