Don’t miss these two webinars!

Each year, ICCR and Ceres offer webinars that highlight resolutions filed by members. These webinars provide excellent guidance to institutional investors and individual investors concerning shareholder proposals in the coming proxy season. We cannot recommend highly enough your participation in both webinars.

  • ICCR’s 2020 Proxy Resolutions & Voting Guide Overview. ICCR member resolutions reflect some of the most hotly-debated themes in the national discourse, from the failure of energy companies to meaningfully respond to the climate crisis threatening our planet, to the role of corporations in perpetuating civil and human rights abuses through technology products, and the unrelenting rise in the cost of U.S. healthcare. Register here. (Thu, Feb 27, 10:30 a.m. – 11:30 a.m. Central) (UPDATE: 2020 Proxy Guide is here. Slides and recording are here. )
  • Business Case to Vote For 2020 Climate-Related Shareholder Proposals. An annual webinar presenting key climate-related shareholder proposals for the 2020 proxy season, and reasons why you should vote for them. Hosted by the Ceres Investor Network on Climate Risk and Sustainability. Register here. (Thu, Mar 12, 11:00 a.m. – 12:30 p.m. Central) 

Even if you cannot attend live, registration means that you will be sent a link to the slides and recording of the webinar. In other words, even in the event that you have a schedule conflict, it can be valuable to register and watch the webinar at another time. Please, register for these webinars!

The Awakening of a Giant?

By Frank Sherman

Much has been written about socially responsible investing becoming mainstream. US SIF reported two years ago that $1 in every $4 of professionally managed assets in the U.S utilize ESG criteria or shareholder advocacy, a double digit annual increase since the mid-1990s. SRI concerns have also broadened from governance issues (e.g. proxy access, political and lobby spending, executive pay, separate chair) to corporate environmental impact (e.g. sustainability reporting, climate, water) and more recently, social impacts (e.g. human rights, labor rights, diversity).

Another trend in the investment world is the disproportionate growth of passive investing. As open-end and exchange-traded mutual funds managed by large asset managers make up a growing portion of U.S. equity holdings, they take on a growing fiduciary responsibility. When you buy these funds, you transfer your fiduciary responsibility to fund managers to engage companies and vote proxies for you. These long-term and diversified owners have no way to exit a stock, so the only way to influence shareholder value at a portfolio company is through exercising active ownership rights.

Given these trends, it is not surprising to read Morningstar’s recently released proxy voting report stating investor support for ESG resolutions reached a record high in 2019 averaging 29%. This excludes the proposals which were withdrawn based on company agreements. Average support for ESG shareholder resolutions across the 50 fund families analyzed rose from 27% in 2015 to 46% in 2019. However, they found that five of the 10 largest fund families —Vanguard, BlackRock, American Funds, T. Rowe Price, and DFA— voted against more than 88% of ESG-related shareholder resolutions. Their support would have caused 19 of 23 resolutions earning more than 40% support to pass if supported by just one of the largest two asset managers. In response, these fund managers claim to ‘engage companies privately’.

The silver lining highlighted by Morningstar is Blackrock. Recall that two years ago Larry Fink, CEO of BlackRock, the world’s largest asset manager, told CEOs that to sustain financial performance they must “understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth”. He went on to say that companies need to engage their stakeholders and if they wait until they receive a proxy proposal to engage, “we believe the opportunity for meaningful dialogue has often already been missed”. This year in BlackRock’s annual letter, Fink stated that climate risk is changing the fundamentals of the financial system. BlackRock would be aligning its investment approach, including how it votes proxies, with sustainability. Fink committed to using proxy voting to advance TCFD- and SASB-aligned financial disclosures and to an unprecedented standard of proxy voting transparency. They demonstrated their seriousness by joining the Climate Action 100+, a global investor initiative which SGI is a member, representing $34 trillion in managed assets, to engage the world’s largest corporate greenhouse gas emitters to take necessary action on climate change.

