Trillium Spearheads Effort to Protect and Enhance Shareholder Rights
Obama Administration has the Opportunity to Reverse SEC Policies that Censored Environmental and Social Inquiries
The current financial and economic crisis demonstrates the extent to which all sectors and all participants in the market, whether companies, investors, employees, or communities, are interrelated and deeply affected by the actions of any one participant. Protecting and enhancing the rights of investors to seek and receive information from their companies about company activities improves the stability of the financial system as a whole. President-elect Barack Obama can help to avoid future market disruptions and also pave the way for a sustainable economy if he protects and strengthens investors’ rights to use the shareholder resolution process to highlight corporate risk factors and press for needed remedies, according to a joint letter submitted today by more than 60 leading U.S. institutional investors, investment firms and investor groups representing more than $5 trillion in assets.
Letter to President-Elect Obama
Fundamental Rethinking of Financial Disclosure
The Securities and Exchange Commission has asked investors and investment advisers to help them engage in “a fundamental rethinking of financial disclosure, beginning with the basic purposes of disclosure from the perspective of investors and markets.” This sounds too good to be true, because in a sense it is. The 21st Century Disclosure Initiative, as it is termed, is primarily focused on harnessing new technologies (hardware and software) to improve reporting, transparency and the usefulness of data. However, the SEC did open the door to a meaningful re-examination of disclosure when they recently asked investors and investment advisors to comment on the following question: “What information that is not required to be filed or furnished with the Commission do investors and others use to make investment decisions or give investment advice?” Needless to say, as strong advocates for SRI we have taken this invitation seriously and certainly have a few thoughts on the subject. Below is our comment letter to the SEC.
Trillium Asset Management Corporation’s Comment to SEC
The Thanksgiving Column
Thanks (presumably) to 34,000 emails vehemently opposing the repeal of shareholders’ right to file non-binding ballot proposals, social investors dodged a bullet this fall. On November 28, the Securities and Exchange Commission failed to follow through on its earlier hints that the rules governing shareholder proposals might be significantly tightened, even to the point of where they might succumb to the fate of the dodo.
Therefore, a hearty cheer and very grateful thank-you to those readers who responded to our action alert last fall! You know who you are, and we are very grateful for the time you took to contact the Commission.
As a little bonus, the SEC also adopted amendments to facilitate the use of electronic shareholder forums (“chat rooms” in the common tongue), where shareholders can exchange information exempt from the usual rules governing inter-shareholder communication. This will allow advocates an interactive forum to press the cases behind the 500-word proposals we submit. Let’s hope these chat rooms are visited by serious investors.
But even as the Commission gaveth, it tooketh away – and how. The big SEC story on November 28 was not about the bullet dodged by social investors, but about the blow to all shareholders by a 3-1 vote by the Commissioners denying us access to the proxy to nominate our own board directors. As expected, despite calls from Congress and other fair-minded people, the highly partisan vote (three Republicans vs. one Democrat) went ahead despite the fact that the Commission has been missing one Democrat, which has been missing one Democrat since the resignation of Roel Campos late last summer. Hence, the vote described by former SEC Chairman Arthur Levitt as “probably the most important [one] the commission has taken in nearly 15 years” was procedurally flawed and politically suspect.
The majority justified its ruling on the grounds of instilling predictability into this governance arena, but certainty is anything but certain and the story will not end here. Although Chairman Cox made good on his determination to have a rule in place for the 2008 proxy season, he has stated that he hopes the SEC will revisit the issue in 2008 and craft a rule to permit some access proposals. (To that, Ann Yerger of the Council of Institutional Investors, a strong supporter of proxy access, stated: “It makes no sense for the commission to do the wrong thing now but promise to try to do the right thing next year. This is a sad day for shareholders.”) Investors are not waiting passively to see what compromise the SEC will offer in ‘08. AFSCME, joined by the state treasurer’s office of North Carolina and the New Jersey Division of Investments, filed proxy access resolutions at JP Morgan Chase and Bear Stearns on the very day of the ruling, with AFSCME declaring its willingness to go to court.
