Socially Responsible Shareholdership in Canada
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Corporate Engagement


Corporate engagement is a matter of concerned shareholders and other stakeholders entering into a productive dialogue with a company's strategic and operational decision-makers. The aim of this dialogue is to expand the criteria on which corporate decisions are based, to go beyond the usual financial influences to also include social and environmental effects on the corporation's "bottom-line". Intangible benefits of being socially responsible, such as recognized leadership, a positive corporate image, and avoidance of costly problems are not as easily valued as more concrete economic factors associated with 'business as usual', but are significant factors in the ongoing prosperity of a company. Stakeholders, and active shareholders in particular, need to encourage management to broaden their considerations and focus more on the long-term intertwined good of both the corporation and society. Management must be reminded that failure to pay adequate heed to any externalized, harmful effects of corporate activity could well result in lower profits due to fines, lawsuits, cleanup costs, bad publicity, and shareholder divestment.

Corporate engagement can be done on an informal basis, with an occasional telephone call or luncheon date with the CEO or other senior manager, but this generally works only for those investors who have developed personal relationships with key decision-makers. In this Handbook, we encourage a more formal approach, with emphasis on careful planning and documentation.


Researching the issue - sources of information

 One of the first things to do after identifying a corporate issue that requires intervention is to obtain as much pertinent information about it as possible. This means doing research on the policy or activity, how it affects stakeholders, what impacts it has on company finances, and what possible actions are required to resolve the issue. There are many sources of such information, including newspapers, databases, the Internet and corporate performance research companies, but one of the main sources will be the company itself.


the company

The three primary sources of information in a company are: the Office of the Corporate Secretary, the Investor Relations department and Public Relations department. Together they will be able to provide a number of important documents:

Office of the Corporate Secretary

Companies are required by law to maintain the following documents, and provide shareholders with free access to them, or to third parties for a reasonable fee (in the case of publicly traded companies):
Investor Relations

Every publicly-traded corporation will have staff responsible for dealing with investors. In addition to fielding questions related to investment, they will generally provide the following documents upon request:
Public Relations

Larger companies, in particular, will have a public relations person or department, whose role is to deal with the media and individual members of the public. There may be some overlap with Investor Relations, but these items of information can usually be obtained from this source:

citizen and stakeholder groups

 Many issues that come to the attention of shareholders have been negatively affecting stakeholders for a long time. In some cases, local citizens will have formed an organization to deal with a company-specific problem, such as a leaking toxic waste dump or layoffs due to a plant closure. In other cases, an existing national or international advocacy organization will choose to target companies for more general social concerns, such as climate change or workplace discrimination. Some of these advocacy groups will be corporate "watchdogs", concentrating on issues pertinent to an industrial sector, such as banks or the oil and gas industry. At both local and national levels, research may already have been conducted, the results of which are usually for public dissemination. It is a good idea to contact citizen and stakeholder groups, not only to obtain their research findings, but also to establish a working relationship to promote corporate dialogue, and to keep an eye on the issue as it evolves.


government

 Government regulations exist that force companies to keep and/or submit periodic records of certain activities that affect the public interest. These include such things as amount and type of toxic wastes produced, and where they are stored or treated, e.g. the National Pollutant Release Inventory (NPRI). Government agencies also keep track of corporate infractions of the law and the fines imposed on them.

One of the more useful sources of corporate information is SEDAR (the System for Electronic Document Analysis and Retrieval), which is the system used for electronically filing most securities related information with the Canadian securities regulatory authorities. Accessible via the Internet, it allows users to access public company and mutual fund information in the public domain. Another online resource is the Corporations Database Online, a database of information on federally incorporated companies maintained by the Corporations Directorate of Industry Canada. Many Canadian companies sell shares in the United States, and so must also file with the Securities Exchange Commission's online EDGAR system.


corporate researchers

 For those active shareholders who do not want to take the time to do their own research, there are professional research companies specializing in assessing corporate behaviour according to indicators of social and environmental responsibility. These firms, such as Michael Jantzi Research Associates or EthicScan, have tracked hundreds of corporations in Canada over many years, resulting in a database of corporate profiles that show how each company measures up to a variety of performance standards. These standards are also the basis of the 'screens' by which a socially responsible investor decides if the company is worth considering for investment. Clients using these services can expect to receive a full report on a company outlining its strengths and weaknesses in such areas as environment; community and employee relations; gender and ethnic diversity; involvement with the military; and production related to nuclear energy, alcohol, gambling, tobacco or pornography.


online sources of information

 Many of the information sources mentioned in this section make good use of the Internet to provide access to their data. A number of pertinent documents can be found in electronic format on the websites of the corporations, advocacy groups, and media. A quick way to start collecting information is to use the Internet search engines, e.g., Google, keying in the company name or issue-specific words or phrases. Surfing through the results may provide references to other groups with similar concerns, as well as countless numbers of articles and reports. To deal with a potential glut of information, put some thought into the creation of a filing and bookmarking system for the online resources you discover. This compilation of information and its sources may also prove useful as part of a website you might create to inform other shareholders about your initiative.


