Overpaid CEOs

On Thursday, our friends at As You Sow released their fifth annual report on the 100 Most Overpaid CEOs. The launch included a webinar with Rosanna Landis Weaver (the report’s author), Paul Herman (founder and CEO of HIP Investor), and ex-Secretary of Labor Robert Reich.

Not only are these 100 CEOs overpaid concerning the poor performance of their companies, many fund managers, like BlackRock, Vanguard and StateStreet, routinely endorse the executive compensation package of these CEOs at the annual shareholder meeting. The report points to necessary actions by shareholders concerning executive compensation. It really is worth your time to dive in.

Axios.com offered succinct coverage of the webinar and report here.

The report can be found here. The webinar can be found here.

Global companies and global problems

We have come to take for granted the size and sweep of modern multinational corporations. As companies merge to gain scale, it’s difficult to keep track of the corporation behind the brands we buy. Daily, we dress ourselves in clothes bearing labels of “made in” notices for countries that may be difficult to place on a map. We know that our vehicle, as well as our cell phone, was not made in an individual factory but assembled from components and parts made across a dispersed global supply chain. When out of season locally, we may notice that our fruit and vegetables may have come from distant lands. Multinational corporations seamlessly bring together many essential things in our daily lives.

Over the years, these multinational companies have grown to scales that may surprise us. While not an apples to apples comparison, the largest companies have annual revenues that dwarf the gross domestic product (GDP) of many countries. Some may be able to recite the top five global economies:

  1. United States ($20.5 trillion)
  2. China ($13.5 trillion)
  3. Japan ($5 trillion)
  4. Germany ($4 trillion)
  5. United Kingdom ($2.8 trillion)

Readers may be surprised to learn that Walmart, with over $500 billion in annual revenue, would rank #25, displacing Thailand. The fourth largest company, Royal Dutch Shell, displaces the Philippines at #40. The ninth largest company, Exxon Mobil, comes in just behind the Czech Republic, the 46th largest economy. At #11 among companies, Apple had a billion dollars more in revenue than Peru (#51 among countries) had in GDP. Foxconn, the 24th largest company, has greater annual revenue than the GDP of Kuwait (#58 in GDP). In all, 41 of the 100 largest economic entities on the planet would be corporations.

So, what does that mean for us? While policies and laws and regulations from countries are essential, companies play a critical role in addressing environmental and social issues such as climate change, food justice, health, human rights, and water stewardship. At bottom, the decisions that companies make have a tremendous impact on the most vexing global issues. In fact, choices made by companies, in many contexts, have greater impact than individual countries.

Michael Porter, in a 2015 TED Talk, underscored the importance of business in addressing critical problems. Global norms have been shifting. It is no longer acceptable for multi-national companies to simply meet the legal minimums set by local governments. Today, many international standards, including the UN Guiding Principles for Business and Human Rights, underscore the role of companies. Some of our resolutions with companies this year reflect this emerging understanding of the role of companies in addressing human rights.

The work of SGI contributes to the work of so many others– socially-conscious consumers, non-profit organizations, workers in the supply chain, and ethical executives– in seeking a more just and sustainable world.
Given the scale of multinational corporations and global nature of our economy, our mission is more critical than ever.

Decarbonizing Electricity Webinar

SGI has been leading important work on climate change with regional utilities. Today, we hosted our first educational webinar of 2019 where we learned more about how we can advance those conversations. We hosted Dan Bakal of Ceres and Franz Litz, program consultant at the Great Plains Institute. Dan has been a key partner in our dialogues with the utilities. Franz has led innovative efforts to bring together policy makers, regulators, utilities, and NGOs to take action on climate change. In particular, he has led the building of a Road Map to Decarbonization in the Midcontinent.

We are very grateful for the presence of both our guests in this webinar, for their commitment to work on this 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.

Investing in firearm safety

Last week, some SGI members (Sr. Ruth Battaglia, C.S.A., Sr. Reg McKillip, O.P., Mark Peters, and Dan Tretow) and I found ourselves in a rather unusual meeting amid law enforcement, retailers, medical professionals, advocates, public officials, media, investors and philanthropists. Hosted by Common Ground, the Industrial Areas Foundation, and Do Not Stand Idly By (DNSIB), the Gun Safety Expo offered a forum for leading developers showcased products that can prevent gun theft and unauthorized or accidental shootings.

