Shareowner Activism

Shareowner activism, a core strategy of SRI and sustainable investing, is as old as share-ownership. The Dutch East India Company was the first enterprise ever to be listed on a stock exchange, in 1602. On January 24, 1609, it received history's first shareowner petition from Isaac Le Maire, the largest minority investor, who railed against the management as "absurd and impertinent" and "a kind of tyranny," according to Stephen Davis, Jon Lukomnik, and David Pitt-Watson in The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda. Dutch religious pacifists followed suit, buying shares in order to protest the company's "generous application of warfare, blockade, piracy, assassination, imprisonment, plunder, terror, slavery, bribery." So began civil society's use of stock ownership as leverage for advancing social justice.18

It took almost three-and-a-half centuries for social activists to start using shareowner-ship again as a tool for promoting progressive change. In a 1947 court case, the Securities and Exchange Commission (SEC) confirmed the right of the infamous corporate governance gadflies John and Lewis Gilbert (and all shareowners) to file resolutions with companies, which the brothers had been doing since the 1920s without any legal standing. These rights languished largely unused until social and environmental activists adopted them in the late 1960s. Activist shareowners filed the first social and environmental resolutions in 1967 at Eastman Kodak, addressing racial discrimination against African American employees; in 1969 at Dow, addressing Agent Orange; and in 1971 at GM, addressing apartheid in South Africa.19 The year 1971 also saw the founding of the Interfaith Center on Corporate Responsibility (ICCR), which pioneered the modern practice of shareowner activism in the United States—namely, direct engagement with companies through dialogue or the filing of resolutions to advocate for improvements in environmental, social, and governance performance. Since then, ICCR has grown into a coalition of 275 faith-based institutional investors and SRI firms with over $110 billion in assets under management, and the practice it pioneered has brought about significant corporate change.20

It is difficult to substantiate the degree of influence shareowners have, however, for two reasons. First, they often work in concert with other activists, such as nongovernmental organizations (NGOs) and campaigners, as well as other intermediaries, making it impossible to attribute success solely to share-owner activists. And second, dialogue most often occurs outside the public eye.

Statistically speaking, the 2007 proxy season (when annual meetings take place, where shareowners present resolutions for all

Investing for Sustainability investors in a company to vote on) demonstrated this clearly. According to Institutional Shareholder Services (ISS), which issues voting recommendations on resolutions for investor clients, shareowners filed a record number of proposals: 1,150. And in an indication that companies were making sufficient progress on issues to satisfy resolution filers, a record number were also withdrawn: more than 270. In other words, almost a quarter of all resolution filings prompted acceptable responses to the shareowners' concerns. And this does not even account for shareowner dialogues with companies that progress sufficiently for shareowners to refrain from filing in the first place.21

The previous proxy season (the most recent one with complete results) saw record levels of support for shareowner resolutions addressing social and environmental issues. Of the nearly 180 such resolutions that came to a vote through mid-2006, some 27 percent received over 15 percent support from voting shareowners, according to ISS. This almost doubles the percentage of resolutions surpassing the 15-percent threshold in the 2004 and 2005 proxy seasons, and it represents a record high in support since 1973, when this information first began to be tracked by ISS's Social Issues Service.22

Perhaps the best indication of the power and success of shareowner activism comes from companies themselves, many of which readily acknowledge the positive though challenging role that shareowners play in promoting the adoption and promotion of corporate sustainability. Indeed, a corporate sustainability executive who wished to remain anonymous has been quietly sending word out to shareowner activists urging them to file a resolution asking her company to produce a sustainability report, as this would provide the kind of pressure she cannot muster internally to get her CEO to approve such an effort.23

But shareowner activism as traditionally practiced in the United States is in great peril, as the Securities and Exchange Commission has issued two separate rulemaking proposals addressing shareowners' access to the proxy to file resolutions. Both float suggestions that could seriously curtail shareowners' rights. This is an instance where regulation could stifle the growth of sustainable investing. In response, the Social Investment Forum and ICCR launched a Web site encouraging investors to use the public comment period to oppose any rules that would shrink share-owner rights. The site generated almost 1,700 comments, which contributed to the more than 22,500 comments submitted, a record according to the SEC—all but a handful of which opposed both SEC proposals curtailing investor rights.24

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