Diversity in the Board Room

Goldman Sachs CEO David Solomon garnered media coverage from CNBC and the New York Times for his new plan that requires I.P.O. (initial public offering) clients to have at least one “diverse” board member, if they wish to have his firm’s services. “We’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,” Mr. Solomon told CNBC at the World Economic Forum in Davos.

I guess that my first response is it’s about time. Diverse boards are good for business. While hardly the first, Wharton told us that in 2017, Forbes drew the same conclusion in January 2018, and Harvard Business Review in March 2019. The Wall Street Journal article last week asked the question “why, when women earn the majority of college degrees and make up roughly half the workforce, do so few occupy the chief executive job?” Their analysis shows that the number of women CEOs of the country’s top 3,000 companies has more than doubled over the past decade, but it’s still under 6%.

SGI members have participated in the Midwest Diversity Initiative (MIDI), a coalition of institutional investors dedicated to increasing racial, ethnic, and gender diversity on corporate boards of companies headquartered in Midwestern states. The Coalition helps companies to:

  • Adopt a policy for the search and inclusion of minority and female board candidates
  • Require minority and female candidates to interview for every open board seat
  • Instruct third party search firms to include such candidates in the initial pool
  • Expand the candidate pool to include candidates from non-traditional sources

These efforts have seen some success: 24 Midwest companies engaged by MIDI have adopted the Rooney Rule, and 10 companies have appointed 12 diverse board members (see the press release). Nationally, we have a long way to go. On the Harvard Law School Forum on Corporate Governance website, Deloitte published a report that, as of 2018, just 34% of all Fortune 500 board seats are held by women and minorities.

On a related front, Melinda Gates found that in 2017 women founders received only 2% of venture capital funding. For lack female founders, the results are even more grim, only .0006% of venture capital has gone to them since 2009. In response, Gates invested in venture capital for women.

Women and people of color have a lot to contribute to the management and boards of successful companies. Personally, I’m glad to see that big business is slowly beginning to recognize it.

Frank Sherman, new chair of ICCR Board

We just received word from Josh Zinner, executive director of the Interfaith Center on Corporate Responsibility that yesterday the Governing Board of ICCR elected its new Executive Committee. Our own Frank Sherman was elected as the new chair of ICCR. The new officers for ICCR are:

To learn more about ICCR’s Governing Board, click here

The outgoing officers are Fr. Seamus Finn, O.M.I. (who was the keynote for our annual event), Kathryn McCloskey (United Church Funds), Tim Brennan (Unitarian Universalist Association), and Anita Green (formerly of Wespath, who also assisted us in webinars).

Dan Tretow, chair of the SGI board, said, “I congratulate Frank on his election as Chair of the ICCR Board of Directors.  His commitment to ESG issues and dedication to social justice is admirable.  We value his leadership at SGI and know he will be appreciated as Chair of the Board at ICCR.”

We at SGI are grateful for Frank’s generous service to our organization and to ICCR.

Look Back at 2019: The Difference Between Hope & Despair

By Frank Sherman

As I reflect on 2019, there was plenty of news to discourage me: wars continue in the Middle East, and nations continue the proliferation of nuclear arms; refugee and migration crisis across multiple continents; rise of nationalism and hate crimes; growing wealth and income gaps; undeniable climate crisis, water scarcity, deforestation, and biodiversity loss…not to mention the rollback of regulations and social safety nets, polarization of political discourse, and impeachment hearings in our own country. A review of the global progress on the UN Sustainable Development Goals found that, despite progress in a number of areas, progress on some Goals has been slow or even reversed. “The most vulnerable people and countries continue to suffer the most and the global response has not been ambitious enough.”

But late last night, I was sent a message that woke me up. As I looked through the Capuchin Community Services 2020 calendar, a quote caught my eye. “The difference between hope and despair is a different way of telling stories from the same facts” (Alain de Botton, The School of Life, London).

