Proxy proposals seek concessions on sustainability issues

Mar 19, 2014
<p><span>This could be a banner proxy season for votes about sustainability reporting, corporate disclosures of political contributions and related activities.</span></p>

Of the 417 shareholder proposals on environmental and social issues that had been submitted by the time the new Proxy Preview report was released in early March, 12 percent focused on sustainability, 30 percent on political activity, and 19 percent on climate and energy use.

Among the sustainability proposals, 26 ask companies to start publishing annual sustainability reports about issues ranging from environmental practices to diversity policies. Three of these proposals were withdrawn after companies agreed to comply. In addition, seven proposals request that companies require sustainability reports from their suppliers, and three of these have also been withdrawn. And of the 50 proposals concerning lobbying activities, 15 have been withdrawn, according to the report.

The rising number of shareholder proposals around social and environmental issues and the larger votes these proposals are garnering at annual meetings each year indicate that more mainstream companies are recognizing the value of sustainable governance, according to Michael Passoff, CEO of Proxy Impact, a proxy advisory startup that co-authored the report together with As You Sow and the Sustainable Investments Institute.

‘To corporate secretaries it’s clear the social resolutions are here and are going to keep getting larger and they need to focus on their bottom line,’ says Passoff. ‘There have been changes in how companies talk to shareholders. A lot of corporate secretaries get that. They can get a lot of withdrawals if they’re not as antagonistic [toward activist shareholders].’

Some industries are more open to meaningful conversations with shareholders than others, Passoff observes, citing food manufacturers as an example. One issue that shareholders at food companies have been more insistent about this year is political campaign spending. A new kind of proposal that’s been filed at eight companies is asking food manufacturers to suspend the political contributions they’ve been making to defeat state ballot initiatives concerning labeling genetically modified foods. Proxy Preview notes that these proposals are in the minority; most of the political spending proposals are merely asking for increased disclosure. 

In 2013, 26 states had ballot initiatives calling for food companies to label products containing GMOs, and the Grocery Manufacturers of America and other trade groups put up $70 million in an effort to defeat them. California’s initiative was narrowly defeated with a 51-49 percent vote; Connecticut and Maine have already approved such proposals, although neither has taken any action toward implementation; and the Center for Food Safety, a non-profit opposed to GMO foods, expects at least two additional states - Colorado and Oregon - to include the issue on their ballots this year. Given the looming threat of a backlash against companies that fight such ballot measures and the likelihood that these measures will come back repeatedly, it’s fair to wonder how often companies will be willing to spend as much as $70 million to defeat them, Passoff says. 

The question is all the more relevant in light of data showing companies’ growing wariness of the risks associated with support for trade associations such as the American Legislative Exchange Council (ALEC), a tax-exempt 501(c)3 non-profit organization that gathers state lawmakers in attempts to have them adopt model legislation written by companies. Shareholder proposals are asking 24 companies to disclose their membership in and contributions to ALEC, and more than 70 companies have already terminated their membership due to mounting controversy over the organization, according to the report. 

So, while it’s clear that willingness to engage with shareholders increases the odds that proposals will be withdrawn, the lesson here is that companies need to be prepared to negotiate and make concessions when they meet with activist investors. Because some issues aren’t going away.

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