Dear Sir or Madam: Stakeholder Letters Push Corporate Sustainability Improvements

Dear Sir or Madam: Stakeholder Letters Push Corporate Sustainability Improvements

The epistolary tradition dates back to at least Biblical times, when Saint Paul communicated early Christian ethics by means of letter writing. The letter continues to play an important role even in the digital age, particularly as a tool for shareowner and stakeholder engagement with companies over environmental, social, and governance (ESG) issues that often echo ethical considerations. The past month has seen a number of very significant letters posted that address ESG issues.

"Letters from investors to a company raising one or more issues of concern and requesting information usually prompts a response that requires the company to have internal discussion about the specific issues cited--this is a plus," said David Schilling, program director for human rights at the Interfaith Center on Corporate Responsibility (ICCR), a coalition of 275 faith-based institutional investors and SRI firms with over $100 billion in assets. "If an investor letter is not answered by the company--and this happens more often than you'd expect--the company is a candidate for a shareholder resolution."

"The resolution prompts a quick response and usually a face-to-face meeting to discuss the contents of the resolution and what the company is doing, or pledges to do," Rev. Schilling told "This leads to a withdrawal if the filers' criteria are met."

On October 10, ICCR members sent a letter to 134 top corporations expressing concerns about excessive executive compensation. The investors specifically asked companies to consider placing a management recommendation on the corporate proxy "giving investors the opportunity to have an advisory vote on the Compensation Committee's executive compensation report."

Two weeks later, a coalition of institutional investors with almost $850 billion in assets sent a letter to compensation committee chairs on the boards of 25 major corporations, including ExxonMobil, Wal-Mart, General Electric, and AT&T. The letter calls for compensation consultant independence similar to the recent calls for auditor independence, and asks companies to take steps to end the practice of board-hired compensation consultants also doing work for company management.

"We believe that it is in the best interest of shareholders and corporations for compensation consultants to provide independent, unbiased advice regarding executive compensation," states the letter. Signatories include some of the largest public pension funds, such as the California State Teachers Retirement System, as well as union pension funds, SRI firms, and even the UK-based Universities Superannuation Scheme. "It is critical, therefore, that a compensation consultant be free of any conflict of interest, perceived or actual."

Companies are not the only recipients of such letters, as other entities affect corporate behavior.

"Letters to agencies, including international ones such as the United Nations, that are signed by a number of concerned investors are an important tool of engagement because they underscore the breadth of support for an issue or given set of proposals by a wide variety of investors--faith-based, socially responsible funds, public pension funds," said Rev. Schilling. "In addition, making letters public helps contribute to the public discourse and debate on the specific issues, such as the role and responsibilities of business in promoting and protecting human rights within its sphere of influence and area of activity."

On the same day of the compensation letter, ICCR members sent a letter to John Ruggie, who was appointed by United Nations Secretary-General Kofi Annan as the Special Representative on Human Rights and Business in July 2005 with a five-pronged mandate mandate. Following-up on their February 6 letter to Dr. Ruggie and May 11 meeting with him, this letter provided specific responses to questions posed by the Special Representative in two discussion papers--one on human rights impact assessments (HRIAs) and one on non-financial reporting.

"Human rights impact assessments remain critical for two reasons: first, they help companies identify risks and opportunities in the human rights arena, and second, companies really need to engage with community actors." said Rev. Schilling. "We're advocating that human rights impact assessments be a major recommendation that comes in his report to the Human Rights Council in Spring 2007."

"We put our recommendations on corporate sustainability reporting into two baskets: first, continuing to get companies to use the Global Reporting Initiative, which obviously is a voluntary initiative--there's a range of ways companies have utilized or even misused the GRI framework," said Rev. Schilling. "Second, we would also like to see sustainability reporting elevated to a requirement for listing on stock exchanges around the world."

The US Securities and Exchange Commission represents another nexus of influence over corporate behavior, and hence is a regular recipient of letters from investors. On October 16, a group of institutional investors worldwide with $3.4 trillion (many of them who also signed the compensation consultant independence letter) wrote SEC Chair Chris Cox on the issue of shareowner access to the proxy to nominate board candidates. The SEC proposed a rule in 2003 that it then failed to act on, but in September a Federal Appeals Court upheld the right of shareholders to file binding shareholder resolutions requesting such access to the proxy--effectively endorsing a process for proxy access.

"It cannot be emphasized enough how difficult it is for investors based outside the US to come to grips with the fact that shareholders of US companies lack basic rights which they take for granted in other developed markets," the letter states. "Both in principle and in practice, the American board election procedure is outdated and detrimental to the maximization of long-term shareholder value."

Immediately after the court announced its decision, the SEC scheduled an October 18 meeting to announce a new rule harmonized with the court decision, but then postponed this meeting until December.

Finally, investors are not the only ones who write letters on corporate responsibility issues. On October 27, US Senators John D. Rockefeller IV (D-WV) and Olympia Snowe (R-ME) wrote ExxonMobil CEO Rex Tillerson excoriating him for funding "a small cadre of global climate change skeptics" such as the Competitive Enterprise Institute.

"A study to be released in November by an American scientific group will expose ExxonMobil as the primary funder of no fewer than 29 climate change denial front groups in 2004 alone," the Senators state. "It is our hope that under your leadership, ExxonMobil would end its dangerous support of the 'deniers.'"