I then thought of Greta Thunberg’s (Time Person of the Year) speech at the UN Climate Action Summit in September excoriating world leaders for their inaction in the climate crisis, and the student March For Our Lives demanding more gun control. I recalled watching CNN’s annual Heroes of the Year Awards honoring the top 10 men and women who are making the world a better place by helping families affected by tragedy, cleaning up the environment, protecting neglected animals, and so much more. I read that worldwide terrorist attacks actual fell by 33% compared to 2017, to the lowest level since 2011. This year scientists learned to spot Alzheimer’s earlier and got a step closer to curing diabetes. China, the largest greenhouse gas emitter, is becoming a leader in electric vehicles.  

I also find hope in the work of Seventh Generation Interfaith and ICCR. We added 10 new members with the merger with the Midwest Coalition to our coalition bringing the total to 39. This year our members engaged several companies in the food and apparel sector asking them to conduct human rights impact assessments and to develop a human rights policy. We continued our work with Midwestern electric utility companies to accelerate their decarbonization plans and ensure a just transition for employees and local communities. We leveraged the Business Roundtable’s statement on the Purpose of a Corporation to promote transparency in corporate political spending and lobbying. We challenged pharmaceutical companies to base their executive remuneration policies on innovation and patient outcomes rather than predatory pricing. We challenged companies to trace their supply chains back to the wildfires in the Amazon and asked them to meet their 2020 deforestation targets. We asked food brands and restaurants to improve their nutritional profile and follow marketing-to-children guidelines to fight obesity. We hosted our annual conference, this year on impact investing, in October. Our quarterly webinars, blog articles and weekly newsletters kept our members informed on our issues and trained on our tactics.

How will you tell your story this holiday season?

Blessing to you and your family and a hopeful New Year!

A USDA Christmas

It’s hard to think about fall and winter holidays without thinking of food. Thanksgiving turkeys, Christmas roasts and cookies, and plenty of latkes and chocolate gelt are on everyone’s minds for the last two months of the year.

On December 4th, the USDA changed the Supplemental Nutritional On December 4th, the USDA approved changes to the Supplemental Nutritional Assistance Program (SNAP). Despite receiving thousands of negative comments, they proceeded with the first three proposed changes to the SNAP, all of which are expected to go into effect before the next presidential election.

Starting April 1, 2020, SNAP benefits will be cut for roughly 700,000 individuals, by reducing waivers and introducing new work requirements for able bodied adults without dependents. NPR Stated, “SNAP statutes already limit adults to three months of benefits in a three-year period unless they meet the 20 hours per week [work] requirement, but many states currently waive that requirement in high unemployment areas.” This rule change will make it more difficult to get this waiver. This initial change is expected to ‘save’ over $5 billion over the course of five years. 

The other two proposed rule changes would:

  • Close a “loophole that allows people with incomes up to 200 percent of the poverty level — about $50,000 for a family of four — to receive food stamps” and “prevent households with more than $2,250 in assets, or $3,500 for a household with a disabled adult, from receiving food stamps.”
  • Cut close to $4.5 billion “from the program over five years, trimming monthly benefits by as much as $75 for one in five struggling families on nutrition assistance.

If all of these proposed rule changes go into effect, approximately 3.7 million fewer people and 2.1 million fewer households would have received SNAP in an average month (Urban Institute).

According to the USDA website, SNAP provides nutrition benefits to supplement the food budget of needy families so they can purchase healthy food and move towards self-sufficiency. These changes are proposed in order to ‘cut costs and help individuals achieve this idea of self-sufficiency’. However, access to SNAP allows individuals to support themselves and provide nutritious food for their families. Many believe these changes affect not only the individual’s ability to pay for other necessities, but will add stress to local food pantries and other non profits (Lohud, Dec 10, 2019). These changes will lead to an increase of food insecurity, devaluing of life, and challenge the idea that dignity belongs to every human being. “In this case, the result is more hunger and hardship for the members of low-income families who are doing their best to make sure everyone is cared for” (The Atlantic, Dec 10, 2019).

As we gather around Christmas dinner with our families, let us pause for those among us who go without.

Climate Refugees: Rising Waters and Rising Concern

A new report from the Othering & Belonging Institute at the University of California – Berkeley sheds light on an emerging problem. The new report, “Climate Refugees: The Climate Crisis and Rights Denied,” by Elsadig Elsheikh and Hossein Ayazi, makes a compelling case to the international community for the adoption of a legally-binding convention that protects climate refugees.

