Postseason Review: Social Proposals
Submitted by: L. Reed Walton, Publications
U.S. shareholder proposals concerning greenhouse gas (GHG) emissions and product safety have fared better in 2008 than last year, while investors withdrew a record number of social and environmental proposals, according to RiskMetrics Group data.
There has been a rise in investor support for resolutions asking U.S. companies to produce GHG emissions reports, and also to formulate goals for emissions reduction. However, support has fallen this year for proposals asking for a board committee on human rights, sexual orientation anti-bias policies, and employment reforms.
The average support for social and environmental proposals so far this year is 14.7 percent over 147 meetings where results are known.
Support above 20 percent is considered significant for social and environmental resolutions, as those proposals historically have not received as much shareholder support as governance issues. Around 30 percent of vote results so far this year have exceeded that level--about the same as in 2007.
Notably, social issue proponents have withdrawn 129 resolutions this year, an all-time high. Often, social proponents value a withdrawal agreement over a high vote. Withdrawal of a proposal usually means that companies have agreed to implement part or all of the resolution. Timothy Smith, senior vice president of the ESG (environmental, social, and governance) group at Walden Asset Management, told Risk & Governance Weekly that many of the resolutions that saw high withdrawal numbers dealt with issues on which there is strong public and peer (corporate) pressure to take action. “Increasing investor votes coupled with consumer interest in such issues as climate change makes a ‘perfect storm’ of pressures that result in companies responding positively to reasonably framed shareholder resolutions,” Smith said.
Investor-sponsored resolutions requesting that issuers draw up concrete goals for reducing carbon emissions won 21.8 percent support over six meetings this year, compared with 20.7 percent support in 2007. Investors withdrew three proposals this year when officials at El Paso, Ford Motor, and Williams agreed to enumerate emissions reduction goals. More resolutions were voted this year than last, when four proposals went to a vote and two were withdrawn.
There were more proposals seeking GHG emissions reports on corporate ballots this season; eight went to a vote in 2008 while five were voted last year. Support for the resolution has gone up considerably this year, averaging 31.9 percent at six meetings so far where results are known. The proposal averaged 19.4 percent support in 2007, although this year’s average may change when the two remaining vote results are disclosed.
Investors also have continued their efforts to urge the Securities and Exchange Commission to issue formal guidance to companies on the disclosure of “material” climate-related risks. A coalition of 18 institutions, including pension fund officials from California, Florida, Maryland, New Jersey, New York, and North Carolina, filed a petition with the SEC last September. In June, the investors supplemented their petition with additional evidence on the need for formal SEC guidance.
Meanwhile, Steven Milloy’s Free Enterprise Action Fund (FEAF)--a conservative investment group--submitted proposals asking companies to report on the effect of sustainability efforts on their operations. Milloy is skeptical about global climate change and it was evident in the proposals that FEAF opposes corporate action against global warming. The SEC allowed four companies--Johnson & Johnson, Dow Chemical, Caterpillar, and Wal-Mart Stores--to omit the proposal on the grounds that the firms had substantially implemented it. The companies had already released global warming reports, only the reports detailed environmentally friendly changes in operations. Ten of these proposals did go to a vote. The resolution averaged 3.5 percent support at seven firms where preliminary or final vote results are available.
Other Environmental Proposals
Investors filed 11 proposals relating to product safety review after a number of consumer products were recalled in late 2007. Four companies received SEC permission to exclude product safety proposals, and investors withdrew an additional six resolutions. According to proponents, firms like JC Penney and Circuit City agreed to release reports discussing a new approach to identifying and replacing potentially toxic packaging. Only one resolution, filed at Avon Products and focused specifically on nanomaterials, went to a vote, winning 25.4 percent investor support. A similar proposal was withdrawn, at Colgate-Palmolive, when the company agreed to include in a sustainability report an affirmation that it does not use nanomaterials in consumer products or packaging.
Resolutions seeking a review of product toxicity have seen increasing support since they were first filed two years ago. The proposals won 36.1 percent at Becton, Dickinson--according to regulatory filings--and 38.3 percent at Kroger, according to proponents. A single product toxicity measure received 26.1 percent support at Bed Bath & Beyond last year, and the issue averaged 8.25 percent over four meetings in 2006.
Calls for reports on company hazards to surrounding communities averaged 9.7 percent support, up from 8.3 percent in 2007. Only two such resolutions were voted both this year and last.
