Corporate Governance

Corporate Governance

Overview of issues

Seventh Generation Interfaith (SGI) members champion and safeguard the right to be active owners of corporations and commit to protecting the shareholder advocacy process as a cornerstone of corporate democracy. As investors, we seek to encourage governance practices that will improve both investor and public relations through greater transparency and accountability and thereby reduce reputational and legal risks.

SGI supports corporate governance that promotes long-term, sustainable shareholder value and inculcates respect for corporate social responsibility. SGI typically addresses these issues through its proxy voting, weighing in on both shareholder and management proposals. These governance level efforts affect all of our environmental and social advocacy, enhancing shareholder input into corporate practices and improving oversight and transparency.

Corporate governance concerns, such as executive compensation and board diversity, originate from our faith teachings and address both the financial health of the company as well as its’ societal implications. SGI advocates for corporate boards that reflect gender and ethnic diversity as a matter of social equity. However, we also believe that diverse boards better represent shareholders and make more informed decisions for the promotion of long-term shareholder value. Similarly, SGI’s concern with growing economic inequality manifests in support of more moderate executive compensation. We believe that executive compensation should not only be tied to shareholder value creation and environmental and social performance, but should also be commensurate with their contribution relative to the compensation of the rest of the employees.

CEO pay has grown exponentially since the 1970s, according to the Economic Policy Institute (EPI), rising almost 1,000 percent compared to a rise in worker salaries of roughly 11 percent over the same time period (adjusted for inflation). A report published by As You Sow, The 100 Most Overpaid CEOs, found that “Systematic egregious overpaying CEOs can be a sign of poor accountability, weak governance, and lack of concern for shareholder interests.”

In light of steeply rising income disparity in the U.S., extravagant CEO pay remains intensely unpopular, and presents significant material and reputational risks for firms. While Dodd-Frank mandates expanded reporting of executive compensation, investors seek more comprehensive public disclosures around the structuring of pay packages as a question of good corporate governance. SGI members call for executive pay formulas that reconcile compensation with specific performance metrics including ESG (environmental, social and governance) performance and that align more appropriately with the salaries of average employees.

Further, the gender wage gap in the United States puts the average woman’s unadjusted annual salary at 78% to 82% of that of the average man’s.

SGI also supports corporate governance that injects shareholder input into corporate decision-making and robust accountability to shareholders. Issues such as Proxy Access, which enable shareholders to nominate directors to corporate boards, or the separation of the roles of Board Chair and CEO, directly influence the board’s attentiveness and accountability to shareholder concerns. These issues also bear directly on corporate boards’ capability of addressing environmental and social concerns, directing companies for long-term success while foregrounding the needs of society at large.

SGI’s engagement

The corporate governance issues that SGI members are engaging companies include pay disparity and lobbying & political spending. Consumer goods retailers and fast food companies have been targeted for pay disparity resolutions based on their claims that slowing sales is due to lack of disposable income. Lobbying resolutions have been focused on a lack of alignment with company statements on climate change.

SGI Shareholder Resolutions

Resources