Do you know the political slant of your portfolio?
Increasingly, shareholders want to know the political contributions their companies are making.
It's time for investors to stand up and be counted through shareholder resolutions. At corporate annual meetings around the nation, many resolutions involve issues of concern to ethical investors, including executive pay, disclosure of political spending, and even the sexual exploitation of children in tourism. Recently, The Monitor's Laurent Belsie discussed these issues with Boston-based experts Tim Smith, director of socially responsive investment at Walden Asset Management, and Lauren Compere, director of shareholder advocacy for Boston Common Asset Management. Here's an edited transcript of their conversation:
We raise many issues in this forum, but sexual exploitation of children is a new one. What's happening?
Ms. Compere: We filed a resolution last proxy season with Marriott International, looking at the implications of the hotel industry and the link that it's had with children being used abroad and here in terms of sexual exploitation. After Marriott agreed to adopt a policy for protection of children and training their employees to look for [customers preying on them], we decided to broaden the scope of the campaign to look at other hotel chains, airlines, as well as cruise lines. So there were two resolutions that were filed this proxy season with other hotels – Host Hotels and Starwood. But the shareholders have negotiated withdrawal [of the resolutions], and we're currently negotiating terms with both those companies.
What did Marriott agree to do?
Compere: Marriott agreed specifically to amend their human rights policy to include a particular section on protection of children that includes the training of employees to look for this sort of incident. This is training from the front-line receptionist to the CEO himself. It's worldwide. And they also have incorporated some very specific changes in their business code of conduct.
Tim, one big issue this year is executive compensation.
Mr. Smith: This year, a cross section of investors, maybe about 40 of them, have filed resolutions with maybe 60 companies asking for a very simple thing: that we have the right to have an advisory vote on ... the pay package.
And you've had some success?
Compere: We filed one of those resolutions on executive pay at Aflac, which is an insurance company – you know, the famous quack. We filed that resolution because there were some corporate-governance concerns we had: The executive pay of Mr. [Dan] Amos, the CEO, was higher than the average or median pay of the insurance industry. There are also some issues around the board structure itself. And there's a majority of insiders on the board. So we thought that this was a good candidate for this type of resolution. We've been very pleased with Aflac's announcement that they will allow an advisory vote in 2009. They are the first to allow that.
Smith: It's a big breakthrough.
But the vote isn't binding. It's a poll of the shareholders.
Shareholders are also scrutinizing corporations' political contributions.
Smith: A number of investors – these are not just socially concerned investors, it's also some trade unions, some state and city pension funds, religious investors – have joined together to ask companies to be transparent about their political spending. This would be political spending that they would make directly, for example, in a state or a city campaign or initiative. But what's also very interesting to track is trade associations and how trade associations, like the US Chamber of Commerce, may be doing the work of their members by doing political spending, lobbying, and activism. So we're asking companies really to track and be public with information about where those monies go as well. We now have about 30 companies that have agreed to do this.
What other trends are you seeing?
Smith: The [spectrum] goes all the way from resolutions on political contributions to resolutions on climate change. We have close to 40 resolutions that are challenging companies in this day and age to look at their greenhouse-gas emissions, to put limits on them, to be transparent about what those emissions are and what they're doing to try to remedy [the situation]. This is an issue that has just exploded in interest. We have investors with $40 trillion [in assets] internationally who have supported a questionnaire to companies asking them to report on what they're doing on climate change. It's an issue that affects the bottom line of companies. And investors want to know what companies are doing to address it.
There's also a shareholder battle over the safety of cosmetics?
Compere: We're sort of at the tipping point when it comes to the issue of chemical safety. There's been legislation in California on safe cosmetics that came into effect in January. There's also the European Union REACH legislation, which affects companies that sell products in Europe [by requiring safety checks on commonly used chemicals]. This whole industry, the cosmetic industry and the chemical industry in general, has been highly unregulated.... Shareholders are saying this is a risk-management issue.
And you targeted CVS?
Compere: Last year, we filed a resolution with [drugstore chain] CVS on cosmetic safety. We refiled the resolution again this year after we got an 8 percent vote in favor, which is fairly good for a socially oriented resolution. They didn't want this resolution on the ballot. We just withdrew the resolution at CVS in negotiation to have a substantive dialogue on this issue. They're going to be looking at adopting a policy on reporting out to shareholders on their actions.
Critics say such initiatives are turning companies into social organizations. Have you seen a pushback against these efforts?
Smith: I see very little pushback from the business community now on being a good corporate citizen. You remember that Milton Friedman said the job of a company is to make profits for its shareholders and that was its primary purpose. You hear very few executives say that that is the only responsibility that they have now. They would talk about, as we might, a double bottom line – making returns for shareholders but also working as a responsible entity in society.