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More thanks are due – to our (sob) outgoing senior analyst and all-around wonderful human being Steve Lippman, who gave us nearly six years’ service before succumbing to the powerful pull of Microsoft, which has tapped him to be its new Director of Environmental Engagement. Congratulations, Microsoft – you bagged an incredibly thoughtful, smart, insightful, strategic, hardworking and diplomatic guy. “Steve’s Greatest Hits” include a long, successful string of negotiations with companies, resulting in a raft of sustainability reports that never would have seen the light of day otherwise, commitments by big banks and financial service firms to strengthen their environmental policies, helping to get the new non-profit media watchdog Open Mic off the ground, and organizing the social investment community around the problems of global water scarcity. We’ll miss him for his great contributions, warm presence and dry-yet-wacky sense of humor.
2008 Advocacy Priorities
For the 2007-2008 shareholder resolution season (which roughly parallels an academic year), Trillium Asset Management Corporation (“Trillium”) has filed 18 shareholder proposals addressing a wide range of environmental and social justice concerns. Thirteen resolutions on which we are acting as lead* filer are highlighted in this article. All the proposals we are involved in are posted on our web site.
Among its Wall Street peers, Bank of America (BAC)‘s internal greenhouse gas (GHG) reduction goals look good upon a first read: the bank has pledged that emissions from its own offices by will decline 7 percent from 2004 levels by 2008. Yet the bank finances GHG-intensive coal power plants and mountain top removal (MTR) coal mining projects that feed them. MTR destroys rivers, streams and habitats as well as the tops of mountains. We are asking BAC to observe a moratorium on all financing of MTR coal mining and the construction of new coal-burning power plants that emit carbon dioxide.
Trillium and Green Century Capital Management[1] are pioneering the first oil sands resolutions at ConocoPhillips and Chevron, respectively. Oil sands are large tracts of sand and rock material beneath Canada’s dense boreal forests that reportedly hold over a trillion barrels of crude oil. The extraction process requires volumes greater water and energy than ordinary oil drilling, endangering the regions ecology and preventing Canada from meeting its Kyoto Protocol commitments. Our resolutions press the two companies to report on the extensive environmental damage that will result from their expanding oil sands operations, and the ensuing impacts on greenhouse gas (GHG) emissions, water resources, biodiversity and indigenous populations.
In the utility sector, we are pressing Alliant Energy to adopt incentives that will enable it to profit by reducing greenhouse gas emissions by improving its customers’ energy efficiency. Alliant is set to build a new 630-megawatt coal-fired power plant that will emit several million tons of carbon dioxide per year.
For the fifth consecutive year, we are continuing to press Chevron on its pollution legacy in the Ecuadorian rainforest and elsewhere. This year, the New York City pension funds became the lead filer of the resolution we filed last year that asks Chevron’s Board to report on the policies that guide how the company assesses host country laws and regulations, and their ability to adequately protect human health and the environment.
On the topic of environmental health, we are again asking Dow Chemical to establish an independent scientific panel to research and report on the links between Dow pesticides and asthma, in collaboration with the Pesticide Action Network North America.
Working with a shareholder-NGO coalition that formed in response to the massacres in Darfur, Trillium has filed resolutions at JPMorgan Chase, Morgan Stanley and Merrill Lynch, which are among the largest shareholders in foreign oil companies whose business with Sudan finances the government’s mass atrocities in Darfur. We’ve also been in discussion with Citigroup. We’re asking these Wall Street firms to press the foreign oil companies to persuade the Sudanese government to stop obstructing the deployment of UN peacekeeping forces in accordance with UN Resolution 1769. We are also in dialogue with Schlumberger, an oil services firm with operations in Sudan.
Closer to home, Trillium is leading a large coalition of shareholders in a long-running effort to get Home Depot to disclose its Equal Employment Opportunity data (a detail of workforce composition by race, sex and rank). This data disclosure is viewed as an effective incentive to spur companies to develop programs to break glass-ceiling barriers.
