Shareholder
Advocacy
Shareholder
advocacy background
Shareholder
Advocacy is defined as the process of
using your power as a shareholder to influence
corporations on particular issues or actions.
It is usually carried out by institutional
investors such as foundations, mutual and
labour funds, trusts, investment pools and
pension funds. But individuals can also be
active shareholders. The process usually
includes one or more of these three
steps:
1.
Corporate
engagement. This is the process of meeting
or communicating with corporate management to
attempt to persuade management to modify
corporate behaviour on the issues or actions
of concern. As an investor, you can engage
with corporate management through meetings, or
communication by telephone, letter or other
means.
2.
Shareholder
proposals. In some cases, you may want to
use your rights as an shareholder to persuade
other shareholders to pass a resolution
mandating that management take certain
actions. This is done through the shareholder
resolution process.
3.
Divestment.
If corporate management is adamant that it
does not want to heed your wishes as a
shareholder, you may want to consider selling
your shares as a way to show the managers your
displeasure with their lack of action.
Divestment
is also a means to maintain that your
portfolio is ethically consistent with the
views of your members or other stakeholders
who feel strongly about the issue or action.
Shareholder
action can make companies more responsive to
changing external conditions, adding to
long-term profitability and sustainability.
For
example, UK-based Pension Investment Research
Consultants
argues strongly that the 1997
shareholder action against Shell at its 1997
annual general meeting was instrumental in
persuading company management to adopt a more
enlightened human rights policy in Nigeria and
a sustainable development policy, which, among
other things, has led to a substantial
investment in renewable energy. PIRC
maintains that these changes have “put the
company in a stronger position over the long
term to achieve its commercial objectives as
an energy company.”
Recent
successful shareholder campaigns in the US
also demonstrate this point:
·
Home Depot announced an environmental
wood purchasing policy and stated that it
would eliminate its practice of buying three
species of old-growth timber from endangered
forests by 2002. At an annual meeting three
months earlier, 12 percent of shareholders
sent a clear message by asking the company to
develop a plan to stop selling old-growth
wood. This
action clearly positions Home Depot as a
responsible supplier of wood, positioning it
for future growth in this market.
·
After one year of dialogue with
shareholders about their resolution, Baxter
International, the World's largest health-care
products manufacturer, has agreed to look for
alternatives and to phase out polyvinyl
chloride (PVC) materials in its intravenous
products. During Manufacture and incineration,
PVCs release dioxin. Two hospital corporations
–- Universal Health Services and Tenant
Healthcare -– have also agreed to research
alternatives to PVCs.
It is expected this action will reduce
the risk of legal liability associated with
these products as well as protect the company
against declining market demand.
·
RJ Reynolds has agreed to separate its
tobacco business from its food business, which
shareholders have been encouraging the company
to do for years. This will reduce the
“tobacco discount” being applied by
investors in shares of RJ Reynolds’
non-tobacco businesses, allowing them to
realize their full value.
·
McDonald's has agreed to implement a
sexual orientation non-discrimination policy.
Trillium Asset Management and the Pride
Foundation co-filed this resolution, which was
withdrawn after the company agreed to enter
into dialog over the proposal. This will make
McDonald’s more gay and lesbian positive,
improving employee morale as well as reducing
the risk of litigation.
·
Since 1996, shareholders have been
asking General Electric to clean up toxic PCBs
in the Housatonic River in western
Massachusetts. A number of forces, including
government agencies, were brought to bear on
GE, and shareholder resolutions were
instrumental in calling attention to these
polluted areas. In October 1999, GE agreed to
spend $150 million to $250 million cleaning up
a stretch of the Housatonic River that was
polluted by PCBs decades ago. While the action
will result in a direct bottom-line hit to the
company, it reduces the risk that a potential
court order could have in requiring the
company to make an even bigger cleanup.
When investors align their interests with
other major stakeholders, such as communities,
environmental advocates, workers and
customers, a powerful coalition is formed that
can serve to reform corporations. Management
does not always see the wisdom of this
approach. Blinded by history, tradition and
self-interest, corporate management often
opposes such measures, arguing that they are
impractical or too expensive. But shareholder
advocacy can give clout to stakeholder voices
that would otherwise be silent or ignored.
