SOCIAL TOPICS (Archive): INTERNATIONAL SOCIALLY RESPONSIVE INVESTING

Published, November 2000

       Social investors have embraced the diversification benefits of international investing but are grappling with the challenge of how to effectively carry out their advocacy objectives abroad. Many have felt overwhelmed by differences in company bylaws, levels of disclosure, proxy voting procedures, shareholder rights, and government regulations pertaining to employment and environmental practices.

       Indeed, challenges to effective international shareholder activism are real. Shareholder rights vary from country to country, particularly as they pertain to the shareholder resolution process. Many countries limit access to company proxies via the resolution by requiring ownership thresholds that are too high for most investors, ranging from 1 percent (Germany and Japan) to 5 percent of outstanding shares (France). Furthermore, restrictions are sometimes placed on what types of issues can be addressed. In Japan, ballot items must concern profit allocation, election or compensation of directors or statutory auditors, selection of public auditors, or amendments to the articles of association. Finally, there is the cost hurdle. In the U.K., for example, a company may require petitioners to deposit funds to cover the cost of circulating notices and shareholder statements.

       Walden is working hard to surmount these barriers. Our greatest successes have come outside the realm of shareholder resolutions. We have modeled our approach after, and partnered with, strategic shareholder groups in Europe that have a long history of involvement. For example, we have worked with the Critical Shareholders Group of Germany (DKAA), which has addressed concerns on social issues through private dialogue, counterproposals on the proxy agenda (in lieu of the ballot), voicing concerns at annual general meetings (AGMs), and through the German courts.

       Learn the rules of the game. Armed with knowledge of country specific markets, one can better maneuver through the maze of different rules and regulations.

       Develop global proxy voting guidelines and vote your proxies. Walden incorporates best board practices, such as independence and accountability, as well as social issues in our country-specific proxy guidelines. For example, we automatically vote against director slates with no disclosure of professional affiliation or ties to the company, and, in the U.K., if the board consists of less than one-third nonexecutives.

       Pursue alternatives to the shareholder resolution process. Letter writing, surveys, face-to-face meetings, and partnerships with nongovernmental organizations (NGOs) and local shareholder groups form Walden’s core approach to company dialogue. This is consistent with our U.S.-based activism, which favors dialogue over proxy resolutions unless we reach an impasse. Letter writing is most effective when addressing a specific issue, such as investment ties to the China Development Bank, which funds the Three Gorges Dam in China. A survey of Walden’s top 20 Japanese holdings inquiring about their policies on director and statutory auditor independence and board size received an 80 percent response rate. Visits with company management outside the U.S., particularly when accompanied by a local partner, have helped us establish ongoing relationships with a number of companies.

       Develop a network of local partners to gain legal representation at AGMs. For example, Walden’s representation in France at the 2000 AGM of Imerys by the PACE labor union helped workers campaign successfully for union representation (see sidebar). In 1999 DKAA represented Walden in Germany at the Hypo Vereinsbank’s AGM to voice our shared concern about the flooding of arable land and the displacement of farmers resulting from the construction of the Maheswhar Dam in India.

       We have reason to be optimistic. Emerging abroad in support of corporate social responsibility is a new regulatory environment, such as the recently enacted Turnbull Code in the U.K. that requires companies and pension funds to address social and environmental concerns. We also observe a sizable increase in social investors and funds in the U.K., France, and Germany. No doubt, these factors have contributed to a higher level of company receptivity on issues ranging from social and environmental criteria in project financing at Credit Suisse, to sexual harassment prevention at Astra AB, to alternative energy commitments at British Petroleum. The creation of a blueprint for international shareholder activism is well underway at Walden.