Fiduciary Duty Webinar

At the heart of this webinar is the conviction, that the fiduciary duty to act in the best interest of a client does not exclude ESG and socially responsible investing. In addition to addressing common myths, this webinar describes the role and responsibility of a faith-based fiduciary.

On Friday, November 15, we were joined in our quarterly webinar by a leader in the socially responsible investing field: Frank Coleman of Christian Brothers Investment Services (CBIS).

We highly recommend sharing this video with your investment committee and other essential people involved in your investment strategy.

We are very grateful for Frank’s presence in this webinar, for his commitment to work on these issues, and his generosity in sharing his wisdom with us.

As always, we welcome your feedback via a confidential evaluation found here. Slides from the webinar are available via Chris Cox.

Committed to Fr. Mike’s Legacy in Tobacco

Last week while attending ICCR’s Fall Conference, I attended the regular session on tobacco. As you likely know, Fr. Mike Crosby, O.F.M., Cap., our founder, was an early leader for his shareholder work in tobacco. Our session, in addition to our regular concerns on engagements with the tobacco industry, also included a significant conversation about vaping e-cigarettes.

By way of personal background, my grandmother smoked a pack a day of Pall Mall cigarettes. As a child, I detested the smell. At one point, I decided to leave my suitcase in our car when we would visit, as I did not want my clean clothes to smell of cigarettes. In other words, from early on, I never found smoking attractive. Consequently, I continually find myself surprised at its allure, especially to young people.

In reality, I should not be surprised. The attraction fits an old pattern. We remember the “seven dwarfs” testifying to Congress in 1994 that cigarettes are not addictive, in spite of having evidence to the contrary for decades. With Juul and e-cigarettes, we have a new addition to those archives. While regarded as proprietary information, e-cigarettes are more potent for their concentration of nicotine than cigarettes, according to Vox. In fact, a journal from Stanford University describes it as a “nicotine arms race.” In September, CNBC shared a CDC warning that Juul’s patented nicotine-salt technology allows for much more efficient delivery of nicotine directly to the brain, multiplying its highly addictive effect especially for teens. Hence, it was no surprise when Reuters reported yesterday that Juul disregarded early evidence that teens were becoming addicted. In September, Axios reported that the FDA warned Juul about its misleading advertising. In the face of mounting evidence of the damage caused, the White House planned to ban all flavored e-cigarettes, but the administration recently retreated that to banning all but menthol. Yesterday, the Journal of the American Medical Association published two studies: one on e-cigarette use among U.S. youth and another revealed the flavor preferences among U.S. youth. Simply put, the exclusion of menthol in the ban happens to coincide with the most popular flavor among American youth. Every Thursday, you can visit the website of the Center for Disease Control to see the updated statistics concerning Outbreak of Lung Injury Associated with the Use of E-Cigarette, or Vaping, Products. As of this writing, the CDC counts 1,888 cases of e-cigarette, or vaping, product use associated lung injury (EVALI) and 37 deaths.

We were fortunate to be joined in our session by Meredith Berkman, co-founder of Parents Against Vaping E-cigarettes (PAVE). Berkman and her co-founders were recently featured in the Wall Street Journal: Getting Through to Your Teen About the Dangers of Vaping. She shed some light on the allure to young people. Armed with the various devices and pods, she demonstrated how discreet the products are and how easy they are to use. The PAVE website has a lot of great information.

Simply put, Fr. Mike made advances in this work over the decades, but the fight by no means is finished. For the health of a younger generation, here and abroad, may we have some share of Fr. Mike’s zeal, courage, and wisdom in our engagement with the tobacco industry!

On opioids, shareholders spoke, companies begin to listen

Since 2017, SGI has participated in Investors for Opioid Accountability (IOA). This week, the IOA released a two-year progress report detailing landmark agreements with 20 opioid manufacturers, distributors and retail pharmacies implicated in the crisis. 

Between headlines about Democratic debates and Washington feuds, news about lawsuits and proposed settlements have drawn some attention this week. Steadily and purposefully, the IOA has dug down into the crisis and sought ways to address it as shareholders. Specifically, the IOA has engaged opioid manufacturers, distributors, retail pharmacies, and manufacturers of drug treatments.

