With mainstream investors joining longtime activists, shareholder activism approaches a watershed.
This is shaping up to be a remarkable year for shareholder activism. Longtime activists are being joined in droves by mainstream investors who in the past have stood on the sidelines.
Leadership at Goldman Sachs, Citigroup and Wal-Mart have all been on the hotseat. Most recently, an unprecedented 13 percent of shareholders voted against Wal-Mart's CEO for board membership, and similar vote totals went against other key executives at the company in the wake of the Mexican bribery scandal.
Shareholders are upset about excess executive compensation and lack of transparency (as I reported recently) and want more action on sustainability.
Religious investors have long been in the forefront of the shareholder activism movement, beginning with the disinvestment campaign in apartheid South Africa in the 1970s, and efforts to get Nestle to stop targeting poor mothers in the developing world for their infant formula marketing. Many of those investors are part of the Interfaith Center for Corporate Responsibility (ICCR) coalition. I called up ICCR's executive director, Laura Berry, to get the organization's views on the current bumper crop of shareholder activism.
Laura Berry: I think that change has really started to accelerate in the last couple of years, but I think this year is really a watershed year. We're seeing an inflexion point for so much of our work. The shareholders are learning that they can demonstrate their outrage and the attention they are paying to value creation—and the lack thereof—through their votes on nonbinding shareholder proposals.
Pension Fund Fiduciaries Target Executive Pay, Board Elections, Political Contributions
Francesca Rheannon: What are the main arenas of activity?
Laura Berry: One of the more obvious areas is executive compensation, particularly with the recent failed executive compensation vote at Citigroup. We're also starting to see huge differences in how people are approaching how board members are re-elected. You may have heard or read about the New York pensions funds' decision to vote against some of the Wal-Mart board members in this election cycle. And then of course there is a lot of work going on in the area of political contributions. It's a response to the Citizens United decision and a concern about who has a voice and how is money being used.
So these are three of the areas that are starting to get a lot of momentum as pension fund fiduciaries see what longstanding social investors have worked on. They're starting to say, "This makes an awful lot of sense as a fiduciary; it makes an awful lot of sense in terms of value creation for our future beneficiaries—even though it's a nonbinding resolution."
Shareholders Demand Transparency on Political Contributions for S&P 500 Companies
Francesca Rheannon: You mentioned the Citizens United decision; ICCR is directly involved in defending investor rights to review corporate lobbying and political expenditures. Talk a little about those initiatives.
Laura Berry: Corporate actions both in lobbying and in supporting particular policy initiatives and candidates through the new SuperPac structure have been something that ICCR members as investor shareholders have been very concerned about for a long time.
Citizens United provided a framework for a certain amount of outrage. The Center for Political Accountability has been a real leader on this. It has been trying to address accountability and disclosure around lobbying efforts for quite a few years. Their goal is to have all 500 S&P 500 companies report on their activities in a very open and transparent way. And now there's a broad-based campaign to get all the S&P 500 to sign up to be open about how they lobby and what their political involvement is. We think it's extremely important.
Shareholders Demand Citigroup Disclosure on Executive Compensation
Was ICCR involved in the Citigroup executive pay issue?
How individual ICCR members voted, I can't say. ICCR is a coalition of member organizations that have their own investment policies and their own approaches to each specific company and issue. We organize, we convene, but ultimately the member investors, their chief investment officers, their policy advisors, make decisions about how various shareholder proposals are voted.
So our goal at ICCR was to insure that enough information was out there so that each investor could make a good decision. And I do suspect that more did look at that compensation package and voted with those who said, "This is over the top; this is inappropriate."
ICCR Tackles Issue of Transparency in the Repo Market
ICCR has been requesting greater transparency of the banks in the repurchasing markets and there have been some challenges at the SEC also. Could you talk about what's going on there?
For a decade before the near total collapse of the global capital markets, ICCR members were looking at the lack of disclosure, lack of transparency and, more broadly, lack of real understanding of how various debt instruments were used by financial services companies, whether it was collateralized debt obligations or simply the underwriting practices that led to insufficiently collateralized subprime debt. These created all of the problems that we experienced [in the collapse].
Our folks feel very strongly that the repo market, the repurchase market, is an area that is still insufficiently transparent and requires significantly more disclosure. And, frankly, it could be an area where new vulnerabilities emerge in our financial market system.
Therefore we have been pushing very strongly to have companies disclose their participation in these markets more fully. For a variety of reasons, those proposals were not put forward on proxy statements this year. They were challenged at the SEC. This year we were not successful in getting the issue on the ballot, but we will continue to develop the request in a way that will raise the issue for all shareholders.
The ICCR Perspective on the Occupy Movement
Since we last spoke there has been the Occupy and 99 percent movement. How does ICCR view this movement?
This goes back to my earlier comment, where I talked about reaching an inflexion point. We are reaching a place where citizen democracy is starting to infiltrate all kinds of areas that people weren't paying as much attention to in the past. The language around the 99 percent, the language about increasing income disparity and increasing asset disparity -- I think those conversations ask what do we, as a country and as a global market society, do with respect to increasingly concentrated wealth.
The first question is, "What do we think about it?" And the second question is "What do we do about it?" I think the power of the Occupy Movement has been to put this into the public conversation and give it a really recognizable tag line – "we are the 99 percent."
But I think it has also created citizen-owners who are now looking very closely at what they invest in and how they vote their proxies. They are looking to the companies that they may do business with as consumers or that they may participate in as investors -- or that they may, as young people, choose to work for -- and saying, "How are they part of the problem? How are they part of the solution? And what does that mean in my life for the choices that I make?"
Regular folks are starting to look around and say, "Wait a second. I might not own individual shares of company XYZ but I hope some day to get a pension that was promised to me during my working life. I hope to be able to retire with dignity some day."
ICCR and our members are really heartened by the conversation about what justice looks like; what sustainable investing looks like; how companies really create value for shareholders; and what their responsibility is in a democracy.