Frank Sherman, Executive Director (Seventh Generation Interfaith, Inc.)
Shareholders have partial ownership of the companies they hold in their portfolios. They rely on a Board of Directors to act on their (as well as other stakeholder’s) behalf to oversee the management of the company. Shareholders are given the opportunity, typically annually, to voice their opinions by electing the Board Directors and voting on various proposals included in the company’s proxy statement. For responsible investors, this is more than an opportunity – it’s a responsibility.
Asset owners, asset managers, hedge funds, and asset service providers typically rely on proxy service companies to recommend how to vote on company proxies based on their research and guidelines. The two largest proxy service companies are Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Company (GL). Ceres recently published guidelines that indicate how these proxy service firms will typically issue their recommendations on various environmental, social and governance (ESG) resolutions. Shareholders that propose resolutions to companies can influence the proxy service company recommendations by meeting with their analysts to explain / support their proposal.
Typically, asset managers (e.g. Merrill Lynch, Fidelity, CBIS, etc.) will vote your proxies for you based on their proxy service firm’s recommendations unless you give them specific instructions to do something different (which they may or may not follow). You have an option to tell them that you want to vote your own proxies.
On the other hand, if you own mutual funds or exchange traded funds (ETF’s) rather than individual equities, you forfeit your right to vote company proxies to the fund management company who often vote with management’s recommendations. You also lose the right to file shareholder resolutions. A responsible investor will consider the social and environmental profile of the mutual fund or ETF, as well as the fund management company which will be voting your proxies. Some of the better ones are ICCR members! In any event, investing in mutual funds or ETF’s is an impediment to direct corporate engagement. You may want to dedicate a portion of your portfolio for holding individual equities to facilitate this strategy.
As socially responsible investors, SGI members understand that their investment portfolio is a catalyst for change. We should ensure we use all the tools available to us to make that change.
Seventh Generation Interfaith Coalition for Responsible Investing 