We have once again been very busy engaging with companies on a number of issues including environmental sustainability, executive compensation, and human rights.
Sustainability
Continuing on the success of a resolution at Intel, HII introduced a similar resolution with GMO producing Monsanto in August of 2010. As Intel agreed to amend their corporate charter to include “corporate responsibility and sustainability performance” into the committee’s overall policy responsibility, Monsanto took the initiative to create a Sustainability and Corporate Responsibility Committee. This was based on the request of HII and a resolution proposed to the corporation. They also provided HII with an internal legal opinion that under Delaware law, the company’s directors had a fiduciary duty to comply with charter sustainability requirements.
Similar resolutions were also introduced at Microsoft, Cisco, and Oracle to create board committees on sustainability. The main objective of these resolutions was to bring the topic of sustainability to the board level and to have it implemented as a fiduciary duty. At both MSFT and CSCO, HII was able to get a vote over 3%, allowing us to re-introduce the resolution and attend the shareholder meetings at the end of this year. At Oracle, HII did not receive the necessary 3% to re-introduce next year.
HII also introduced binding bylaw amendments at Starbucks and Google, empowering the boards of directors to create a standing committee to set company policy on environmental sustainability. Because of consistent dialogue with Starbucks and their willingness to introduce new language in their bylaws, HII withdrew the resolution. Google was not so keen on dialogue and HII attended the shareholder meeting. The resolution received less than 3% of the shareholder vote. Considering the large amount of shares owned by the founders, this was not a surprise.
Executive Compensation
Due to last year’s Goldman Sachs proposal receiving a large favorable vote, HII was able to reintroduce the same resolution in May, 2011. This proposal would require all Goldman executives to hold 75% of stocks and options they receive as compensation for at least three years after termination of employment. The meeting was held in Jersey City, NJ instead of the usual New York, NY which was somewhat of a surprise to shareholders. The resolution received 26% of the vote for 2011.
Human Rights
In late May, HII had the opportunity to present a resolution on the implementation of a new and rigorous human rights oversight within Chevron corporation. Numerous NGOs from around the world attended the meeting and Dale Wannen from HII was able to speak directly to CEO, John Watson, and the board members as well. Although the resolution received less than a 3% vote, getting the resolution onto the ballot was a victory in itself. Not surprisingly, this resolution was opposed by Chevron management. The SEC staff rejected Chevron’s argument to exclude the HII proposal based upon the company’s interpretation that under Delaware law, shareholders have no right to amend the company’s bylaws to establish the requested committee.
Upcoming Resolutions
Keep your eye out for future resolutions introduced by HII later this year. Some companies and issues we are now researching include:
- Wellpoint, Sunrise Senior Living, Skilled Healthcare on the topic of patient care and costs, including board fiduciary duty
- Disney on the topic of human and labor rights and fiduciary duty
- McDonalds on the topic of sustainability and fiduciary duty
Divestments
Bloomberg Businessweek reported that the Pennsylvania Environmental Protection Department cited over 40 natural gas well operators more than 900 times for “environmental health and safety” violations. Leading this unworthy group with 109 citations was Chesapeake Energy, a holding of HII. There was no option but for HII to divest.
“We have a fiduciary duty to our clients to invest in companies that show a strong commitment to the environment. Chesapeake clearly fails to do so,” stated John Harrington. “Chesapeake obviously violates our investment criteria when it consistently and flagrantly violates environmental standards.”
Another holding divested by HII and Everest Asset Management was wind energy company Gamesa. Wind farms located in Oaxaca, Mexico were reportedly paying below market rates to impoverished land owners for the use of their land, thus taking advantage other indigenous people by providing minimal compensation for the use of their land compared to other landowners.
Additions
One addition to the HII portfolio of screened equities includes Santa Clara-based SVB Financial Group. It offers commercial banking products and services through its subsidiary, Silicon Valley Bank. Due to its strong balance sheet along with its dedication to providing Bay Area housing developers with financing for both single and multifamily affordable housing projects, HII found it to be a viable option for our financial sector.