Corporate dialogue process

Beginning the dialogue

 The corporate dialogue begins by sending a letter to the CEO, the Chair of the Board of Directors, and the Corporate Secretary of the company. State who you are, your status as a shareholder, why you're concerned, and what you want from the company. Ask for a response in writing. Call afterwards to ensure your letter was received. After one month, if you get no reply, call the Corporate Secretary (or the designated corporate liaison) and ask when (or if) a response will be forthcoming. If you are rebuffed, or are dissatisfied with a standard PR response, send a second letter (by fax this time, as well as regular mail) reiterating your concerns and questions, and stating that you will pursue the shareholder resolution option if the company does not provide direct answers to your concerns. This will usually prompt some action.

Upon receiving the company's considered response, if you deem it to be inadequate, it is time to mail a written request for a meeting with the CEO (generally Boards of Directors are only contacted as a final resort, or unless, due to the nature of the problem being addressed, it is strategically preferable to contact the Chair first). Should the company suggest that you meet with someone other than the CEO, such as a vice-president or manager, you may or may not accept, depending on your strategy. You are not likely to make much headway if you meet only with the Public Relations personnel, however, so try to meet only with people who have the decision-making power to initiate the change you desire. Mention that the meeting is important to clarify key facts with the company, to avoid misunderstandings. To encourage prompt action on their part, ask to meet before a certain date, again stressing the possibility of resorting to the shareholder proposal mechanism, the threat of which will generally increase their attentiveness.


Preparing to meet

 Once a meeting is agreed to, and the logistics worked out, you must draft a written agreement on the format and agenda of the meeting (which is generally done after verbal consultation with a company representative, and some of which is not finalized until the beginning of the actual meeting). State who will be attending as representatives of your organization, and any third parties such as expert witnesses. Try to have as many people in your contingent as they will have in theirs, in order to minimize any sense of intimidation. Note in the agreement that you will take notes and afterwards share them with your associates, as well as send them back to the company, for comments. In a correspondence memo with the Corporate Secretary, include the agreement as the 'ground rules' for the meeting, and assure confidentiality by stating any notes taken will not be made public. Company managers will appreciate this effort at privacy, and will likely be more candid in the talks if they feel they won't be subject to possible misrepresentation in the media. In engaging in corporate dialogue, increasing mutual trust and respect should be one of the outcomes sought by both parties.


Meeting with management

 The meeting will usually take place at the company offices. Try to avoid being confrontational, as the managers may already be suspicious and resentful of 'outsiders' trying to tell them what to do. Having done your research, you will be thoroughly familiar with the problem, and able to separate fact from opinion. You will make a presentation on your perception of the situation, perhaps bringing in an expert researcher to assist, and make the case for any needed changes. Any summaries of facts and figures, or reports, should be given to the company to ensure accuracy. The company representatives will generally present their side of the story, and suggest what they may be prepared to do, if anything. Negotiations will ensue, and the means and timetable for satisfactorily resolving the issue may or may not be agreed upon by meeting's end.

The timing of the first meeting is important. Management wants to be able to 'handle' an issue, so if you approach them only just before the deadline for filing a resolution, they may think you are not interested in dialogue with the company or in moderating your position. You should therefore try to leave a sufficient amount of time for on-going discussions, and assume that it may take two or even three meetings before everything is clarified and stances are set. But remember not to allow negotiations to continue past the resolution deadline without filing, or you will have to wait another whole year before taking that route should dialogue break down.

If the company thinks you will be raising the issue with all the other shareholders, the senior managers will try to ensure that you understand their perspective, and that you have your facts straight. Be aware, though, that while dialogue can help sway them to address your concerns, it also leaves you open to being manipulated. If they know your arguments beforehand, they will have time to devise effective counter-arguments to be made to other shareholders in the proxy circular and AGM, should you submit a resolution. This is one of the trade-offs of pursuing a strategy of engagement in which the 'stick' of a shareholder proposal is used only as a final resort after dialogue breaks down.


After the meeting

 No later than ten days after the meeting, send the Corporate Secretary the draft notes taken and request feedback on them. After receiving their comments, re-write the notes and flag any items that are in disagreement, recording as footnotes in the final document the company's version of what was said or understood.

At this point, you may feel confident that the company will begin implementing changes in their policy or procedures, and all that is required is a monitoring of progress to ensure the changes take place. But it is more likely that the company has not yet made a final commitment, in which case another round or two of meetings will be needed. If on-going discussions do not result in any acceptable compromises or actions, the company should be notified that you intend to file a shareholder resolution.

Note that in some circumstances where there is a good rapport with corporate managers, the introduction of a shareholder proposal need not be seen by them as a hostile act. They may welcome a proposal in order to gauge the reaction of the stockholders, to ensure that they won't be censured for moving in what they might agree is a new, but potentially prudent direction.


Limited Resources?

Too many companies in your portfolio to meet with them all? If you don't have the time or resources to engage in dialogue via meetings, focus on writing letters on a frequent basis. Though not as immediately effective perhaps, over time and in sufficient numbers it can make a difference. Another way to focus your limited resources is to choose a small number of companies that you feel are priorities for direct intervention and take the time to go the meeting route with them. This can be quite an efficient tactic, especially if coordinated with others in a supportive investor network, as evidenced by the many campaigns coordinated by the Council of Institutional Investors (CII) in the US.

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