A few important things to note from the report:

  • A majority (52%) of shareholder proposals led to agreements with the companies;
  • Of the shareholder resolutions filed, seven resolutions at Rite Aid, Walgreens, Mallinckrodt, Mylan, and Assertio Therapeutics received majority votes and an additional two resolutions received majority support at AmerisourceBergen from independent voters, leading to reforms;
  • Twelve companies agreed to conduct risk assessments of opioid-related business practices including governance, compliance, compensation and political lobbying and to report these findings publicly. Two of these companies (Cardinal Health and Assertio) established special board-level committees on opioids;
  • Ten companies agreed to adopt misconduct clawback policies  to recoup executive pay, including the public disclosure of the use of the clawback;
  • Three companies agreed to separate their chair and CEO positions (McKesson, Cardinal Health and AmerisourceBergen), and;
  • Two companies agreed to disclose when they adjusted metrics to exclude legal costs when calculating their executive pay awards. 

Established out of heightened concern that opioid company risks both threaten long-term shareholder value and have profound long-term implications for our economy and society, the IOA uniquely represents influential and diverse funds from across the investing universe including faith-based, sustainability, public, and labor funds as well as comptrollers, treasurers and asset managers that are taking swift and decisive actions to hold manufacturers, distributors, and retail pharmacies’ boards accountable for their role in the opioid crisis. The IOA consists of 54 investors with over $4 trillion in assets under management and is co-led by Mercy Investment Services, Inc. and the UAW Retiree Medical Benefits Trust.

If you wonder what difference shareholders can make, this report spells out in particular detail how attentive and deliberate engagement can achieve results. We are proud of our participation in the IOA. We’d urge our members to examine this report. As you do, keep in heart and mind those who have died in this opioid epidemic, those who struggle with addiction today, families devastated by losses, and communities overwhelmed with the human and material cost of this crisis. If you hold shares in companies outlined in the report, we’d welcome the opportunity to facilitate your support of these engagements. Please, contact our staff for more information.

Additional posts concerning the opioid epidemic and SGI’s efforts are found here:

Corporate Governance Webinar

At the heart of this webinar is the conviction, born of evidence, that transparent and accountable corporate practices correlates to higher shareholder value and lower volatility in share prices. A company run well will deliver superior financial returns, over the long term, than a company that does not adhere to principles of transparency and accountability,

On Thursday, August 29, we were joined in our quarterly webinar by two leaders within the Interfaith Center on Corporate Responsibility (ICCR): Tim Smith of Walden Asset Management and John Keenan of  American Federation of State, County and Municipal Employees (AFSCME).

We are very grateful for the presence of both our guests in this webinar, for their commitment to work on these issues, and their generosity in sharing their wisdom with us.

As always, we welcome your feedback via a confidential evaluation found here. Slides from the webinar are found here.

Homework with the Trafficking in Persons Report

The Trafficking in Persons Report, or TIP Report, is an annual report issued by the U.S. State Department’s Office to Monitor and Combat Trafficking in Persons. The TIP Report ranks governments based on their perceived efforts to acknowledge and combat human trafficking. Thursday, June 20th, the 2019 edition was issued.

The report categorizes countries of the world with regard to their adherence to the standards of the Trafficking Victims Protection Act (TVPA) of 2000. Each country is tiered according to compliance:

  • Tier 1 (those governments who fully comply with the TVPA’s minimum standards)
  • Tier 2 (while not fully complying, governments with significant efforts to bring themselves into compliance with those standards)
  • Tier 2 watch list (not fully complying along with a significant absolute number of trafficking victims, or a failure to increase efforts, or a determination that the country is in fact committed to making significant progress in the coming year)
  • Tier 3 (those governments who do not fully comply with the minimum standards and are not making significant efforts to do so)
  • Special cases (countries where a civil or humanitarian crisis makes gaining information difficult).

Remember that tier 1, which includes the United States, is simply compliance with the minimum standards. A tier 3 designation means that the U.S. can restrict assistance or withdraw support for the country at global funding organizations like the International Monetary Fund. Some regard the tier 2 watch list with suspicion as some determinations have suggested a reward to governments allied with the U.S. who otherwise would be in tier 3.

The report intends to offer “homework” to governments based on their tier. The image below lists the countries of the tier 2 watch list, tier 3, and special case categories. The report includes a country by country analysis of human trafficking.

I don’t want companies to avoid sourcing from these countries: I prefer companies to promote improved standards and conditions in those countries. Even if the governmental authorities do not adhere to a recognized global minimum, companies have a responsibility to act responsibly, to act in accord with the protection of human rights. A company, working in those countries, must take extra steps to reduce human trafficking and to care for the victims of trafficking in their supply chains.

