Shareholder Activism in the Oilfields

One of the important items we work on behind the scenes at Natural Investments is Shareholder Activism. The idea is fairly simple – it’s the process of using our legal right as shareholders in a company to vote and try to influence the behavior of the companies we own.

Recently I had the opportunity to represent Walden Asset Management and other shareholders at the annual meeting of RPC, a company based in Atlanta, GA. Walden decided to bring this shareholder action for a simple reason. RPC had claimed to be adopting sustainable practices but they weren’t disclosing them publically. So while Walden (and many of us) would say that it’s good to be conscious about sustainability, the lack of disclosure to the shareholders and outside parties left us needing to know more specifics. You see, RPC is an oil field services company, involved in both exploration and maintenance, including emergency services. As you can well imagine, this is a field in which the specifics of their sustainability practices is of utmost importance.  You may also wonder why an SRI mutual fund holds such a company. The fact is that many SRI funds hold energy-related companies as part of their sector diversification strategy; and, as in this case, they often see their ownership as an avenue for making change.

For these reasons, Walden approached the RPC and said we would like to propose a shareholder resolution that company produce an annual sustainability report. Such reports were almost unheard of in corporate America 20 years ago but have now become common and even expected among major companies. Walden said that they believed in the company, and thought they were doing good work – but that the time had come to publicly disclose their sustainability practices.

Walden sent out the call to socially responsible advisors, as well as mutual funds, to see what kind of support they could rally. By the time I went to present before the board I was able to say that a significant number of shares were already supportive of the idea.

We presented the resolution and the votes were calculated. Unfortunately, we were not successful in passing the resolution but we were happy with the result. You may rightfully ask how we could be happy with a failure – but it is because of the process that was begun.

Typically shareholder resolutions like this don’t pass, since the bulk of shares are owed by investors who don’t necessarily share our values and concerns. We bring them up because we believe they address important issues, and because over time support grows for our cause, until the resolutions either pass or, more often, the board of directors see the value of the proposal and takes the action we want. An early example: in the 80’s many companies weren’t serious about recycling. Due to the action of SRI advisors, mutual funds, and shareholder activists a few companies began to take it seriously and eventually it became the corporate norm to have recycling programs built into their operations. Today, as Michael Kramer often shares in these pages, shareholder resolutions address a wide range of forward-looking issues.

In the case of RPC, this was the first shareholder resolution that had ever been presented to them! So while it didn’t pass it was a milestone. We brought a resolution and it received enough votes so that we can bring it up again next year (and we will). In the meantime, relationships have begun to grow. The company has held meetings with leaders at Walden to try to understand more about why they want this, and what it would look like in practice. This is exactly what we were hoping for: that RPC’s management would engage their sustainability efforts with more commitment, which includes getting up to speed on corporate best practices on reporting. We’re now in a much better position than we were in a year ago, and so is the company itself A year from now, I expect that both sides will feel they have moved ahead in a positive way.

This is a slow and tedious process, but it can have dramatic and genuinely impactful results. We like to think that this is one of the main reasons people enjoy working with Natural Investments – we not only work as financial analysts but as social activists pushing the companies you own to better reflect your values.

This article first appeared in the Summer 2014 edition of the Natural Investment News

Brady Quirk-Garvan

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