Most of us think first about the impact funds have when allocated for specific purposes like building a school or hospital, supporting job training, or funding advocacy campaigns. Others may also think about the impacts of where funds are invested, for example, in a community development financial institution that supports economically marginalized neighborhoods and individuals, or in a clean energy fund advancing new technologies.
I’d like to call attention to another way invested assets can build support for the steps needed to protect both people and the planet, namely, the power of shareholder advocacy. For investors, individual or institutional, that own company stock directly (not through a mutual fund), this blog is especially for you.
A shareowner owns part of a company, no matter how small. Generally when we speak about ownership, we acknowledge that with ownership comes responsibility. However, neither individual nor institutional investors tend to think of themselves most of the time as “corporate owners” obligated to weigh-in on company practices and policies. The practice of shareholder advocacy—including proxy voting, corporate dialogue, and shareholder resolution filing – is an important way for shareholders to live up to their responsibilities.
Let’s take a brief look at each of these three actions.
The first, proxy voting, is probably the most familiar. Investors receive proxy voting ballots in the mail or electronically and are asked to vote on various shareholder proposals. Spring is when the majority of shareholder meetings are held, so proxy voting is in full swing.
As with any kind of voting, it’s easy to ask: does my vote count?
The answer is yes. Please do not be put off by the reams of paper you may receive as part of the shareholder packet or be dissuaded by concern that you do not fully understand all the issues.
While a number of the proposals address issues like the company’s choice of auditor which you may not have strong views on, there may also be proposals on major social, environmental, and corporate governance issues that you, as a part-owner of the company, especially want to address.
If you are unsure how to interpret a proxy ballot, Green America’s proxy voting infographic can help. The infographic points out the instructions for marking the ballot and where to find the recommendations from corporate management on how to vote. Overwhelmingly, companies urge investors to vote against shareholder proposals seeking transparency and action on social and environmental issues. As a part-owner of a company, this should be a major concern. This spring, corporations will be facing votes on issues such as gender and minority pay disparity, climate impacts and reliance on fossil fuels, access to water as a human right, animal welfare, corporate lobbying and many other issues affected by corporate conduct.
These are just a few of the nearly 400 resolutions filed at companies by concerned investors this shareholder season. Knowing fellow investors are raising these issues of concern certainly makes me want to look closely at my organization’s ballots and to vote in accordance with our mission and values.
Importantly, resolutions do not need to receive majority support to be effective. Resolutions, which are mostly advisory, send an important signal to corporate management about investor views. Resolutions can also help identify and mitigate risks the company may be facing if it does not focus on the issues raised. For an excellent compendium of resolutions this proxy season, review the 2019 Proxy Preview for background information and details on specific resolutions and the context in which they have been filed.
Assets invested in direct stock thus provide an important lever for urging companies to review and improve their conduct. Are you using your proxy power?
Engaging in Corporate Dialogue
Engaging in corporate dialogue is another strategy for using the clout of one’s assets for good. This is often best done in concert or in coalition with investor networks that have long-term relationships with companies and a history of engagement on social and environmental issues. Dialogues serve to identify investors’ issues of concern and to provide a deeper understanding of the company’s position and plans in relation to those concerns. These are often long term and if successful can change company practices. If consumer pressure is brought to bear as well, then change may be more rapid. Effective dialogue requires an ongoing commitment, which is another reason why working in coalition is helpful for sustaining the focus over time.
Dialogue, without the filing of a resolution, can sometimes be enough to prompt change in corporate conduct or policy. For example, the Nathan Cummings Foundation and others dialogued in 2018 with representatives from JPMorgan Chase to express concern about the bank’s financing of private prisons. This is an issue that increasing numbers of investors have begun to address. The bank received pressure and advice from a number of sources and ultimately decided to halt this financing. Investor dialogue contributed to the momentum that built over time to halt this funding.
If investors determine that dialogue has proven ineffective, the third action is typically to file a shareholder resolution to be included on the proxy ballot for all investors in the company to consider. Companies would prefer not to include these resolutions, so once a resolution is filed there may then be more rapid progress in the dialogue process, prompting the filer to withdraw the resolution.
If progress is not made, the third strategy is employed, filing or co-filing a resolution for a full vote. (Co-filing is simply joining the “lead filer” in their submission of a resolution.)
Many different types of institutional investors (as well as individuals) file resolutions, including socially responsible mutual fund companies, asset management firms, faith-based investors, labor unions, and philanthropic foundations.
Using the Nathan Cummings Foundation as a model in this strategy as well, we see it has filed a number of resolutions for this proxy season. Notably, the foundation withdrew many of these resolutions in response to positive movement by the companies at which the resolutions were filed. All the resolutions introduced were in alignment with the foundation’s mission and filed to leverage the philanthropy’s grantmaking.
For example, a resolution filed with Walmart sought guidelines from the company and greater transparency concerning the use of prison labor and other exploited labor in the company’s supply chain. Walmart has agreed to implement additional screening, so the Cummings’ resolution has been withdrawn for now. Given the company’s scale, Walmart’s commitment may have significant impact. Multiple programs at the foundation contributed to its shareholder strategy, including its Corporate & Political Accountability program which activates investors and its Racial & Economic Justice program that focuses on criminal justice. This shareholder strategy also builds on the foundation’s grantmaking to the Center for Investigative Reporting.
In another example, in which the resolution was not withdrawn, Cummings filed a resolution at Amazon.com seeking clarity on how the company addresses the dissemination of hate speech and restricts products related to its proliferation. The resolution complements the foundation’s work in its Racial and Economic Justice program and its grant support for groups such as the Action Center on Race and the Economy.
Both of these resolutions illustrate how a foundation can bring to bear the full power of its invested assets by filing resolutions that further bolster the programs and goals of their grantees.
And companies do pay attention. This April, in response to a resolution from the asset management firm Clean Yield, McDonald’s has agreed to disclose its policy on the use of forced arbitration and non-disclosure agreements with employees. This transparency is important since these practices have served to hide workplace harassment and discrimination. Clean Yield’s Director of Shareholder Advocacy, Molly Betournay stated: “This is a win for some of the country’s most vulnerable workers. We urge other companies, particularly those in the fast-food industry, to follow suit.”
The various shareholder advocacy strategies—proxy voting, dialogue, and resolution filing—have grown over time. Assets under professional management engaged specifically in resolution filing have increased from $703 billion in 2005 to $1.7 trillion in 2018, according to the 2018 Report on US Sustainable, Responsible and Impact Investing Trends produced by the US SIF Foundation. Not only have asset levels increased, but the breadth of issues covered has expanded considerably as investors recognize and act on the link between corporate conduct and the challenges facing our society and world.
So as you consider the diverse impacts of your investments, make sure you are leveraging all their power to play a positive role. Vote your proxies, join an investor coalition such as Confluence Philanthropy that supports shareholder engagement, and consider filing or co-filing resolutions in coordination with other investors. Your assets are never “just sitting there”—they are ready to be used to uphold your values.