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The Real Power of Shareholder Advocacy

Jan Lee
Jan Lee | Tuesday July 15th, 2014 | 0 Comments
Stockholder_Advocacy_Edmond_Meany_addressing_A-Y-P

Edmond Meany passionately addressing Alaska-Yukon-Pacific Exposition stockholders and president, Seattle, Washington, September 19, 1908: Frank H. Nowell, 1864-1950/PD

Last January, while protesters gathered outside of a shareholders meeting at Monsanto’s St. Louis headquarters, another smaller, less vocal but just as impassioned discussion was taking place inside.

As protesters chanted slogans and rallied for attention in the parking lot of one of the world’s largest biotech companies, stockholders were quietly adding their own form of input regarding GMO technology: shareholder resolutions.

Investors had asked the company to file a report answering key questions about genetically modified organisms (GMOs). They also asked the company to stop opposing the labeling of GMO foods.

Although neither resolution was adopted, the shareholders’ message was clear and their effect immediate. Within hours, news media around the world was reporting that Monsanto investors were calling for accountability. They weren’t just listening to the company’s financial report; they were signaling to the board – and to the world – that some of Monsanto’s smallest investors were speaking up.

And the board got it.

“There is a recognition that we need to do more,” said Monsanto CEO Hugh Grant after the meeting.

Education: At the core of shareholder advocacy

The underlying benefit of such moves, says Dale Wannen, president of Sustainvest Asset Management, is education. The small contingent, which included about 15,000 signatures from investors, nonprofit advocacy organizations, farmers and business owners, wasn’t just promoting a position. It was educating the board about what its smaller investors – and its burgeoning reputation – hinged their future on: the faith of consumers, even those who didn’t buy from Monsanto directly.

Shareholder advocacy, says Wannen, who advises clients on responsible investing options, also helps “educate the public who may not know otherwise about environmental [or] social issues.” So while shareholders were circulating resolutions for the board’s consideration, they were also letting those who were watching know about what the shareholders felt the real issues were.

Using the shareholder’s voice to effect change

Having a voice in the company is also a valuable way to demonstrate an interest in its priorities and directions, says Sister Nora Nash, the director of corporate responsibility for the Sisters of St. Francis of Philadelphia. The 500-member-strong Catholic congregation is a member of the Interfaith Center for Corporate Responsibility (ICCR), which is well known for its advocacy on environmental and social issues.

“We [feel] that it is important to be able to have a voice in corporations,” says Nash, who notes that the congregation invests in stocks both to support its retirement fund and as a tool for environmental and social advocacy.

“[In] order to show that we are being responsible, we have a voice in those corporations because if you own shares you really need to speak to the issues of the day,” Nash says. “We believe that it is part of our mission to … use our investments for both social as well as financial benefits.”

And they do speak to the “issues of the day” quite often. Nash and her associates are well known for their willingness to sit down with corporate leaders and politely advocate for change. Some of those changes are sweeping. Many turn out to benefit the company as well as the communities they affect.

Speaking for those who can’t

At the top of their concerns are companies that have the power to affect the lives and livelihoods of the world’s poorest citizens.

“We actually believe that we have a responsibility to speak for those who cannot speak for themselves. Many of our sisters work in communities that are poor or communities that don’t have a voice, and we want those people to have a voice through us or through other shareholder folks,” Nash says.

Sometimes their meetings are with companies in which they have no financial investment. Last year, following the tragic Bangladesh factory fire, Nash and other members of the ICCR began reaching out to corporations to encourage them to use their financial clout to improve working conditions in Bangladesh.

“[We] have written to at least 80 of the largest corporations to make sure that they sign a document that guarantees some help for workers,” Nash says. By signing on to the accord, she says, companies know that “they are making a commitment to do something” to improve conditions at the factories in Bangladesh. The end result is a mechanism that supports better social justice and a stronger sense of corporate social responsibility.

Transparent governance and shareholder advocacy

Shelley Alpern, who serves as the director of social research and advocacy for CleanYield Asset Management, says transparency is often a major focus in corporate settings. CleanYield is an associate member of the ICCR, as well as several other social advocacy organizations.