In a chapter that I wrote concerning resilience and refugees, I raised similar concerns as those which underlie this report. When referring to those born in another land, definitions and distinctions abound, be they legal definitions, social science terminology, or one’s self-description. At home and abroad, the political and legal framework continues to evolve. Attempts to reform U.S. immigration processes have occasioned increasingly sharp political conflict over the past 20 years. Some politicians capitalize on this polarization. Domestically, racial tension and anti-immigrant sentiment have both grown. Internationally, the member states of the UN finalized a Global Compact on Refugees in 2018, augmenting the 1951 Refugee Convention. None the less, legal vacuums exist. The international standards do not provide for “climate refugees.” While the July 2018 Global Compact for Safe, Orderly and Regular Migration recognized climate change as a growing factor, the December 2018 Global Compact on Refugees eschewed the subject, using the term “climate” only twice, and, in one instance, in the context of a “business climate.” The World Bank estimates there will be as many as 143 million climate refugees, with a minimum of 92 million, by 2050. It is a growing crisis for which the world remains woefully unprepared.

This new report from UC – Berkeley profiles 10 countries that are among those most vulnerable under the climate crisis. For instance, Bangladesh, projected to lose 17 percent of its total land to sea level rise by 2050, would see displaced an estimated 20 million people, and the Maldives could lose all 1,200 of its islands to sea level rise. The release date of the report coincided with the U.N.’s annual Human Rights Day observance on December 10th.

The report also details specific vulnerabilities suffered by these refugees in U.S. and international law. The report argues that a new understanding of “persecution,” a longstanding requirement for receiving refugee status, could be broadened to include “petro-persecution.” In that event, a new agreement for climate refugees is made necessary, and such a framework should be undertaken as a revision to the 1951 Refugee Convention, or the establishment of a wholly new international convention.

A Step Towards Tax Transparency

News reports occasionally detail how large corporations, like Amazon and FedEx, manage to avoid paying any federal taxes. Adding to my personal dismay, the Institute on Taxation and Economic Policy (ITEP) report that, in fact, 60 Fortune 500 companies avoided all federal income tax in 2018, including: Chevron, Delta Airlines, Eli Lilly, General Motors, Gannett, Goodyear Tire and Rubber, Halliburton, IBM, Jetblue Airways, Netflix, Principal Financial, Salesforce.com, US Steel, and Whirlpool. The full list of those that did not pay a dime is available here. We also know of companies that relocate to tax havens or companies that undergo a “corporate inversion” so that the foreign subsidiary becomes the parent company. At the end of the day, one asks: how do we better understand and compare the tax practices of different companies?

At the conclusion of the ICCR Fall conference (November 1), I went to Bloomberg for an event on Tax Transparency organized by AFSCME, the Fact Coalition, Global Financial Integrity, Oxfam America, and the Patriotic Millionaires. Yesterday (December 5), these same organizations announced the launch of a new global standard for tax transparency. The new global standard includes:

  • Reporting within the context of corporate sustainability;
  • Disclosures on tax strategy, governance, and risk management;
  • Public country-by-country reporting of business activities, revenues, profit, and tax;
  • And disclosure of the reasons for difference between corporate income tax accrued and the tax due.

A few of the remarks from the launch event have been shared with me, and I pass them on to you:

Why is tax transparency important?

Like most voluntary disclosures, companies that are doing the right thing disclose because the market rewards this behavior. Companies that are not doing the right thing are less likely to disclose, reflecting the potential for a financial risk and/or reputational risk.  Efforts like the new standard issued by the Global Reporting Initiative aim to allow for apples to apples comparisons.

A well-grounded tax strategy must be sustainable. These tax disclosures are valuable for investors because, for instance, a company with a very low tax rate raises questions about the sustainability of the rate and, consequently, a risk to earnings down the road. For investors, knowing the tax rate paid by a company discloses something about the risk tolerance of management and board. Bad practices have a habit of catching up with companies. A company may be exposed to penalties, fines, and clawbacks. The leaking of the Panama Papers resulted in recovery of $1.2 billion in taxes and penalties to date.