Since 1995, Trillium has been a leader in promoting corporate sexual orientation nondiscrimination policies. We have filed resolutions at Expeditors International and Pentair, the only two transportation stocks in our universe who lack such policies, to amend their written equal employment opportunity statement to explicitly prohibit discrimination based on sexual orientation. We are also joining the New York City pension funds in re-filing a sexual orientation policy resolution at ExxonMobil – for the 11th year, but who’s counting? — that asks the company to adopt nondiscrimination protections for “gender identity” as well.**
Shareholders campaigns over the past three years have spurred corporations to adopt a critical piece of governance reform in the form of detailed disclosure of political donations. Relying on publicly available data does not provide a complete picture of political expenditures. Shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Ford Motor and General Motors have yet to improve their transparency, prompting our shareholder resolutions asking each company to disclose its political contributions and payments to trade associations and other tax-exempt organizations (We are the lead filer at Ford and are co-filing with Catholic Healthcare West at GM). We are also in dialogue with Dominion Resources and several other companies in this area.
* We often file in coalition with other social investors, and as the word implies, the “lead” filer takes on the organizing role.
[1]Trillium is the sub-advisor for Green Century Capital Management’s Balanced Fund.
** Statutes usually define gender identity as “having or being perceived as having a gender related identity or expression whether or not stereotypically associated with a person’s assigned sex at birth.” Persons in need of such protections often include (but are not limited to) those who are physically transitioning to, or choose to present themselves as, the opposite of their sex at birth.
SEC Proposals Threaten Shareholder Advocates’ Rights to File Resolutions
The cicada is a locust-like insect that emerges from a long hibernation every umpteen years to create an incessant buzzing across the country. Equally annoying in death as in life, when spent, cicadas drop from trees en masse, littering once-pleasant lawns and parks with piles of crunchy carcasses.
On this tenth anniversary of the last Securities and Exchange Commission (SEC) last attempt to cripple shareholder advocacy, the commission has again floated potentially drastic changes to the shareholder resolution process that make our advocacy many times more difficult. In 1997, the story had a happy ending. After a barrage of support for the extant system, the SEC shelved its proposals. This time around, we cannot take another success for granted because the stakes are too high. If successful, advocates for change will eliminate the federal government’s role in protecting the rights of investors to file shareholder resolutions and allow companies to create their own weak, or even nonexistent, mechanisms to govern the process. Investors will not be able to file resolutions to change company bylaws to permit director nominations. Accordingly, the socially responsible investment community is mobilizing vigorously to fight any rollback of investor rights.
Heads I Win, Tails You Lose
In August, the SEC floated two proposals for public comment.[1] Both deal with proxy access very differently, reflecting deep division among the five commissioners.[2] The Republican-supported proposal would disallow any resolutions regarding the election of corporate board directors (or “proxy access” resolutions). The alternative, reluctantly supported by the Democratic commissioners, would allow shareholders to nominate directors, but only if they collectively represent at least 5% of a company’s stock. In an unusual move, Chairman Chris Cox voted in favor of both to prompt public debate on a range of options, while also indicating that he supported some form of proxy access.
Neither alternative is acceptable. Democratic Commissioner Ann Nazareth called the second a “non-access” proposal because of the practical impossibility – for reasons to lengthy to discuss here — of organizing a coalition representing 5% to file a shareholder resolution. Both would stymie for good the growing support among shareholders for proxy access proposals, which received over 40% on the ballots of HP and UnitedHealth Group last spring.
The second proposal also requests comment on whether companies should be able to opt out entirely from receiving any non-binding resolutions – posing a potentially devastating threat to socially concerned investors.