A new proposal asking energy firms to review the impact of their oil sands operations has fared well this year, winning 28.1 percent support at Chevron, and 27.5 percent at ConocoPhillips, proponents reported. Meanwhile, a first-year proposal on establishing a board sustainability committee had single-digit support at three firms, averaging 5.8 percent.
Proposals requesting an environmental sustainability report from the board have fared about the same this year--averaging 28.6 percent support over five meetings this year as opposed to 27 percent support last year. In addition, investors withdrew 22 proposals this year. Among the companies that agreed to produce a sustainability report in exchange for withdrawal were Safeway, Raytheon, and Wendy’s International.
Social Issue Proposals
Support for shareholder requests for reports on corporate political donations and donation policies continued to rise this year, averaging 26.1 percent over 17 meetings. It is the highest average support for the proposal since it was first filed in 2004; it averaged 24.9 percent in 2007, 21.6 percent in 2006, 11.2 percent in 2005, and 9.4 percent in 2004. Proponents have also withdrawn a high number of these proposals. Investors withdrew 15 resolutions so far this year, and 22 last year.
There has been lower support this year for human rights-related proposals. Resolutions asking for a board committee on human rights have won 4.2 percent support over six meetings so far, down from 4.6 percent at four meetings in 2007. Support for proposals asking that companies review, report on, or amend human rights policies dropped sharply, receiving 11.8 percent support over nine meetings. Resolutions related to companies’ human rights policies in 2007 won 28 percent support over four meetings last year.
Filings of human rights proposals have gone up this year due to a number of resolutions relating to business in the African nation of Sudan. Three Sudan-related proposals were withdrawn, at Morgan Stanley, T. Rowe Price, and Merrill Lynch. Merrill Lynch, which came to an agreement with Trillium Asset Management, committed to discussing human rights policy on its corporate social responsibility Web site and to forward the Sudan Divestment Task Force’s list of highest corporate offenders to executives who oversee development on new investment products.
Investors Against Genocide (IAG), an affiliate of the divestment task force, put forward a number of shareholder proposals asking mutual funds to divest from companies supporting the Sudanese government. The resolution received an average of 25.1 percent support at 13 Fidelity funds, IAG reports. Fidelity, as well as some TIAA-CREF mutual funds, halted voting on the measures (CREF until 2009). IAG’s communications director, Susan Morgan, said that no further Sudan divestment resolutions are scheduled to be voted until companies like Barclays, Vanguard, and Franklin Templeton--at which they were submitted--schedule meeting dates.
Equality- and labor-related proposals have also experienced a decline in support this year. New York City’s pension funds again asked companies to implement the “equality principles.” This is a set of 10 guidelines aimed at ensuring there is no discrimination against homosexual or transgender employees. The resolutions have averaged 13.3 percent support over three meetings so far; the vote results for four other meetings have not been disclosed. Last year, the issue won 32.7 percent support over four meetings. The city pension funds withdrew 13 proposals this season, as compared with eight in 2007. Companies that settled with proponents this year included Family Dollar, Frontier Oil, and Borg-Warner.
Similar proposals asking for a clause in company documents affirming a policy of non-discrimination on the basis of sexual orientation also had lower support this year. The issue received 28.9 percent support over five meetings, down nearly 10 percentage points from 2007’s average of 37.5 percent over four meetings.
Notable exceptions to the decline were investor requests that issuers implement the United Nations’ International Labour Organization (ILO) guidelines. These proposals won 16.8 percent support over four meetings this year, up from 13 percent last year.
A new social proposal this year addresses consumer health care. Shareholders, led by religious groups, asked companies to adopt principles for health care reform based on those drafted by the Institute of Medicine. The resolution received only 4.3 percent support across eight meetings where it went to a vote, but investors withdrew 13 of the 27 total proposals filed. Companies like McDonald’s, IBM, and Target agreed to issue news releases or post statements about the principles online. The SEC allowed three health care companies to exclude the resolutions from their proxy ballots on the grounds that the proposals related to those firms’ “ordinary business.”
RiskMetrics Group’s ESG (Environmental, Social & Governance) Research Team contributed to this article. A longer article on shareholder voting on social and environmental issues is available in the latest issue of RiskMetrics’ Corporate Social Issues Reporter.
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