At the April 30 annual meeting of shareholders of technology firm EMC, Walden offered strong words of praise for EMC’s robust goal to address greenhouse gas (GHG) emissions. The company committed to achieve an absolute GHG reduction of at least 80 percent by 2050, the target that the Intergovernmental Panel on Climate Change reports is necessary to avoid the most catastrophic impacts of climate change. Few companies show similar leadership.
Yet, we also commented that few companies have caused such consternation about a fundamental shareholder right. EMC sued individual investor proponents, James McRitchie and John Chevedden, in an attempt to exclude a resolution they had proposed calling for an independent board chairman, even though most corporate governance experts believe that this board structure represents best practice. The U.S. District Court in Massachusetts did not agree with EMC, and Walden was pleased that the resolution ultimately appeared on the ballot. At the meeting we expressed alarm about the use of enormous firepower to thwart a shareholder’s right to raise a legitimate governance matter via the proxy resolution process. CEO Joseph Tucci and other representatives of the board and management assured us that such litigation would not be the new norm.
In the face of other prominent challenges to shareholders’ right to file proxy resolutions (see Déjà Vu article), as well as at least three other similar company lawsuits against Chevedden (from Chipotle, Express Scripts, and Omnicom), Walden assisted NorthStar Asset Management in organizing an investor coalition letter to express strong concern to management of the four companies. Express Scripts, the only company to win its lawsuit, responded that it had provided opportunities for the proponent to correct inaccuracies and submit a revised proposal.
Walden’s 2014 Resolutions
Walden attempts first to engage in a dialogue with management at portfolio companies on significant environmental, social, and governance (ESG) matters, but filing shareholder proposals has also been an essential tool. Filing a proxy resolution often opens the door to successful negotiations that lead to its withdrawal before appearing on a ballot.
In 2014, we sponsored 26 shareholder resolutions on behalf of all clients: Nine seeking sustainability reporting, seven addressing GHG emissions, six requesting greater lobbying transparency, two on recyclability of packaging, and two advocating more inclusive nondiscrimination policies (see Summary of Walden’s 2014 Shareholder Resolutions). Of 20 resolutions led or co-led by Walden, 11 were withdrawn after significant company commitments. To date, voting support for resolutions not withdrawn has ranged from 8 percent to 40 percent (several meetings are pending), results that should encourage continued dialogue across the board.
Outside the Proxy Process
ESG progress is evident at several companies where multi-year conversations with investor coalitions have continued into 2014.
In April, Apple provided an update on labor standards and practices in its supply chain, continuing a discussion that began in 2011 after egregious problems were uncovered at a major supplier in China (Foxconn). Apple continues to build its monitoring and compliance program, as well as its partnership with the Fair Labor Association. Audits increased by more than 50 percent from the previous year (to approximately 450 audits) and now reach five levels deep in the supply chain. More than 1.5 million workers have had training on workers’ rights. Violations of the 60-hour workweek are a primary concern, yet compliance is now at 90 percent. Apple also developed new standards to address concerns about employment of student interns.
With members of the Interfaith Center on Corporate Responsibility, we are addressing serious business ethics and risk control breaches that in 2013 led JP Morgan to commit to pay tens of billions of dollars to settle an array of charges brought by regulatory agencies (covered in our Winter 2013 Values newsletter). In February, JP Morgan agreed to publish in the fall a comprehensive report for investors on risk mitigation initiatives and actions to prevent recurrence, a much-needed step toward greater accountability and transparency related to the various controversies.
In April, the work of McDonald’s formal stakeholder advisory team, which included Walden, concluded with the company’s publication of its first Corporate Social Responsibility/Sustainability Framework, as well as a report highlighting ESG progress in 2012 and 2013. The framework establishes McDonald’s sustainability vision and goals across five areas: Food, Sourcing, Planet, People, and Community. We commend management’s vigorous “2020 aspirational goals,” including: