Shareholder proposals: From smart and strategic to simplistic and senseless
If you could grant one dream come true for sustainable business, what would it be?
I’d choose shareholder engagement. The public corporation’s main mission is to provide for its shareholders. Therefore, if shareholders, en masse, demanded more on the sustainability front, we’d see Tesla-like acceleration on corporate sustainability.
To assess shareholder involvement, I poured through the social and environmentally related shareholder proposals of 2015 using two terrific resources: Ceres and the Manhattan Institute’s Proxy Monitor 2015 Scorecard.
What I found ranged from smart to senseless. You’d think that what is prepared for the corporate boards are wisely dressed-up and persuasive proposals. The reality is that too many look like they showed up at a black-tie event direct from a Jimmy Buffet concert.
Here’s what I learned:
- Sustainability is well represented. According to Ceres, there were 108 proposals voted upon. The Manhattan Institute, which tracks all proposals for the largest 250 public companies, shows 52 environmental proposals (as a subset of 141 socially-related proposals), accounting for roughly 20 percent of all shareholder proposals.
- The “social” category is blasé. With all the social problems in our society, I was expecting some hard-hitting and targeted social proposals. I couldn’t find one of actual merit: nothing on wages or economic disparity or the obesity problem. Most were about political spending or lobbying. I know many find corporate lobbying distasteful, but it is an American right to get involved in the political process, for citizens and corporations alike. It would be more productive for shareholders to spend their time submitting proposals involving substantive social issues.
- No surprise: Climate change proposals were tops. More than half asked for commitments and targets on GHG emissions and reporting. By the way, these proposals averaged good support, with at least a 20 percent vote.
- Biggest losers: Only a handful received less than 10 percent of the votes. The losing issues were: naming a dedicated environmental board director; establishing a sustainability committee; and specific supply-chain issues like GMOs and antibiotics.
- The most votes and biggest “winners”: The category of proposals that received the highest votes focused on CSR and sustainability reporting. Their votes ranged from 23 percent to 33 percent. Of course, “winning” is very interpretive when it comes to these proposals. Technically, no vote is binding, but votes beyond 50 percent are usually addressed. According to the Manhattan Institute, no environmental or social proposal in the past decade has achieved this. These days, I just don’t know how a big company cannot prepare a sustainability report. How can you trust a company that doesn’t want to make this fundamental step? Come on Amazon, Chipotle, Chubb, Emerson, Genworth, Gilead, Holly Frontier, Kinder Morgan and Kraft — all companies that received 2015 proposals. Start reporting.
- The true “winners:” CERES accounts for 32 withdrawn proposals, noting that the company “will address” their respective topics. Common ground was identified in GHG emission tracking and goals, sustainability reporting and palm oil commitments. This is the most impressive work, when dialogue generates company discussion that results in real change.
- The best proponents/most engaged: Four proponents dominate the about “winning” category of successful engagement. Hats off to Trillium, Calvert, NY State Common Retirement Fund and Walden Assets. Calvert’s track record shows collaboration and a solutions mindset. It had the most shareholder proposals in 2015 (14) with 8 of them withdrawn because the company will address (or continuing dialogue).
- The worst proponent: As You Sow is the un-Calvert. It has a reputation for pushiness, not listening. The results speak for themselves: not one of its eight proposals found common ground. It had the lowest votes — in the 2-4 percent range — with a Chevron proposal asking for a “return of capital to shareholders to address carbon risk management,” and a couple of clinkers related to executive compensation linked to GHG reductions.
- Most hypocritical: Chipotle’s response to not publishing an annual sustainability report was a stumper: It said that don’t have the money. As quoted in The Sustainable Investor: “We have never done formal sustainability reporting quite simply because we have finite resources,” Chris Arnold, a Chipotle spokesman, said in an e-mail. “We’d rather invest those resources in doing things that actually drive change, than in talking about that change.”
My admonishment is not sour grapes just because I previously worked for a competitor (McDonald’s). I am just baffled by what seems to be a very sincere Food with Integrity program, and big investments in marketing (i.e. Fast and Dangerous; The Scarecrow), so why would Chipotle skimp on the basic blocking and tackling of sustainability, which is reporting in facts and figures what you do?
- The Wrong Target: If you wanted to make a difference on GMOs, would you pick Dean Foods (milk) and Abbott Labs (health care)? Sustaininvest requested that Dean Foods to do a study on the impacts of labeling genetically engineered foods. As You Sow asked Abbott to report which of their nutritional products have GMO ingredients. For all the hubbub about GMOs, not one company that actually makes GMOs received a shareholder proposal, including Monsanto.
- Why pick on leaders vs. laggards? What is John Harrington thinking? He submitted proposals to Starbucks and PepsiCo to establish a sustainability committee on their boards. Most sustainability professionals would welcome the level of CEO and senior management integration that these companies display. Senseless submissions like these drag down the reputation of the entire shareholder engagement process.
What to expect (and hope for) in 2016
Building upon the solid 2015 voting support for GHG emissions goal setting and sustainability reporting, expect shareholder advocates to submit more of them. Tack on the Paris COP21 agreement, and you’ll see a big lift in climate change proposals.
Are the socially responsible investment groups catching the polarization disease we see in our political parties?
My hope is to see a bigger leap in the quantity of proposals withdrawn because the “company will address.” However, my hope does not match the trend line, with 32 such proposals in 2015, dramatically down from 55 in 2014 and an average of 47 over the past five years. Are the socially responsible investment groups catching the polarization disease we see in our political parties?
I see three immediate challenges facing the SRI community. It needs to:
- ramp up win-win solutions.
- double the amount of proposals that it withdraws because of positive dialogues with companies.
- cut in half the proposals that get voted upon.
Success in the shareholder engagement process is not the fleeting attention one gets at the shareholder meeting, the space in the company’s proxy statement, or the gotcha media sound bite. Success is listening, adjusting, compromising, and forging agreements that are mutually beneficial.