More importantly, taxes finance important undertakings like roads, schools, and government, things that companies and investors rely upon. A bedrock principle is that one should pay taxes where value is created. The Tax Standard clarifies how much companies contribute in taxes to the countries where they operate and, thereby, allows us to better see the impact of tax avoidance on the ability of a government to fund critical services and to encourage sustainable development. As the late Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice, put it: “Taxes are what we pay for civilized society.”

We at SGI believe that this new standard is an important step forward and encourage companies to disclose according to this standard.

For more information:

Highest Youth Tobacco Use since 2000, says CDC

This morning, the Center for Disease Control released its latest National Youth Tobacco Survey (NYTS), and the results can only be described as alarming.

The report concludes:

Findings from NYTS indicate that in 2019, approximately half of high school students (53.3%) and one in four middle school students (24.3%) had ever used a tobacco product. Furthermore, approximately three in 10 high school students (31.2%) and approximately one in eight middle school students (12.5%) had used a tobacco product during the past 30 days

National Youth Tobacco Survey, p. 10

According to reporting by Axios, this is the highest youth tobacco use report since 2000.

Alongside this news, please, remember that the NYTS follows Wednesday’s update (Dec. 4) that identifies 2,291 cases of hospitalized e-cigarette, or vaping, product use associated lung injury (EVALI) reported to CDC from all 50 states, the District of Columbia, and 2 U.S. territories (Puerto Rico and U.S. Virgin Islands). Further, another forty-eight deaths have been confirmed in 25 states and the District of Columbia.

Each day that administration debates its course forward amid concerns for public health and election and jobs impact, more young people risk getting hooked on tobacco products. Both of these CDC reports, the weekly update on EVALI and the NYTS, underscore the critical need for public health policy and action at local, state, and federal levels.

Shareholders, too have a critical role to play. Recently, we have written about SGI’s commitment to continue this work that originated decades ago with Fr. Mike Crosby, O.F.M., Cap. For instance, today is the filing deadline for two resolutions at Altria Group, Inc. One resolution concerns greater transparency regarding Altria’s lobbying efforts, and the other calls upon Altria to review corporate adherence to Altria’s principles and policies aimed at discouraging the use of their nicotine delivery products to young people and to report to shareholders. Both of these resolutions deserve broad support from shareholders.

Raise the Alarm for Xinjiang

Over the last few years, casual readers of newspapers likely had vague awareness that China had imprisoned more than a million ethnic Uighur Muslims and other minorities in camps in the country’s far-west Xinjiang province. While the Chinese government claims that the prisoners are volunteers who receive job training, human rights organizations allege that the ethnic minorities endure mass incarceration in “re-education camps” designed to indoctrinate those ethnic minorities.

In the last six months, a barrage of new events and evidence clarified the situation with striking details. In June, the Worker Rights Consortium (WRC) published a detailed, 34-page report on a factory owned by the Hetian Taida Apparel Company that supplied university logo clothing to Badger Sportswear. The WRC found:

. . . the investigation Badger commissioned of Hetian Taida, in response to allegations of forced labor, was fatally compromised by the company’s rush to exonerate itself and its supplier; the company announced findings, supposedly based on worker interviews, before [emphasis added] interviewing any workers. [p. 2]

The U.S. State Department placed China on Tier Three (the lowest category) in its annual Trafficking in Persons Report, dedicating considerable attention to Xinjiang. In early October, Time magazine reported that the U.S. Blocks Imports From 5 Countries Over Allegations of Forced Labor, when U.S. Customs and Border Protection (CBP) intervened on a Costco shipment from Hetian Taida. Days later, the WRC issued an Update on Forced Labor and Hetian Taida Apparel. Badger Sportswear only cut ties after CBP intervened on the shipment for Costco.  The American Apparel and Footwear Association, a trade group for brands and retailers, issued a disappointing and underwhelming statement in response to this report that they were “deeply concerned” and called on the Chinese government to act. Also, Georgetown University’s Center for Strategic and International Studies issued a critical report entitled Connecting the Dots in Xinjiang: Forced Labor, Forced Assimilation, and Western Supply Chains offering specific guidance for companies and investors. A rare event these days, a bipartisan letter came from members of both the U.S. House and Senate calling on the CBP to investigate and block goods coming from the Xinjiang province.  