Non-binding resolutions constitute 95% of all resolutions filed, according to the Investor Responsibility Research Center – and 100% of the resolutions resolutions filed by Trillium Asset Management Corporation and our peers in the socially responsible investment field. Without them, we wouldn’t have had the high-impact campaigns of South Africa, sustainability reporting, diversity, political contributions and hundreds of lesser known resolutions that spurred corporate change, many of which we have written about in these pages. Unsurprisingly, many on the other side of the table would like to be rid of them once and for all. SEC Commissioner Paul Atkins said advisory resolutions detract from primary business operations and that their proponents represent the tyranny of the minority…[using their] economic interest to hijack the agenda of all investors.”
Lowlights of the SEC’s Proposals
The opt-out option. The SEC is seeking comment on whether a company should be allowed, with shareholder approval, to opt out of the resolution process, or even, if their state of incorporation allows it, to have the board vote to opt out (and most state corporation laws do permit directors to alter their bylaws without a shareholder vote.) In theory, this would create two universes of companies for investors – those respectful of shareholder input, and those with better things to do than listen to their owners. In reality, the latter would surely dwarf the former, forcing investors to turn to more confrontational methods to raise their issues.
The chat room proposal. The Commission puts out for comment the idea that the inclusion of shareholder resolutions on proxy ballots could be replaced by companies with an “electronic petition model.” Everything is wrong with this suggestion. To start, companies would not have to respond to the proposal, so voting shareholders would have no idea of where a company stood on a particular issue, and neither management nor board is obligated to give it the slightest bit of attention. Second, except for the requirement that the web resolutions contain no “false or misleading” material, any subject could be addressed, guaranteeing a flood of them that investors would find impossible to wade through, thus depressing voter turnout. Third, voter turnout is likely to be low anyway; who besides John Mackey[3] frequents company chat rooms?
Chat rooms are a non-starter unless they become an addition to the current mechanism, not a substitute.
Resubmission thresholds. Also up for grabs: raising resolution resubmission thresholds from 3% in the first year, 6% in the second year, and 10% every succeeding year to 10, 15 and 20% respectively. These higher thresholds would have squelched numerous resolutions that took time to gain support because shareholders needed time to study them, such as climate change resolutions, which garnered only single-digit support when introduced ten years ago, but which now receive 20-30% routinely.
If the resolution process is gutted, management and directors are likely to turn a deaf ear to all but their biggest shareholders. Of the 1,400 resolutions filed each year, one-quarter to one-third are withdrawn, mostly due to successful agreements between investors and management. These agreements range from strong substantive commitments that produce real changes in policy or practices, the disclosure of previously hidden information, commitments to further dialogue, and sometimes simply agreement to disagree. In any of these circumstances, much is learned by both sides. In our twenty-odd years of shareholder advocacy, the staff at Trillium Asset Management can personally testify to dozens of positive relationships with companies that were jumpstarted by shareholder resolutions. Shareholder resolutions are responsible for the Ceres memberships of General Electric, Sunoco, Baxter, and Bank of America, to name a few. They have produced enhanced nondiscrimination policies at over fifty companies. These are commitments that corporations routinely boast about in their public relations material. Yet it remains a sad reflection of some corporations’ insularity that it too often requires a resolution to get in the door.
The SEC needs to hear from all of us who have ever filed for, voted in favor of, or benefited from a shareholder resolution. We must vociferously object to the misguided suggestions analyzed above, and insist that no rule changes be voted upon until the seat vacated this summer by Democratic Commissioner Roel Campos is filled.
For model letters to the SEC and Congress, visit our web site at www.trilliuminvest.com. To view comments already submitted to the SEC, visit http://sec.gov/comments/s7-16-07/s71607.shtml.
[1] In 2006, the American Federation of State, County, and Municipal Employees (AFSCME) sued American International Group (AIG), the insurance giant, for access to the proxy ballot after AIG omitted its resolution seeking a bylaw change to allow proxy access to nominate directors. The court ruled in favor of AFSCME, and challenged the SEC to either start allowing such resolutions or provide a rationale for omitting them. [2] By statute, three commissioners are appointed from the majority party, and two from the minority.
[3] John Mackey is the CEO of Whole Foods, who made headlines this summer when his online alter-ego made highly questionable statements in a Yahoo! chat room.
