How shareholder resolutions influence corporate behavior

It's that time of year when shareholders get their say - by asking a question at a corporation's annual meeting or voting on resolutions. But resolutions don't appear out of thin air. Corporate officials and activist shareholders can spend months hashing over an issue such as pollution or labor practices. For a peek at that process, the Monitor's Laurent Belsie talked with Shelley Alpern, director of social research and advocacy at Trillium Asset Management, and Meredith Benton, research associate with Walden Asset Management. Here is an edited transcript of their conversation.

What trends are you seeing in shareholder resolutions?

Ms. Benton: One of the most exciting trends we're seeing right now is the level of responsiveness from the companies. They've gone from being resistant or unaware ... to working with us.

Ms. Alpern: There's a lot of activity around climate change. Ten years ago, companies could treat you like you were a little bit crazy for bringing up the issue. But now, it's taken very seriously as an economic issue.

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Are there other trends?

Alpern: Political contributions have become a real issue over the last couple of years. There's an outfit in Washington called the Center for Political Accountability that has worked very closely with a shareholder coalition to put resolutions on company ballots that ask companies to disclose the kinds of contributions they're making. Although there's some kind of public disclosure already required by government, it doesn't tell the whole story.

Are you telling companies who to contribute to?

Alpern: No. At this point, we just want to know what they are doing and how they are handling the risks associated with political giving - the reputation risks when they might find out that some of their money has been diverted to some candidate or political independent 527 [group] whose views would alienate their employees, their customers, or their shareholders.

How do you work with a company to persuade it to do something?

Benton: The process begins when there's an issue of concern for our clients. We look at what the issue is and how it may impact the companies in our portfolio. Once we've determined what that impact might be and believe there's a long-term business case for why one of our companies should be concerned about the issue, we approach the company. We say, as an example, "We're concerned that your nondiscrimination policy doesn't include sexual orientation. We believe that this is something you should pay attention to because you're not going to be able to attract the best employees. You may be alienating your customer base. You may be breaking local laws depending on where your operations are."

Then what happens?

Benton: They have a couple different ways they can respond to us. They can ignore us, which happens sometimes. They can constructively engage with us and sit down with us. If they're ignoring us or strongly disagreeing with our viewpoint, we have one more option, which is the shareholder resolution.

So you'd prefer not to get to the resolution stage.

Benton: The resolution process is the most public aspect of what we do. But far more often, we're having constructive conversations with companies. The first one that's coming to mind is TJX, a local Massachusetts-based retailer [which operates T.J. Maxx and other chains]. We filed resolutions with them two or three years ago on vendor standards and how they were [monitoring labor and other practices of] their supply chain. Over time, we've built a relationship with them and they've ramped up their understanding of our concerns to such an extent that we check in two or three times a year and they report back to us on what they're doing. And so this year, there was no resolution on the ballot.

Most shareholder resolutions fail, right?

Benton: No resolution is binding. So we could get a 99 percent vote and the company's under no obligation to make the suggested change. [But] a 30 percent vote is extraordinarily high. It represents a very strong upswell of investor support for an issue.

Does minority support - say, 30 percent - have an impact?

Alpern: In the last couple of years, we've had discussions with a mid-range gas company called Anadarko Petroleum. When we first started talking with them, they weren't doing a lot of public disclosure about what their policies were on greenhouse-gas emissions - and what they were doing internally to reduce them or to move some of their investments into cleaner types of fuels. After one shareholder vote [in which] we got upwards of 30 percent support, the company really moved along incrementally toward tracking its own greenhouse gases more thoroughly and reporting them to the public and to investors.

Meredith, an SBC/AT&T official called you from the dentist's chair?

Benton: It was the day before they were to put the proxy to print. They needed us to withdraw [a resolution on sustainability reporting] very quickly. We did withdraw. They have agreed to an interim report in the summer and, going forward, looking at something a little more hefty.

Why are companies more proactive about such issues?

Benton: There are a number of reasons. We're getting better at expressing our concerns with a strong business case. What's also happening is that businesses are understanding those arguments in a way that they didn't used to. And they're beginning to see the results of not taking action - of what happens when you can't get your store sited in a community because they're looking at your labor practices. A third large aspect of why we are able to work more constructively with companies is because there are more investors coming to the table. You're seeing state pension plans, you're seeing labor, you're seeing SRI [socially responsible investors], and you're seeing religious investors all working together.

Do you foresee a time when shareholder resolutions won't be needed?

Alpern: Not in my lifetime. I think you need this give and take between investors [and companies].

See the entire webcast at www.csmonitor.com/ethicalinvesting.

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