Morningstar predicted that BlackRock’s “willingness to vote against management would give engagements on sustainability issues more teeth…as corporate management becomes more open to engaging with shareholder proponents”. I remain hopeful…

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.

SEC’s Proposed New Rules Threaten Shareholder Democracy

Last December, our blog gave an update on efforts by trade associations to restrict shareholder rights .

On Tuesday, November 5, the Securities and Exchange Commission unveiled the exact nature of that threat and voted 3-2 on two separate measures to propose changes to rule 14a-8 that would severely restrict investors’ access to the corporate proxy. The changes would require that:

  • Shareholders own $2,000 worth of company stock for a minimum of three years (up from one) before they can submit a shareholder resolution. They can submit proposals earlier if they own $25,000 for one year and $15,000 for two years. Small shareholders can no longer come together to aggregate their shares to file a resolution.
  • Re-submission vote thresholds were raised from 3%, 6% and 10% for the first three years to 5%, 15% and 25%.
  • Proxy service providers (such as ISS and Glass Lewis) will be required to provide a draft of their proxy advice to companies for comment ahead of issuance. There are several other restrictions on these companies.

These proposed changes are significant threats to our voice as shareholders. They have received significant push-back in the media (Reuters, MarketWatch) and by several investor groups (ICCR, US SIF, CII). “Between the filing threshold increases and the doubling of percentages for resubmissions, it means that smaller investors are going to find it much more difficult to file resolutions,” says Josh Zinner, CEO of ICCR. “It’s a blow against shareholder democracy.”

The 60-day comment period opens once the proposed rule changes are published in the Federal Registrar. Our members are encouraged to sign on to Ceres and ICCR comment letters or, better yet, send in your own comments to the SEC. You should also consider sending letters to your Congressional representatives. Finally, consider submitting op-eds and letters to the editor to your local paper and newsletter stories and blog posts on your websites.

To learn more about the issue and concerns, you read the statements by Commissioner Robert Jackson and Allison Herren. “There is a common theme that unites the two proposals before us today”, said Commissioner Herren. “They both would operate to suppress the exercise of shareholder rights.”

With regards to a second proposed rule change, ISS (Institutional shareholder Services) has filed a lawsuit against the SEC. The final resource is a website, supported by ICCR, that is gathering evidence and sharing reports concerning the shareholder proposal process (Investor Rights Forum).

A lot more to come on these proposals. Please lift your voice in opposition!

Riverwater Partners Employment Clauses Engagement

By Cindy Bohlen

Chief Mindfulness Officer & Analyst, Riverwater Partners

Riverwater Partners, a Responsible Investment RIA based in Milwaukee, WI, is working in collaboration with Meredith Benton, Whistle Stop Capital, and Molly Betournay, Clean Yield Asset Management, and a few other investors, on an engagement campaign with companies to end the use of Forced Arbitration and Non-Disclosure Agreements in the context of employee harassment and discrimination claims. Riverwater chose to participate in this campaign because we believe the cost and effort to end the use of these tools is insignificant compared to the risks associated with their use, which include human capital costs, legal risk, and brand exposure.

In June, Riverwater sent letters to CEOs and Investor Relations of 24 portfolio companies highlighting said risks, stating that Attorneys General from all 50 states have signed a letter calling for the end of mandatory arbitration in sexual harassment cases, and citing examples of high-profile companies that have ended their use. As of August, we have received responses from eight companies, most indicating they do not use Forced Arbitration/Non-Disclosure Agreements at all. A few with union employees stated that negotiated contracts require certain disputes to be determined by arbitration; given that these terms are negotiated by experts on behalf of the employees, we believe this is fair. In all cases, we are encouraging companies to disclose these policies publicly, as investors have begun to focus on the issue.

