Shareholder resolutions 2015

Recently I had the opportunity to work with several of our partners on shareholder resolutions. At Natural Investments we believe shareholder activism is an essential part of using your money to make an impact and help push for a more just and prosperous company.

Shareholder activism is a simple concept, though it can be complex both in its practice and in how we determine success. When you own a share of a company you are a part owner. As a part owner you are allowed to file resolutions—similar to proposing a ballot referendum in your county or state. In some cases, the dialogue with management that we have at this point becomes the foundation for achieving our goals, even without a shareholder vote.  If the Board of Directors decides to put it to a vote, it gets placed on the annual shareholder proxy ballot. Ballots are mailed out to all owners of that company and a vote is taken.

We strongly believe that we are more effective when we work with collaborators with similar interests—including other financial managers, institutional investors, trade organizations. Together, we decide which companies we might file resolutions with and what topics they might cover.

At the company’s annual meeting the shareholder votes are tallied; before that the person who brought the resolution is allowed to make a brief statement. Sometimes the resolutions revolve around corporate governance (how much CEOs are paid), others are workplace related (affirmative action plans for management), and some are purely environmental or socially based (asking a company to cut their water use in half or expanding maternity and paternity leave for employees).

Avid readers of the Natural Investments newsletter may remember that last year we worked with Walden Asset Management on a resolution for RPC. Our request was that the company produce a sustainability report and release it publically, or at a minimum to shareholders.

Last year the resolution did not receive a majority of the votes but we considered it a success for two reasons. First of all it raised awareness amongst the leadership. Second it began a dialogue between the management of the company and the socially conscious investors. Walden and RPC talked during the year and while no direct action was taken it was a fruitful conversation and helped to build the relationship in advance of this year’s resolution.

When we brought the same resolution again, it received a higher percentage of the vote compared to last year. We are very happy to see this – it means that people outside of the traditional SRI space have seen the resolution and changed their minds! With limited resources it is hard to tell exactly what created this bump in shareholders supporting the resolution. As long term investors we believe in repeated actions—over time shareholders often warm to the ideas we are presenting. Given that 2014 was the first time RPC ever had a shareholder resolution filed we also believe there was some skepticism as to our intentions. By continuing a dialogue and coming back a second year we made it clear that we are seeking meaningful engagement.based on our firm belief that it’s in the company’s best interest to adopt the resolution; companies seeking to improve their sustainability reporting tend to perform better in the long term. As more and more shareholders understand this we think the positive response will only grow.

Later in the spring I got to work with another activist on a resolution targeting Home Depot.  The two resolutions we brought didn’t focus on environmental issues but around corporate governance.  Currently the CEO is also the Chairman of the Board of Directors and we think this presents a serious conflict of interest. Our resolution called for these positions to be separated so that when the Board is evaluating the CEO’s performance it isn’t nearly as biased as it currently is.

Once again the resolution did not receive a majority but it did receive a larger portion of the vote then we expected, which sent a strong message to management that we hope will lead to some movement on this issue in the future.

Now that the season for shareholder activism has died down we will begin planning for next year! As always feel free to reach out if there are certain issues you would like to see us focus on for future shareholder resolutions.

This article first appeared in the Fall 2015 edition of the Natural Investment News

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Brady Quirk-Garvan

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