We don’t just pursue shareholder advocacy with companies held in our screened portfolios, but we also target companies with particularly egregious policies that do not pass our social criteria.
We do this by buying a minimal number of shares in target companies and hold them in our own account. This allows us to initiate corporate campaigns on specific issues and come up with innovative resolutions to challenge corporate management. Often, the first challenge is to write a resolution that will stand up to the Security and Exchange Commission’s (SEC) scrutiny in order to circumvent corporate management’s attempts to have it omitted from the corporation’s proxy material.
This year we continued to focus our advocacy primarily on filing binding corporate bylaw amendments. Unlike advisory proposals, which can be ignored by corporate managers even when they do pass, bylaw resolutions are intended to change corporate behavior by calling for greater director responsibility on environmental, social and governance issues.
Challenging Monsanto
Early in the year we presented a proposal to the Monsanto shareholders that would have eliminated director indemnification (i.e. insurance protection) in cases of gross negligence or misconduct in regard to harming the natural environment, public health or human rights. That proposal received less than 2% of the vote –not quite enough to refile during the 2009 proxy season – but it did garner some media attention and stimulated some important conversations among the shareholder advocacy community about how to hold corporate directors accountable for poor leadership on social and/or environmental issues.
Monsanto shareholders clearly did not appreciate our attempt to increase director accountability in 2008, so this year we decided to try a new approach for the 2009 proxy season. Monsanto Corporation’s operations have a significant impact uponU.S.food security. Monsanto is chartered, headquartered, and its stock is traded in theUnited States. It also benefits from significant constitutional protections in its frequent legal battles and its high-level political connections. Despite all this, Monsanto is not necessarily loyal toU.S.sovereignty and constitutional law. So we filed a proposal that would obligate new Monsanto directors to swear an oath of allegiance to the Constitution of theUnited States. This is based on the oath that all civil servants – from lifeguards to teachers to senators – are compelled to take; so why would Monsanto’s directors have a problem? It turns out that Monsanto has a huge problem with our proposal and petitioned the SEC to omit it from the shareholder ballot. The Republican-controlled SEC agreed with Monsanto even over our request for reconsideration. Patriotism, it seems, does not matter much when it comes to protecting corporate interests.
Lack of Sustainability at Apple
In March of 2008, we presented a binding bylaw proposal to create a Board Committee on Sustainability at Apple’s annual shareholder meeting. Our resolution is based on the principal that environmental sustainability should be a fiduciary issue. The interests of shareholders are not served when the costs of environmental degradation from manufacturing and other business activities are ignored by management.
We feel this proposal is important because Apple continues to rank among the very worst technology companies when it comes to environmental performance. This is particularly striking because climate campaigning Nobel Laureate Al Gore holds a seat on the company’s board. Despite unanimous opposition from Gore and the rest of Apple’s board, the proposal received nearly 8% of the vote and sent a clear message to the company that no amount of clever marketing can insulate the company from poor management of environmental issues. This resolution has been re-filed for the 2009 shareholder meeting.
Demanding Greater Corporate Responsibility on Human Rights
Human rights continued to be a primary focus for HII in 2008. It is our firm belief that protecting and defending human rights should be a fiduciary duty for all corporate directors. We submitted proposals to create a Board Committee on Human Rights at Yahoo, Cisco, Microsoft, Oracle, Coke, Google, Intel, Halliburton, KBR, WalMart, Sun Microsystems, and L-3 Communications.
These resolutions were relevant to the technology companies primarily because of continued recalcitrance to satisfactorily deal with issues relating to privacy, human rights inChina, and freedom of information concerns. High profile corporate controversies such as those with Yahoo and Google helping the Chinese authorities track and arrest democracy advocates have highlighted the need for reform at major internet companies. Meanwhile, hardware companies such as Cisco have been actively training Chinese security forces to use their hardware to build what has come to be known as “The Great Firewall of China,” which is used to identify democracy advocates and censor the internet. While a few of the above companies finally signed onto to a nonbinding agreement – known as the Global Network Initiative – meant to deal with these issues, the dismal history of these types of voluntary agreements is not encouraging for socially concerned investors.