SGI and ICCR have been collaborating with Do Not Stand Idly By on gun safety issues. You may recall Sr. Judy Byron’s wins with Sturm Ruger and American Outdoor Brands

DNSIB and ICCR are working on a coordinated strategy to reduce gun violence via a market strategy. As DNSIB puts it, “Our tax dollars buy about 40 percent of the guns in America. The military buys about 25%, and law enforcement 15%. This is enormous market power.” At this time, our cell phones have better safety features than any gun on the market. If law enforcement demand smart guns (e.g., those that require fingerprint recognition or other technologies), suspects could not use their guns against them. As well, it creates a market demand for more secure devices. Homeowners with guns are more likely to have them used against them (or by their kids) than used in self-defense. A new study shows that household gun ownership can pave the way for a high suicide rate among young people. Smart weapons would reduce senseless deaths. Gun manufacturers can take steps, without any change in laws, to make guns safer so that lives may be saved.

SGI members offered the following reactions:

While I have never been around guns, have no desire be introduced to them, and fail to comprehend some people’s need to have ready access to a gun, attending the Firearm Safety Expo nudged me to accept, if not fully embrace, a non-polarized way of addressing the deadly impact of guns. Innovative safety technologies offer some hope in reducing the number of gun-related suicides, deaths, and injuries. We, as socially responsible investors, can join our voices with public officials, law enforcement, and legal services in asking gun manufacturers to develop and use gun safety technologies that make their product child-proof, useless to thieves, and able to save the lives of police and civilians alike.

Sr. Ruth Battaglia, C.S.A.

I guess I was hit with the irony of it all….The more we make guns safe, the more attractive it would be for people to purchase them. We also can use that same logic with gun manufacturers who are not wanting to invest in safety measures…the safer you make the gun, the more people will feel comfortable purchasing a gun.

Sr. Reg McKillip, O.P.

It was very well-planned like all IAF and CG [Common Ground] events, and I was impressed with all the partners they’d brought into the campaign, like the Medical College of WI, and all the elected officials who were present. It is definitely not the whole answer as far as gun control, but it may be the only approach that has a chance in the current political climate. I’m not a gun owner or user, but if I was I think I would have been very interested in some of the products that were either in development or already on the market.

Mark Peters

[The event] was very interesting. I think they had the right players in attendance. The law enforcement presence was especially impressive (WI, IL and OH). The trigger locks make a lot of sense for the existing guns. I think the Biofire presentation and his fingerprint stock was the best idea at the show. I hope his smart gun technology turns into the new standard for weaponry in home safety/security and law enforcement/military application. I hope the gun manufacturers take this into consideration going forward. I agree with the speaker that said incentives will help promote the use of these devices. Government (local/state/federal) use and demand for smart guns by law makers will hopefully cause less accidental shootings and suicides.

Dan Tretow
Milwaukee Mayor Tom Barrett

Among the public officials present were: Tom Barrett (mayor of Milwaukee), Chris Abele (Milwaukee County Executive), John Chisholm (Milwaukee District Attorney), and Barry Weber (Wauwatosa Chief of Police). Vendors included: Biofire, Everwatch, Gun Guardian, Identilock, Ignis Kinetics, SAAR, Safety First Arms, and Vara. These represent companies demonstrating user authenticating guns, personalized locks and gun tracking products. The Oak Creek campus of Milwaukee Area Technical College hosted the event. As home to the Regional Police Training Center, a shooting range was available to allow for live demonstrations.

Some additional coverage of the event:

ICCR provides an excellent, detailed list of coverage of investor action around gun safety here.

Opioid Epidemic: What can investors do?

Opioid addiction has become a disease that has destroyed the lives and families of millions of everyday working Americans. The epidemic is not abating.  With increasing frequency, new headlines emerge as the problem grows in scale and the consequences become ever more devastating. New data from the National Institute on Drug Abuse shows there were over 72,000 estimated overdose deaths last year, a 10% increase on the prior year. These estimates mean the problem is more deadly than gun violence, car crashes and AIDS.