Riverwater is in the process of following up with companies that have not yet responded. Our goal is to educate them regarding the risks of using Forced Arbitration and Non-Disclosure Agreements, and to encourage them to either disclose publicly if they are not using such tools, or to end use. We will consider further action, including shareholder resolution, if we deem it appropriate. We welcome participation by others who are concerned about this practice. Please feel free to contact Cindy Bohlen of Riverwater at cbohlen@riverwaterllc.com with interest.

Note from SGI: Efforts like this to end mandatory arbitration of sexual harassment claims help to put a stop to the culture of silence that protects perpetrators at the cost of their victims. We salute Cindy for her participation in this important work.

My Visit to South Texas Family Residential Center in Dilley

By Mark Peters

Director of Justice, Peace and Reconciliation, Priests of the Sacred Heart

The August 25 Washington Post ran a story about the South Texas Family Residential Center in Dilley, Texas, the largest of three in the U.S. specifically dedicated to the holding of mothers and children.  Opened to reporters for the first time, the center was described by reporter Maria Sachetti as clean and well-equipped, very different from the images we’ve all seen of kids in pens at the border. 

I can confirm her story – I was there two weeks earlier and saw everything she described:

…a dental office, with a reclining chair and sterile instruments… cafeteria serving hot dogs, lime-cilantro chicken, tortillas and green salad — all you can eat… Kindergartners [singing] “If You’re Happy and You Know It…” access to a wide array of services, including a 24-hour infirmary, a day care, a library with Internet and email access, a beauty salon, a charter school and a canteen.

I’d been asked by SGI to take part in a tour of the Dilley facility and sit in on a dialogue of ICCR members with CoreCivic, the private corporation that runs Dilley and is one of the “big two” in that field, along with GEO Group.  At one time they were in dialogue with GEO, but the company had “paused” that conversation. (In fact the CEO had suggested they sell their shares and leave them alone!

CoreCivic has been a more willing partner, and after the dialogue I sat in on later that afternoon after the tour of the detention facility, the ICCR delegation saw signs for hope that human rights were getting needed attention.  But one has to wonder what an organization like Catholic Charities could do with the money CC is getting to run this camp, whether it’s full or not (surprisingly it never has been and often is way under its 2400 bed capacity).  The director told us he had “no idea” how Customs and Border Patrol and ICE decide who to send and not – mothers have reported an almost “eenie-meenie-minee-moe” approach at the border.

The Post reporter’s story is excellent in my opinion, and I encourage you to read it.  I especially call attention to her explanation of the Flores Agreement and the impact the Administration’s plan to nullify it would have on the length of time families are forced to stay in these camps (in a “vast stretch of scrubland in a tiny former oil-boom town, an hour south of San Antonio”), where the temperatures are often above 100 degrees and people generally don’t leave their air-conditioned pods.

The women who’ve left and were interviewed by Sachetti all agreed that, while “far better than the Border Patrol holding cells or the safe houses they stayed in during their trip through Mexico,” they still considered Dilley a jail.  Most currently stay less than the 20 day Flores limit, but if Flores is negated stays are expected to go to 3 times that and could legally be unlimited.  What will it do to the admittedly good morale (for the circumstances and relative to the trauma they’ve just passed through) we witnessed if that becomes the case.  We need to be telling Congress to keep the Flores Agreement!

I and the others were very surprised by what we saw in Dilley and relieved to know that not every detention facility is as bad as the worst of them (I can only vouch for this one, but I would also have to say that we all felt it was not “staged,” that we were seeing normal life there).  The next day, we heard a group that provides pro bono legal services say that residents were not being allowed to see them without an appointment, which should be their right, but we weren’t able to ask the CoreCivic official about that.  Follow-up is planned.  I’m grateful to SGI and ICCR for the opportunity to participate in this visit and commend the dialogue team for their dogged efforts to ensure that human rights are not trampled.  Perhaps what we saw would not have been that way without the efforts of them and so many others to let government and business know we are watching.

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: