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Chevron, Pension Funds, and Shareholder Activism (Part 2)

| Wednesday December 19th, 2007 | 1 Comment

Chevron receives another shareholder resolution“The central question, then, is not whether we want Big Business, but what we want of it; and what organization of Big Business and of the society it serves is best equipped to [help us] realize our wishes and demands…”
-Peter Drucker


On Monday Shannon reported here on 3P how shareholder activism has forced companies like Target, Apple, and Bed, Bath, and Beyond to stop using harmful chemicals in the products they manufacture.


And then there’s the case of Chevron, who was issued a shareholder resolution last Friday by NYC Comptroller William C. Thompson Jr on behalf of New York City Pension Funds. The pension fund owns 6,676,009 shares of Chevron stock, one of its largest shareholders, worth more the $612,000,000.  Of particular concern in the resolution are ongoing operations in the Niger Delta, violations in Kazakhstan, oil spills in Angola, despoiling the Amazon in the ‘70’s, and responsibility for the final clearing of primary forest in Asia.


“Corporations that conduct business in an irresponsible manner by polluting the environment pose significant risks to investors”, Thompson said, “It does not make financial sense for Chevron to continue to pay large fines and legal settlements when many of these pitfalls can be avoided by company-wide adherence to the highest environmental standards.” 


The Resolution demands a review of the process Chevron uses to assess the laws and regulations of host countries in terms of their own environmental policies and procedures and to account for the gap that exists between those policies and regulations, and what actually happens on the ground.


By its very nature, a large, multi-national, resource-extracting corporate behemoth can transcend the effective jurisdiction of any one nation’s environmental regulations, even while technically bound by them. The enormous economic resources and global reach of Chevron, with operations in 130 countries, makes paying fines for ongoing or past violations of environmental policy – or even hiring what amounts to a mercenary army – merely a “cost of doing business”, with little regard for the long-term consequences.  Therefore, simply at a pragmatic level, it becomes the task of shareholders to see that corporations take into account all aspects of its policy and operation, including those with potentially adverse impacts on the long-term profitability of their investment. Particularly if it breaks the law. As the kids say: Like, Duh.


I admit I really didn’t know much about “shareholder activism” beyond my investments in PAX World Funds and the social responsibility index fund in my 401K portfolio at work.


Then I saw Shannon’s post and the press release about this shareholder resolution, and I got curious. Over the past couple of days, I set out on a journey to find out more about what makes up shareholder activism , how it evolved, and its role in corporate governance.


What follows is my journey…



Corporate Governance,  Pension Fund Socialism, and the Evolution of Shareholder Activism

sustainability model - whole foodsSEC laws passed in the 1930’s limited the role of financial institutions in corporate governance, widening the gap between shareholders and management in large public corporations. Once the United States began to pull itself out of the Depression (in the height of WWII), that began to change. Rules passed in 1942 allowed shareholders to submit proposals for inclusion in corporate ballots, and the gap between shareholder and management began, slowly, to close. Throughout the 50’s and 60’s American business was unstoppable, transcendent, a force like none other ever seen on the planet. God bless America.


But it didn’t sit well for everyone, even Republican president Dwight Eisenhower, who famously said in a 1961 speech: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”


Clearly, even the most “powerful man in the free world” was concerned of the influence and impunity in which large corporate entities could operate. If the most powerful nation in the world feared losing regulatory control over Big Business, then what recourse was there?


It must rest, somehow, in the shareholders; the owners. But despite the dramatic shift in public ownership in the last half of the 20th century, many pension fund managers had no interest in asserting mandates to company directors. They were stock pickers, not the conscience of the corporation.


Then, in 1971, the Episcopal Church submitted a resolution at a shareholders meeting demanding General Motors cease operations in South Africa, earmarking a watershed moment in shareholder activism, the start of what today remains the emblematic example of the power of shareholder activism. 


