An Investment Advisor’s Guide to Shareholder Advocacy

bunsundesigns April 4, 2015

AS I STOOD WITH SWEATY PALMS IN MY NICELY PRESSED SHIRT and faced the board of directors of Apple Inc., which included the CEOs of Avon Products, The Walt Disney Company, and J.Crew (along with Al Gore), at the Apple Inc. shareholder meeting, I stood proud knowing that, because of an ownership position of stock in this company, the largest company on the planet, I was able to explain to the board and CEO Tim Cook that Apple may have to keep a closer eye on workers’ rights issues in China. When you have Tim Cook’s full attention, well, it’s an interesting feeling to say the least. You may be asking, “Well, how in the world did you get to be in that position?”

Own any shares of stock in a company? Congratulations, you are part owner of that company. Once a company commits to “going public,” it is giving up some ownership of the company to the public. Sounds simple right? Buying shares that trade on the NYSE or NASDAQ is really just another form of crowdfunding that allows the owners of stock to buy or sell shares via a marketplace. One of the added benefits of owning shares is that it actually gives you a voice in how that company may be handling certain matters through the process of submitting a shareholder proposal.

Shareholder proposals can involve a myriad of different topics, from human rights to animal rights, from executive compensation to toxic waste (and some CEOs’ salaries that may seem like toxic waste), from fur products to cage-free eggs. Approximately 400 shareholder resolutions were filed in 2014 – that number having doubled in the past few years.

Some recent examples of these shareholder proposals include:

• Asking JPMorgan Chase to report on how it considers greenhouse gas (GHG) emissions in its financing practices.

• Asking First Solar and Urban Outfitters to have more women and minority representation on their executive boards.

• Asking Dean Foods to adopt a policy on phasing out the practice of dehorning cattle.

A shareholder proposal can be brought forth if the owner of that stock has at least $2,000 worth of stock and has held the stock for one year or more. No, you do not have to be billionaire activist Carl Icahn to influence corporate behavior, though I assume he gets a bit more of executives’ attention. Owning a mutual fund or an exchange traded fund (ETF) does not give you the right to file, which is one reason why owning individual stock positions is actually making a comeback. Investors want to know what they own and want to exercise their ownership position. Once a resolution is considered material to the value of the company, the Securities and Exchange Commission (SEC) allows the proposal to be placed in the proxy statement, which then lets every shareholder vote “against” or “in favor” of the proposal. On top of this, the proponent is given approximately five minutes to speak at the annual shareholder meeting, and it can be quite the thrill to have the CEO and board staring you down.

Do these proposals really do anything? It is very rare for shareholder resolutions to win the support of the majority of shares voted at company annual meetings. Moreover, most shareholder resolutions filed are non-binding, meaning that even if they gain a majority of votes, the company need not comply with their requests. Despite this, these proposals can make serious change. I would have to imagine that if 25 or 30 percent of shareholders want a company to adopt a policy on cage-free eggs or on how to cut water usage, then the executives and board will be chatting about this at Monday’s morning meeting. There are many examples of change being implemented following a shareholder proposal. For instance, Best Buy implemented a recycling take-back program years ago due to an individual shareholder asking the company to do so.

I’m reminded of a black and white image from the 1960s of a person holding up one of those old shareholder ownership certificates making a statement at an annual shareholder meeting. Perhaps we will go full circle and that black and white image will turn color as investors realize they have the power to influence corporate behavior even here in 2015.

Dale Wannen is President of Sustainvest Asset Management, an independent investment advisory firm based in Northern California that specializes in socially and environmentally responsible investing, helping clients meet their financial goals without having to sacrifice their morals. He can be reached at [email protected]


Stakeholder Capitalism
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