Last week, classified documents from the Chinese government were leaked by the International Consortium of Investigative Journalists, providing policies and procedures inside the re-education camps.   The camps reportedly have watch towers, double-locked doors, and video surveillance “to prevent escapes.” The Chinese government apparently uses the camps to train its artificial intelligence programs for use in mass surveillance. The documents demonstrate that forced labor is an integral part of the Chinese government’s strategy for ideological conversion through industrialization. This is the largest incarceration of people based on an ethnic or religious identity since 1945.

A Toxic Combination for Apparel Companies and Consumers

China is the source of about 40% of all clothing sold in the U.S. The Xinjiang province grows 80% of China’s cotton, and, increasingly, the cotton is ginned there. Companies are erecting new factories in Xinjiang for additional steps in the garment-making process. Further, fabric from China is exported to Bangladesh, Cambodia, and Vietnam—all significant sources of apparel sold in the U.S

Corporations have a responsibility to respect human rights within company-owned operations and through business relationships. This obligation is delineated in the United Nations Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector. Every brand and retailer that sources from China is exposed to the risks for forced labor in their supply chains: the harvesting and ginning of cotton, the spinning of the yarn, and the business relationships with corporations collaborating with the Chinese government to build and staff these new factories. The issue is not “simply” a violation of a retailer’s code of conduct or a reputational risk; companies risk a violation of U.S. law concerning importation of garments made with forced labor.

As public scrutiny of these issues increases, it will become increasingly clear that companies’ due diligence mechanisms (audits and codes of conduct) are insufficient. We at SGI would argue that, even in the best of circumstances, audits and codes of conduct, while necessary, are insufficient to protect human rights. In the circumstance of the Xinjiang province, such efforts are rendered ineffective.

We urge companies to take this risk seriously. It is not enough to lay low and wait; companies must engage proactively. We also urge the U.S. government to take meaningful action against the Chinese government in this matter. Even our faith communities have a responsibility to act. Events in support of “religious freedom” ring hollow if it does not also include action to respect the religious freedom of ethnic minorities in Xinjiang. Finally, as consumers, we are called to solidarity with those who endure forced labor. NPR’s Scott Simon put it well: “What does it have to do with us? Look down at our shoes, our phones and our toys.”

To learn more:

Wake Up and Smell the Hog Waste?

It’s been nearly a month and I’m still thinking about the Food and Water Session panel I attended at ICCR’s Fall Conference. Panelists Kemp Burdette of Cape Fear River Watch, Elsie Harring of North Carolina Environmental Justice Network, and Martha Salomaa of Sipsey Heritage Commision spoke of the impacts associated with meat processing plants on local farms and how investors can affect change in this area. 

There are the same number of pigs as people in North Carolina. A fact surprising on its own, it bears more weight knowing these pigs produce roughly 10 times the amount of waste as the people. In addition to pigs, North Carolina has over 500 million chickens and turkeys producing even more waste. These factory farms or CAFOs (concentrated animal feeding operation) and their respective waste lagoons and spray fields overwhelmed nearby farms and towns, mostly communities of color, with untreated waste which seeps into rivers, streams, and drinking water causing illness. This waste contains high levels of toxic gases including methane, hydrogen-sulfide and ammonia; nutrients such as nitrogen and phosphorus; and heavy metals such as copper which seeps into waterways causing harm to the health of rivers and communities nearby. Community complaints often go unheard and regulators rarely take any action to address these adverse environmental and health impacts.

Having listened to this panel, it came as no surprise to me that, according to Ceres’ 2019 Feeding Ourselves Thirsty report, the meat industry is the worst performing sector in managing water risks. This report tracked 40 major food, agriculture, and beverage companies and their management of water risks in operations and productions. While the food sector has improved its water risk management, 27 of the 40 companies tracked scored below 50%. In addition to this, “Of the 13 companies that have yet to assess water risks in their agricultural supply chains, six are in the meat industry.” 

Often, company executives claim ignorance of the impacts of their operations on communities near their plants and CAFOs even after communities voice complaints. Faith-based investor groups like ICCR help bring the community voice to the C-suite to demand remediation. However, the problem will continue to exist without comprehensive legislation and regulation to address these impacts on communities in a holistic way.

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.