The Human Rights Committee proposal is particularly relevant to L-3 Communications because of the company’s manufacture of cluster bombs. This internationally banned munition inordinately impacts women and children inhabiting current or former combat zones. More generally, L-3 lacks any sort of corporate responsibility disclosure or policy.
Finally, after years of controversies ranging from rape to torture to fraudulent war profiteering, we felt that Halliburton, the bad boys of government contracting, could use a Board Committee on Human Rights of their own. We were hopeful that a substantial number of their conscience-stricken shareholders might agree. It turns out they didn’t, not in Halliburton’s case at least. Halliburton spun off KBR, its most problematic unit (from a social perspective) last year. So we have recently filed a similar proposal which will be presented to KBR’s shareholders in spring, 2009. Hopefully, they will take advantage of this opportunity to persuade the company to take the first step down the long road toward decency.
Globalization, Greed, and Economic Security
For a number of reasons, the trend toward unfettered globalization of capital has been a topic of longstanding concern at HII. Massive investments of U.S. financial institutions in Chinese banks is one of the most direct ways in which transnational investments pose a risk to U.S. sovereignty and security. We thus started developing a proposal that would establish director accountability regarding U.S.economic security at Citigroup, Goldman Sachs, and Bank of America. Then came TARP. The $700 billion TARP – short for “Troubled Asset Relief Program,” – turned out to have virtually no built-in oversight measures, so our proposal became somewhat of a de facto shareholder mandate for bank accountability to U.S. taxpayers, something that congress and the Bush administration have refused to do. Recently, in what we view as the ultimate expression of chutzpah, Bank of America and Citigroup have challenged this proposal at the SEC in an effort to omit the proposal from the ballots. Didn’t ‘we the people’ save their failing businesses after they nearly ran them into the ground? To make matters worse, Bank of America spent $7 billion of the $25 billion it received in bailout money to complete its 20% acquisition of the China Construction Bank, which is controlled by the totalitarian Chinese government. I wonder how much good that will do for the U.S. credit markets and American families?
Families in the U.S. existing on the margins will face increasingly tougher challenges if the economy deteriorates. Sadly, some companies seem to be in the business of exploiting this financial instability to line their pockets. With this in mind, we filed resolutions to create Board Committees on Public Policy at two of the worst offenders. Western Union uses its dominant position in the marketplace to charge outrageous fees on foreign remittances from some of the poorest workers in our country. Advance America, another publicly traded corporation, charges up to 450% in interest rates for payday loans. Our hope is that the shareholders of these companies will agree that their directors need to anticipate tougher anti-exploitation legislation and will adjust their business practices accordingly. Financial services for immigrant and low income communities need not be usurious to be profitable. Western Union has already challenged our resolution at the SEC and is attempting to omit the resolution from the proxy.
Political Action
In addition to filing all these resolutions in 2008, we tried to maintain a cogent voice for progressive values in the political realm. The headlines this year were again dominated by accounts of corporate malfeasance and mismanagement. In response to – or in anticipation of – many of these issues, we wrote numerous letters to policy-makers and corporate managers.
Notably, we had the opportunity to communicate with the Congressional Financial Services Committee Chairman, Barney Frank, as well as with our own congressman’s office about our concern over the Treasury Department’s proposal and implementation of TARP. We joined a global network of institutional investors calling for a prompt, comprehensive, and ambitious post-Kyoto climate change agreement. We advocated for stronger federal standards and enforcement regarding toxic materials in consumer goods, particularly toys, water bottles, and household cleaners. We also urged our elected officials to hold telecommunications companies responsible for assisting the Bush administration in illegally spying on Americans. We lost that battle, but the fight for the soul of the U.S. Constitution goes on. Accordingly, we helped one of our clients file a proposal asking Verizon to disclose its policies and procedures relating to internet freedom and privacy.
Finally, we co-signed a letter calling on the incoming Obama administration to address how the SEC rules impact the right of investors to propose and vote upon resolutions asking companies to evaluate how specific risks may affect their company’s business. While risk assessment relating to environmental and social concerns will probably never garner much media coverage, these issues lie at the heart of much of our shareholder advocacy work. Through their disclosure and corporate governance rules, the SEC has increasingly tended to stand in the way of investors seeking to get more robust and accurate disclosure data from publicly traded companies.