New research from the Sustainable Investments Institute shows sustainability related shareholder proposals have been filed at record levels.
Investors are holding companies more accountable for their environmental and social policies. New research from the Sustainable Investments Institute (Si2) shows just how vocal they have become.
According to Si2 research, 401 sustainability related shareholder proposals have been filed at U.S. companies in 2013, already topping last year's total of 393. Average support levels jumped from 18.4 percent in 2012 to 21.3 percent thus far this year. Si2 predicts support levels will exceed the previous all-time record of 20.1 percent set in 2011. Also climbing is the number of votes with high level support -- there were nearly 100 votes with support above 20 percent so far in 2013, up from 79 last year. A decade ago, the average vote was in the 10 percent range and fewer than 30 votes garnered more than 20 percent backing.
What do investors want?
Resolutions on board and workplace diversity, sustainability reporting and political spending disclosure topped investors' agenda. These three topics earned all of the top 10 votes so far, according to Si2, and continue to post the strongest support levels. Calls for disclosure on political spending was the strongest – accounting for nearly a third of all filings.
'The clear long-term trend is that a significant proportion of investors like the idea of disclosure about a whole range of environmental and social issues, and they will consistently vote in favor of more transparency. This is not a blip, and it's not going away,' says Heidi Welsh, executive director of Si2.
Most of the proponents value better, quantifiable information so they can compare companies, and that's what a lot of the proposals request, says Welsh. It's not only about transparency though.
'The results also show that there's sustained concern about making sure companies don't get entangled in discriminatory behavior, and about ensuring that boards are diverse enough to anticipate risks that might not be apparent in an old-fashioned clubroom. The big votes on diversity policies in the workplace and more women and minorities and boards underscore those themes. Even more telling is the high number of negotiated withdrawals for these types of proposals,' says Welsh.
A wake up call for companies
Withdrawals indicate there is some level of meaningful discussion. 'Boards and management are listening and in many cases negotiating and or agreeing to shareholder proposals. This trend will continue,' says Paul Lapides, director of the Corporate Governance Center at Kennesaw State University.
Listening isn't optional. 'Any company that isn't paying attention to transparency may find itself in the crosshairs, and that usually isn't very good for the bottom line. It's certainly not good for the brand, particularly if you are a consumer-facing one. Disclosures have to be comparable and meaningful, though – pretty pictures aren't enough anymore for the serious analyst,' says Welsh.
On political spending, the focus has expanded to a comprehensive interest in how companies 'play in the political sandbox, broadly defined – trying to affect election outcomes and also influence regulators and officials after elections are over. Critically, the focus is on intermediary spenders – trade associations and non-profit, social welfare groups that don't disclose their funders. There's so much public interest in this issue that companies need to be very careful about how they operate, making sure they consider all the ramifications of their spending,' says Welsh.
Firms need to get going on board gender diversity rather than just talking about it, says Cynthia Clark, director of the Harold S. Geneen Institute of Corporate Governance at Bentley University. 'Companies need to look at their board nominating procedures (and the firms they choose to hire), as well as their on-boarding of the women they do hire to get these numbers up. The absence of women is a risk management issue, as these hiring practices become more scrutinized relative to the recent disclosure requirements from Dodd-Frank.'
What's the message for companies? Says Welsh: 'Be as transparent as possible and make sure you think through how all your stakeholders will react. Businesses need a social license to operate, and it can be taken away. Don't denigrate shareholder proponents, because you might learn something new about your business and figure out how to better manage your risks and find new opportunities.'