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Ernst & Young estimates in a new publication [pdf] that half of all shareholder proposals in 2011 will deal with environmental and social issues, and support for these proposals is growing. In fact, “83 percent of investors now believe environmental and social factors can have a significant impact on shareholder value over the long term.”
Last year, E & Y finds, approximately one quarter such social investment proposals won 30 percent support –which E & Y calls a “threshold” number, where “many boards take note.”
Perhaps they’d better. Typically, when proposals reach a second threshold — garnering 50 percent support– directors who oppose them start losing their seats.
Things may not yet have reached a tipping point, but these are promising developments. With the enactment of Dodd-Frank in 2010, mandatory say on pay provisions became law; that means fewer executive compensation proposals are on the table, and it’s easier to introduce social issues into the conversation.
There are even some early indications of the trend toward social investment in the 2011 data reported so far on ProxyMonitor.org. (ProxyMonitor – the Manhattan Institute database I relied on in a previous post about why boards say they don’t back human rights proposals — is keeping a “scorecard” of the 2011 proxy season.)
Now the ProxyMonitor data is special, and there might be reason to expect it to tell a unique story. ProxyMonitor documents only proposals made to Fortune 100 companies. Can we reasonably expect Fortune 100 shareholders to set the trend or lead in the area of social investment? On the one hand, investors in the Fortune 100 might tend to be more conservative –and risk averse — than the average shareholder. On the other, these high-visibility public companies with strong brands are likely to attract activist investors and funds with a social agenda. The likely outcome is more proposals, less traction.
Be that as it may, so far, a clear majority of shareholder proposals made to Fortune 100 companies in 2011 target social investment issues.
And there is another encouraging trend here. More and more shareholder proposals ask boards of directors to report on corporate political spending and contributions. The Findings page on ProxyMonitor notes that among Fortune 100 companies, “the share of social policy proposals focusing on political spending has increased 84 percent in 2011 from the three previous years (2008-2010)” [emphasis mine].
A few examples give some sense of where things are heading. Two proposals requiring Valero Energy Corporation to report on its political contributions received 26 and 27 percent support, edging closer to the 30 percent threshold of boardroom visibility. A proposal by AFSCME asked IBM to disclose “direct and indirect spending to influence legislation as well as grassroots lobbying communications to influence legislation”; it received 28.5 percent support in the 2011 vote. It will be hard for the IBM board to ignore or resist this much longer.
All is not sunshine. It’s worth noting that when AFSCME advanced similar proposals with Prudential and Bank of America, both proposals met with zero support. [Update 5/16/11: this is incorrect. Please see this post.] Prudential made the case that the information is already available; Bank of America complained that it would be burdensome and redundant, and, besides, “our company does not engage in grassroots lobbying.”
Make of that statement what you will. It’s clear that forcing disclosure of so-called “indirect” and “grassroots” spending will be an uphill battle, in part because it is difficult to define or track grassroots spending, or distinguish it from legitimate trade association activity.
But the focus now on corporate political spending brings welcome relief. As I suggested in an earlier post, some social investors are trying to do what Congress is unable or too cowardly or too compromised to do: take back some of the ground that was lost or – as I prefer to put it – given away by the courts in Citizens United. The boldest of these proposals, requiring Home Depot not only to disclose its political expenditures, but also to submit those expenditures to a shareholder advisory vote, will come to a vote on June 2nd. Maybe this measure will make it past the threshold.
6 Comments
hopeful news
I always find social and environmental support welcome, but I’m also always wary of corporate “branding” agendas.
Last year at my old job I was very involved in our companies co-sponsoring with Rebuilding Together.
Our Rebuilding Together efforts were fun, useful to the folks that received the benefit, and the involved employees really liked the activity. Notice I linked to the Maxwell House donor drive above.
That was the benefit to the donor company. For a mere $50k match per market support the donor companies can generate a lot of goodwill and involved employees; but the point is, it’s very inexpensive. A relative drop in the marketing budget.
So I welcome their involvement, but as with greenwashing beware ‘social awareness washing’ too.
Bank of America complained that it would be burdensome and redundant, and, besides, “our company would rather work for mercenaries
does not engage in grassroots lobbying.”There. Fixed it for ya.
Thanks immensely for the update from corporate governance-land. The dominance of corporations makes this governance issue one of the very most important and very most obscure issues of our time. Thanks also for such high quality writing.
That said, I can hear the plutocrats snorting, “Shareholders? We don’t got no stinkin’ shareholders telling us how to run this company!”
yes, thanks a lot, this is interesting.
I don’t know anything about this, so
could you briefly outline how this works? and
did any of these shareholder proposals actually change any corporate plans?
I don’t understand how a corporation can go against the will of the majority of shareholders that can vote.
mfar: You can get a good sense of how this all works, or is supposed to work, from a site like http://www.socialinvest.org or http://www.asyousow.org. This page is a good place to start:
http://www.asyousow.org/csr/understandingvote.shtml
The literature put out by social investment funds like Trillium Asset Management or Domini Social Investments would also be helpful.
Shareholder resolutions can sometimes change and inform corporate plans; they are mainly a way for investors to communicate with management. Sometimes a resolution will put pressure on management, rendering the vote moot.
Most proxy votes are not binding, but advisory. So directors can go against the wishes of the owners, but they risk litigation and generally that’s not going to work out too well for them or the company in the long term.
The main trouble — as I mentioned in my post about Home Depot — is that the majority of shareholders simply vote with management. There are also a number of issues around the proxy process that create difficulties: for instance, blank or partially filled out proxy forms go with management. (There is currently a petition to the SEC to change this rule.)