In addition to the human cost, the massive economic cost grows daily. For example, the U.S. Center for Disease Control reports that opioids have cost the American workforce the largest portion of labor since the Spanish flu epidemic in 1918. A recent report from Ohio State University also documents that the crisis is costing Ohio more than the state’s annual budget for k-12 education.

Over the last year, SGI has been working with Investors for Opioid Accountability, an initiative that joins ICCR members with other investors to engage corporations who have profited from this epidemic. We engage pharmaceuticals producers, distributors, and retailers. We believe that companies that have acted negligently should be held to account. However, we do not believe that opioid producers and distributors should be the only stakeholders considered when tackling this issue. Opioids are effective pain killers that are commonly prescribed for acute and chronic pain. To fully address the issue, we believe that regulators, pharmacists, insurers, point-of-care providers and users all have a role to play.

In 2018, IOA members filed 35 resolutions at the following 11 companies: Alkermes; Amerisource Bergen (ABC); Cardinal Health (CAH); Depomed; Endo; Insys Therapeutics; Johnson & Johnson (JNJ); Mallinkrodt; McKesson; Pfizer; Walgreens.

Below are outcomes for the resolutions that went to a vote:

  • ABC – 62% of indep. votes for board risk report
  • ABC – 52% of indep. votes for clawback
  • ABC – 49% of indep. votes for indep. chair
  • Pfizer – 25% for indep. chair
  • Pfizer – 33% corporate lobbying disclosure
  • JNJ –17.8% for stop exclusion of legal costs in executive compensation
  • Depomed – 62.5% for board risk report
  • McKesson – 39% corp. lobbying, 34% accelerated vesting, 1% GAAP, 12% withhold Audit chair
  • Rite Aid – 56.7% for board risk report

An additional 13 resolutions were settled:

  • CAH: Cardinal separates chair and CEO ahead of meeting 
  • JNJ: Indep. chair annual review of combined roles
  • ALK: Board agreed to expand corporate lobbying expenditure disclosure
  • CAH: Board published risk report, misconduct clawback and separated chair & CEO
  • DEPO: Board agreed to misconduct clawback
  • ENDO: Board agreed to risk report, misconduct clawback and expand political spending reporting
  • MCK: Board agreed to continued reporting on anti-diversion efforts
  • MNK: Board agreed to misconduct clawback and expand political spending reporting, Board elected to sell opioid business
  • Insys: Board agreed to misconduct clawback

Next year, we will have even more filings regarding this important issue. It is our hope that more SGI members can become involved in this work so critical to many communities across the U.S.

Proposed Rollback of Methane Regulations Threatens Long-term Viability of Oil and Gas Sector

SGI joined a group of investors in a letter sent to oil and gas companies to warn against the Environmental Protection Agency’s (EPA) proposed rollback of the New Source Performance Standards (NSPS), a regulation the investors say is critical to the long-term viability of the oil and gas sector in the energy transition already underway.

Sent to 30 companies on behalf of 61 investor signatories representing US$1.9 trillion in assets under management, the letter calls upon the companies to offer public support for continued EPA regulation of methane emissions and to oppose the elimination of direct regulation of methane emissions.

More than 610 different companies accounted for 50% of U.S. oil and gas production in 2017. While most of the companies receiving the letter have responded positively to investor engagement on methane management, there are hundreds of companies that are not managing methane emissions carefully, which threatens the reputation of natural gas as a ‘cleaner’ fossil fuel.  A study earlier this year in the journal Science estimated that in the U.S., methane equivalent to 2.3 percent of all the natural gas produced in the nation leaks into the atmosphere during the production, processing and transportation of oil and gas every year.

Strong and fair methane regulations, which require companies to conduct regular inspections for leaks and report on their methane management efforts, create a more stable environment by leveling the playing field among U.S. oil and gas companies. As the U.S. is a net exporter of natural gas, and as an increasing number of countries adopt legislation and other policies to address climate change, sound methane regulation preserves the industry’s global competitiveness. According to the recent IPCC report, countries won’t be able to limit global warming to 1.5 degrees Celsius above pre-industrial levels, considered by some scientists and policymakers to be the “safe” limit of climate change, without immediate and rapid reductions in a wide range of greenhouse gases, including methane.