“We’re usually asking companies to commit to being more transparent as a matter of policy,” says Alpern, rather than as a one-time event. An example would be the resolution submitted at the Monsanto shareholder meeting in January, which called for a report to shareholders “revealing potential material financial risks or operational impacts on the company related to these GMO issues.”

But resolutions calling for improved transparency can cover just about anything, from employment hiring practices to company attitudes about social issues. LBGT rights, Alpern notes, used to garner a low response when votes were cast in shareholder meetings. “And now we routinely get upwards of 30 percent and usually, very often in the forties,” of those who feel LBGT rights should be a fundamental part of corporate social responsibility.

Shareholder_Advocacy_NASDAQ_stock_market_displayOld strategy, new focus and new outcomes

Shareholder advocacy has had a say in social change for decades, and has played a role in some of the largest political transformations in history. It emerged with the efforts of Saul Alinsky to improve the business practices of Eastman Kodak, but its most notable impact was during the South Africa Apartheid, which was transformed by shareholders who refused invest in and contribute to discriminatory social and political practices.

Today, says Nash, the pressing social issues include human trafficking and child labor. The Sisters of St. Francis and the ICCR are passionate about these topics and use shareholder advocacy to educate companies about the indirect impact of their commerce both inside and outside of their supply chain.

“Some of them really like to work with us, because even though they may not do what we ask to do, they always indicate it’s a good learning experience and there are times when they will tell us yes, they need to address the issue,” Nash says.

And, they listen, she says, because “they know we’re credible.” They recognize that the faith-based organization has paid a visit to their offices because the Sisters are out to improve working conditions and to “improve the standards in which our goods are being made.” The corporations respect that effort.

Alpern says that, in some circumstances, shareholder advocacy has gained an even stronger footing in corporate change.

“It’s definitely picked up steam. … [You] can literally chart a significant growth of average support for shareholder resolutions.”

She attributes this to two things: “Shareholders are becoming more cognizant of the implications on corporate value of environmental and social and governance matters.” And they are becoming more aware of influential proxy voting advisory firms, sometimes called institutional investors, that are hired to advise shareholders with specific concerns, like a company’s environmental or human rights records.

From stocks to mutual funds to community advocacy

Wannen of Sustainvest Asset Management notes that the concept of owning stock has changed over the years. In the last 20 or 30 years “people have moved from owning individual stock, which is what my father or my grandfather would have owned, into mutual funds. They have moved it into these actual products that hold the stock for them.” It isn’t uncommon, says Wannen, to find that people don’t actually know what is in their mutual funds.

Still, he says, he has clients who will ask if they can buy a limited number of stocks in a particular company, explaining that they are unhappy with what the company is doing, and they want to have a say. Even though Securities Exchange Commission regulations stipulate shareholders must own at least $2,000 of shares and hold those stocks for a year before they can submit a resolution, Wannen says buying stocks is one way people feel they have a voice.

But resolutions aren’t the only mechanism for change, says Nash: “[If] a company is willing to take the next step, we definitely prefer to dialogue. The resolution is a tool to get the corporation, I guess you might say, to pay attention.” But the true strength, she says, is the collective voice — the momentum that comes from people, or a network of organizations expressing the desire for change, and the willingness to work with the companies to see that through.

Out of such efforts have come a number of recent landmark changes, such as Tyson Foods’ agreement last year to do away with gestation pens for pigs and increasing efforts by food manufactures to use only sustainably grown and harvested palm oil.

There have also been unusual but heartening stories of CEOs who, despite their companies’ resistance to change, have made efforts to listen to shareholders. The recent agreement of Duke Energy CEO Lynn Good to take a canoe trip down the polluted Dan River with environmentalists is one example that highlights a change that was forged through dialogue between the company and its shareholders.

“[We] know in the work that we do, we can enable the world to be just a little bit better than it is,” Nash says. “And there is always room for improvement.”

Edmond Meany passionately addressing Alaska-Yukon-Pacific Exposition stockholders and president, Seattle, Washington, September 19, 1908: Frank H. Nowell, 1864-1950/PD

NASDAQ image: Bfishadow


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