The resolutions that SGI members introduced at Kraft Heinz, Macy’s, TJX, and Wendy’s aimed to do just that. We asked those companies to do a human rights impact assessment, to look through their supply chains at the most vulnerable workers. They then would mitigate the human rights abuses  and remedy those workers whose rights were violated. Over time, those learnings are compiled and integrated into the ongoing processes of the company to insure greater adherence to human rights in their supply chain.

Now for some personal homework. I would recommend printing off the image above. Perhaps, you may want to laminate it to carry it with you.

When going to bed this evening, take a look at the countries of origin for the clothing you have worn. I’d be willing to bet that much of your clothing comes from a country listed above. Many of the electronic items that we use daily have supply chains woven through these countries. I bring that to your attention, kind reader, not to shame you or make you feel guilty, but, in the hopes, that we might see– along with the companies who provide us those products– that we have real power to change the situation in those countries.

RBI: Deforestation and Empty Chairs

On Monday night, Toronto was electric, not for the Restaurant Brands International (RBI) shareholder meeting, but for game five of the NBA Finals between the Toronto Raptors and the Golden State Warriors. If the Raptors had won, I worried that I might not sleep well given the ensuing revelry associated with Canada’s first NBA championship. Alas for Canada, but fortunately for my sleep, it was not to be on that night.

Restaurant Brands International, majority-owned by 3G Capital (a Brazilian-American investment fund with substantial ownership of Kraft Heinz and Anheuser-Busch InBev), includes the brands Burger King, Tim Hortons, and Popeye’s. Recent shakeups include a new CEO, José Cil, who took the helm in January.

Over the course of years, SGI has engaged RBI and its predecessors in dialogues. Recently, those dialogues have focused on deforestation concerns. In 2010, Burger King pledged to create a “rainforest policy to include all of its products.” However, nearly 10 years later RBI has yet to issue a comprehensive no-deforestation policy that properly addresses its direct operations and extended supply chain.

Photo from https://www.flickr.com/photos/crustmania/10094847976/

Deforestation, the permanent removal of standing forests, results in devastating consequences. It is the third largest driver of climate change. The destruction of trees and other vegetation can cause climate change, desertification, soil erosion, fewer crops, flooding, increased greenhouse gases in the atmosphere, and the incumbent problems for people near to and far from the actual place of deforestation.

Deforestation is also bad for business. It exposes corporations and investors to a wide range of operational, reputational, competitive, and regulatory risks. Companies that manage this risk likely will perform better in the long run. More than 500 global companies have made substantive commitments and the accountability for those commitments continues to improve.

The meeting itself took place in the new central offices of RBI at the Exchange Tower in downtown Toronto. RBI has a lower floor of the building. Emerging from the elevator, shareholders were received and documents were reviewed. In the next room, a larger space, chairs were aligned for the shareholder meeting with two podiums, one to each side of a small table with two chairs– one for Corporate Secretary Jill Granat and the other for CEO José Cil. Along another wall was an array of products from Tim Hortons: coffee, muffins, donuts, donut holes, and the like.

The agenda included the three common voting items: election of directors, the advisory vote on executive compensation, and the appointment of auditors. As well, three shareholder resolutions were on the agenda: a resolution related to workforce practices (put forward by the Atkinson Foundation and our ICCR colleagues, SHARE), our resolution (from the Capuchin Province of St. Joseph) on deforestation, and a resolution concerning plastic pollution and sustainable packaging (from our ICCR colleagues As You Sow). Later in the meeting, SumOfUs delivered a petition signed by 270,000 people and 500 shareholders concerning deforestation. (Their press release can be found here.) None of the three resolutions had a majority, an unsurprising outcome as 3G and Pershing Square own more than half of the company’s shares. The 8-K document filed with the Securities Exchange Commission show that SHARE garnered 26% of the shareholder vote at the AGM, and our resolution and the As You Sow resolution both netted about 22% of shareholder support. If one excludes the 3G Capital and Pershing Square votes, the deforestation resolution had 57% of independent shares in favor.

“Empty Chairs,” photo by Donald Lee Pardue https://www.flickr.com/photos/oldrebel/6173358287

More striking to me as a participant in the meeting was the absence of the board of directors– not one of the elected members of the board attended the meeting. The first order of business in the meeting was their election. It is reminiscent of that meme: “You had only one job. . . ” Their absence suggests that, to them, the annual shareholder meeting is not an important company function.

RBI, according to Cil and company documents, aims to be the world’s “most loved restaurant brands.” The shareholders present at the annual general meeting are people who love this company, and board members did not see fit to hear from them, their fellow shareholders, about the direction of the company.