In 2015, ICCR launched a concerted methane campaign with the goal of engaging primarily U.S. companies across the natural gas value chain on improving disclosure, reducing emissions and reporting critical information on methane management efforts, such as leak detection and repair (LDAR). If the EPA is successful in rolling back the NSPS, LDAR, currently one of the most cost-effective ways to curb dangerous methane emissions, will be significantly weakened which, investors say, benefits no one. 

Apart from publicly declaring their support for the NSPS Rule, we ask companies to submit comments to the EPA regarding the benefits of industry-wide methane regulation by December 17th. 

“The companies receiving the letter are large producers representing 35% of U.S. oil and gas production,” said Rob Fohr of the Presbyterian Church, USA.  “Our hope is to convince these more influential companies to use their voices in support of sensible and cost-effective methane regulation to bring along the entire industry and mitigate the risk of an unregulated market.”

A link to the investor letter and signatories as well as a list of the companies receiving the letter can be found at this link. The complete ICCR press release can be found here. Bloomberg covered the letter in an article here.

Supply Chain Human Rights Webinar

Dispersed global supply chains for many items in our daily lives veil immense violations of human rights. This webinar cuts to the heart of many SGI corporate engagements. Pat Zerega, director of Shareholder Advocacy at Mercy Investment Services, speaks about ethical recruitment (which reduces human trafficking). We hear, as well, from Mary Beth Gallagher of the Tri-State Coalition for Responsible Investment, of her work with Tyson and the poultry sector.

We are so very grateful for the presence of our colleagues from Mercy Investment Services and Tri-State in this webinar.

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

What Story Do We Tell?

For an author and former tech company executive, Seth Godin has a no frills blog that offers pithy insight. In a podcast some years back, he observed the following:

“Once you have enough for beans and rice and taking care of your family and a few other things, money is a story. You can tell yourself any story you want about money, and it’s better to tell yourself a story about money that you can happily live with.”

SGI is an organization for those who want to tell a different kind of story about their money than a simple report on the bottom line. Our members are those who want their investments to tell a story consistent with the values and passions of their lives. Our members have served those on the margins in far-flung missions or just on the other side of town. Our members have run schools to provide a quality education, inspired by faith, to those who might not otherwise be able to obtain it. Our members have built health institutions that have served the ill and injured regardless of their capacity to pay. Our members have worked tirelessly to care for and to protect creation. Would it not make sense that the savings destined for their healthcare and retirement, and those funds entrusted to them by generous donors, be used in ways that reflect what our members believe to be important?

Once upon a time, I used to urge folks to look through the last ten checks they wrote—now, I’d suggest that younger readers look through the credit card statement—what do those expenditures say about our priorities and values? The work of SGI is to tell a story with our funds. It is a story that values the poor so often invisible within the economy, especially vulnerable children and women. It is a story where the Earth, its soil and seas and air, is more valuable than the gold and oil buried underground.

A story that focuses solely on the economic return is a story too thin to heal. Indeed, we need a story rich enough to live by. Our story will not interpret the world to everyone’s satisfaction. But, finally, in our judgement, their stories can’t stand up to our stories.

Member Webinar: Shareholder Resolution Process

Today, we hosted our latest webinar for member education on the “Shareholder Resolution Process.” ICCR’s Guide to Filing Shareholder Resolutions is a great tool. We are grateful that Tim Smith of Walden Asset Management and Pat Miguel Tomaino of Zevin Asset Management were able to join us. Their input was a great contribution. Without further ado, here is the video:

 

ICCR Human Rights/Human Trafficking Strategic Review

Two weeks ago, Frank Sherman and I participated in the ICCR Program Strategy Week. The Program Directors met with their Work groups in NYC to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. This article will summarize the human rights/human trafficking session.

Estimates indicate that 27 million victims fall prey to trafficking and slavery each year and that it is a global trade valued at $32 billion dollars. But due to the clandestine nature of these crimes and the reluctance of victims to speak out because they live in fear of physical retribution and/or deportation, trafficking and slavery are typically very difficult to uncover and prosecute. Through the Human Rights/Human Trafficking (HR/HT) Work Group, ICCR members ask the companies they hold to adopt human rights policies that formally recognize human trafficking and slavery and to train their personnel and their suppliers to safeguard against these risks throughout their supply chains. Human rights provides an umbrella for all ICCR efforts.