That same decade, professor, author, and management guru Peter Drucker foretold the rise of what he called “Pension Fund Socialism” whereby ownership, thus the means of production, transfers to workers through the aggregate power of pension funds.  “Socialism” is a scary word for many, and tweaks to Drucker’s analysis uses terms like “Pension Fund Capitalism” or “Pension Fund Engagement”.


Other “early adopters” in support of shareholder activism, such as the Interfaith Center on Corporate Responsibility (ICCR), have been active since the 1970’s, and maintain an ongoing list of shareholder resolutions across the business spectrum. By the 80’s, a dramatic shift had occurred with a more active (or activist) involvement by large institutional investors in corporate governance.


In the early 1990’s, T. Boone Pickens organized United Shareholders of America; a grassroots group that eventually lobbied Congress to further ease shareholder restrictions, which, along with the growth of the internet, empowered investors outside the more traditional pension fund and institutional investor activist groups – giving rise to grassroots investor activism  (A Place at the Table by Christian Science Monitor staff writer Sara Steindorf is available in pdf format)


There are critics of shareholder activism: New York’s William Thompson has been criticized in the past for taking policy positions without consulting constituent shareholders. And there is little evidence that grassroots investor activism has caused much immediate and verifiable change in corporate behavior. “Technical wins” – a board vote adopting a shareholder resolution – are rare, but that may not be the point. Grassroots movements set a ripple of change in motion – for that there is evidence, right down to a shareholder “army of one”.


So what does all this mean in terms of protecting the environment, insuring socially responsible business practices, and encouraging sustainability?


It’s now possible to Google yourself silly (trust me) accessing information about corporate activities, pending resolutions, and concerns from other investors. Anyone owning more than $2000 in stock can submit a shareholder resolution. Information on filing a proposal is easily found online.

Others certainly know a lot more about this than I. What I present here is nothing more than my two-day learning curve on the subject and my subsequent thoughts on what I learned. Which is, in summation:

As in a democracy, enjoying the fruits of a capitalist society bears with it responsibility. As Peter Drucker said at the top of this post, we must decide what we want from Big Business, not only in the goods and services it necessarily provides, but also in how it reflects the values we hold dear by means of the production of those goods and services. Whether through the economic might of a large institutional investor or the power lended the individual shareholder through the web and the information revolution, it is the owner’s responsibility, at the very least, to make known what those values are and what is expected from Big Business. \

As in a democracy, it may at times seem futile, casting our one little vote, a miniscule drop in a vast ocean. But to abdicate our voice as owners, no matter how feeble, and not participating in corporate governance through the means available to us is, essentially, giving a nod to Chevron (and many others of course) to continue running roughshod across the globe in search of the quickest means of turning resources into cash for short-term profit. Exploiting the earth and its inhabitants, as Robert Kennedy Jr. puts it, as if it were “a business in liquidation”.

Shareholder activism, it seems to me, is that means.

If corporations have a responsibility to shareholders to manage, then shareholders are obliged to lead.

“Management is doing things right; leadership is doing the right things”
– Peter Drucker

 

Sources, Sites, and Further Reading
Amnesty International
CorpWatch.org 
Information Arbitrage
Pension Fund Socialism – A Critique (pdf)
Christian Science Monitor – “How shareholder resolutions influence corporate behavior”
Jesuit.org – “Socially Responsible Investing”
ScienceDirect.com – “Pension funds, corporate responsibility and sustainability” (abstract)
Accountability-Central.com
Harvard Business Review – “Reckoning with the Pension Fund Revolution” (abstract)
Social Science Research Network – “The Evolution of Shareholder Activism in the United States” (abstract)

For more resources, make sure to read Shannon’s post from Monday

Tom Schueneman writes on environmental issues at GlobalWarmingisReal.com and Hugg.ca. He also publishes MarkTwainBlog.org, ThomasPaineBlog.org, and MarkTwainBlog.org

 


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  • Dave Shires

    Tom – really great post. This is a great piece to keep around as an introduction for people. I will be bookmarking it!