Similarly, RBI has ambitious, public goals for growth, from some 26,00 restaurants today to 40,000 restaurants in the next eight to 10 years. We’d like to see a similar ambitious, public goal to care for creation. Consumers will buy from a company that advocates for issues they care about. If RBI cannot make ambitious, public commitments to care for creation, those consumers will turn to companies that do.

The deforestation resolution filed with RBI for the 2019 shareholder meeting can be found here. The exempt solicitation concerning the proposal can be found here. The statement delivered at the shareholder meeting can be found here.

Faith-Based Shareholders: In It for the Long Haul

While it may seem like a long time, it is heartening to recall that Moses and the Israelites spent 40 years in the desert, waiting to enter the promised land.

Almost 30 years ago, Fr. Mike Crosby, O.F.M., Cap. began a dialogue with executives from Wendy’s. Concerned that adequate progress was not being made on due diligence concerning potential and actual human rights issues, the Capuchin Province of St. Joseph filed a shareholder resolution on human rights this year. The company challenged the resolution, and the Securities Exchange Commission ruled that the resolution could be omitted. As our resolution had been omitted by the SEC, it would not be coming to a vote, but I attended the shareholder meeting in Dublin, OH on behalf of the Capuchins so as to make a statement to the board and the company officers about our concerns in the area of human rights due diligence.

The team from Wendy’s were very gracious hosts. Having arrived early, a member of the investor relations team took me to visit what had been the office of Wendy’s founder Dave Thomas. I had the opportunity to meet executives who have been on calls with us. Personally, I find it helpful to have a face to put to the voice that I hear on the phone. I also had the opportunity to meet CEO Todd Penegor, board chair Nelson Peltz, and chief legal officer E.J. Wunsch, as well as other members of the board.

The meeting itself lasted a bit over 75 minutes. After a brief video highlighting Wendy’s 50 years, Mr. Peltz opened the meeting. Three items of business were conducted: a vote concerning the board of directors, a vote concerning the company’s auditors, and, finally, an advisory vote concerning executive compensation. The video to the voting was completed within a swift 11 minutes. Next, Mr. Penegor gave an overview of the company’s business plan. Following Mr. Penegor, Liliana Esposito, the chief communications officer, addressed corporate social responsibility and gave an ESG update.

Upon the conclusion of Ms. Esposito’s remarks, the floor was opened to general questions and comments. First, Kerry Kennedy, daughter to the late Robert F. Kennedy, spoke in favor of the Coalition of Immokalee Workers (CIW) and the Fair Food Program. Next, Mr. Peltz recognized me, and I approached the microphone to offer my statement.

My remarks aimed to accomplish four things:

  • To identify the abundant risks for human trafficking and forced labor in agricultural supply chains;
  • To describe the fundamental shift effected by laws here in the U.S. and abroad that, while good and necessary, codes of conduct and audits are no longer sufficient;
  • To outline a better process, employed by many leading companies: a human rights risk assessment that incorporates the U.N. Guiding Principles on Business and Human Rights;
  • And to encourage Wendy’s to take these necessary steps that, at heart, are in accord with the deepest values of the founder, Dave Thomas, and the company.

Subsequently, Chelsea Rudman of the Workers Rights Consortium spoke similarly of the value of worker-driven social responsibility efforts. Lena Brook of the Natural Resources Defense Council spoke about the use of medically-important antibiotics in meat and poultry served at Wendy’s. A shareholder asked a question concerning the updating of restaurant infrastructures. Mike Telford of the National Pork Producers Council thanked Wendy’s for their relationship with pork producers. Nelly Rodriguez, from the CIW, offered a moving witness, in Spanish, about the importance of the Fair Food Program. Another shareholder asked a question concerning non-meat substitutes. Finally, a shareholder, who is also an adoption assessor, rose to speak a word of thanks for Wendy’s commitment to the Dave Thomas Foundation for Adoption. Soon thereafter, the meeting was adjourned.

While the meeting maintained its decorum, no attendee could be blind to the concerns raised by the different voices. While I am disappointed that our resolution did not come to a vote this year, SGI remain committed to working with Wendy’s to improve their practices in the area of human rights.

As the saying goes, Rome was not built in a day. Even after a 40-year sojourn in the desert, the fact is that Moses never made it into the promised land, but he did see it before he died. Faith-based shareholders differ from day traders. We are in it for the long haul. We genuinely care about the companies we engage. We will bring items to their attention that may make company leadership uncomfortable. We do so, because we are committed to protecting people and the planet. We believe that the interests of the company, through the long haul, align with the interests of people and the planet.

The statement prepared for the 2019 Wendy’s shareholder meeting can be found here.