Investor Alliance for Human Rights (IAHR)

The day prior to our session, the Alliance met as well. It will take some time to define action that corresponds to IAHR or to the HR/HT work group as both groups are concerned with issues that overlap. The Alliance has three components: Human rights responsibilities of investors, collective action, and multi-stakeholder engagement.

The IAHR:

  • Promotes implementation of human rights due diligence by companies
  • Encourages the creation of enabling environment for responsible business conduct through awareness raising, standard setting, and regulatory development – states, multi-lateral institutions, the UN, development banks and, of course, investors
  • Encourages engaged companies to develop and strengthen activities and process to provide remedy
  • Builds partnerships with business community, NGOs, trade unions, local communities and others to leverage this work

It seems likely that the IAHR will focus, this year, on Banking and Tech sectors as it relates to salient human rights issues. Again, it will take some time to develop the necessary coordination between the efforts of IAHR and ICCR working groups.

Ethical Recruitment

Even though we no longer have a full-time staff position, ICCR will sustain efforts in this area. Significant progress has been made, but more work remains to be done.

Companies face significant challenges related to ethical recruitment strategies. Historically, it has been difficult to make progress on labor rights/working conditions for companies in their first tier. Now there is a new paradigm where companies need to think about their labor supply chains in every tier. There is a state of paralysis and it is hard to make progress. While there are leaders who are making progress, not enough companies are following. Most companies focus on attending conferences and webinars and think of a legal response: “What is the shape of the risk to the company?”

When the companies attempt to assess their risk, they often rely on risk-mapping platforms that all tend to give a sense of the country risks (using the State Department’s Trafficking in Persons Report and/or the Labor Department’s child and forced labor report listing countries and commodities), but not go any deeper. Further, the auditing systems need training and refinement: If you don’t ask the right questions, you won’t find forced labor. Occasionally, corporate legal counsel can suggest that the company may not want more information about recruitment as it may open the company to litigation concerning what is discovered. As well, we need to develop clear standards to separate the good from the bad recruiters. Currently, only certain sectors and commodities have been the focus of recruitment: ICT, seafood sector and palm oil sector, and coffee. This work will need to be broadened.

A critical question for work: what is the true cost of recruitment? There is the cost of recruitment, and there are charges that migrant workers pay that are not recruitment costs but the cost of corruption. More focus on this issue is needed plus an emphasis on companies sharing the cost of recruitment with suppliers as well as workers who have paid getting reimbursements. Again, progress has been made, but we must deepen and extend that progress.

Sex Trafficking

We spent some time in discussion about how we might engage companies in the airline industry, hotel industry, transportation sector, and the tech sector. We assessed some of the corporate engagements in recent years as well as identified some of our allies in this work.

Legislative Priorities

We also discussed legislative and regulatory priorities in the upcoming year concerning human trafficking. A significant priority is the re-authorization of the Trafficking Victims Protection Act (TVPA). In the U.S. House (HR 2200)
and in the U.S. Senate (S1311, S 1312, S 1862), bills may come to the floor during this year. Given the mid-term elections and other factors, these bills may not be considered, but advocates are continuing to call for this. Additionally, we want to be mindful of the appropriations process in a few areas: State Department programs to end human trafficking; State and foreign appropriations; some provisions in the Department of Labor as well as Health and Human Services; and appropriations for Homeland Security’s enforcement of the ban on forced and child labor.

In the fight against human trafficking, a critical role for faith-based investors, then, is to continue to work with “Know the Chain,” engaging corporations and boards in conversations about supply chain and due diligence. These efforts keep the issue spotlighted.

Supporting Materials

  1. Materials on the U.N. Sustainable Development Goals:
  1. Know the Chain Benchmarks – 2018 Benchmarks Company Lists (ICT, F&B, Apparel and Footwear)
  2. International Tourism Partnership’s Principles on Forced Labor launched June 12th: http://www.greenhotelier.org/our-news/industry-news/hotel-sector-unites-under-itp-to-tackle-forced-labour/
  3. “Ripe for Change: Ending Human Suffering in Supermarket Supply Chains” Oxfam’s new report, June 21, 2018
  4. One page summary of Global Forum on Responsible Recruitment In Singapore,  June 11-12, 2018