Research & Advocacy in Action
by Heidi SoumeraiFrom the Summer 2009 issue of Values
June marks the end of "proxy season" for most companies, a period that began six to nine months earlier when concerned shareholders filed resolutions on environmental, social, and governance (ESG) topics to be introduced at company annual meetings in the spring. What makes this year unique is the season’s overlap with the nearly unprecedented financial market and economic upheaval. Within this context, would shareholders be apt to view ESG matters as important or frivolous? Would companies argue that the economic climate trumps all such considerations?
Walden’s experience is unambiguous: Regardless of the path of engagement—dialogue, resolutions voted or withdrawn—we are pleased to continue to observe significant interest in and progress on ESG performance and accountability.
Walden led, or co-led with clients or other investors, 19 resolutions on corporate governance, environmental, and workplace policies and practices (see Summary of Walden's 2009 Shareholder Resolutions). Over half were withdrawn because negotiations produced meaningful results. Five companies committed to commence or expand ESG reporting, three granted shareholders an advisory vote on the compensation of executive officers (known as “Say on Pay”), two developed vendor standards that address agricultural suppliers, and one company adopted a more inclusive nondiscrimination policy.
To date, of five resolutions that have been voted, two won majorities (both on Say on Pay) and two more garnered greater than 40 percent support, including one that was among the highest votes ever for inclusive nondiscrimination policies. By any measure, these votes signal substantial mainstream approval that should be hard for management to ignore.
The Power of Dialogue
Walden files shareholder resolutions, which are unavoidably high profile, when we believe that companies are not sufficiently responsive to specific concerns or we have reached an impasse in our engagement. Yet quiet behind-the-scenes interactions with responsive companies can be just as effective in encouraging more sustainable business practices.
Exposés on the use of forced child labor and abusive working conditions in Uzbekistan’s cotton fields, along with allegations of complicity on the part of the Uzbeki government, prompted Walden to follow up with companies with potential exposure. Timberland's response was laudable. The company sent a letter in April to all of its licensing partners with textile-related products pronouncing an expectation that “factories producing Timberland product will not knowingly source textiles from suppliers that source cotton from Uzbekistan,” and requiring a list of cotton suppliers along with certification “of strict notice of this prohibition.” Vendors with an unsatisfactory response will be reevaluated.
Along with Pax World and Calvert Asset Management, we wrote Costco to encourage greater transparency on equal employment opportunity (EEO), in part because of an ongoing class-action discrimination lawsuit. In its March response, Costco reported plans to increase diversity reporting on its corporate website and provided detailed EEO statistics on the racial and gender composition of its workforce (now also on the website). This high level of disclosure reflects positively on Costco’s EEO commitment and enables us to observe its progress over time.
We inquired about product packaging and recyclability of plastics used in AptarGroup and Green Mountain Coffee products including our specific concern about PVC plastic that can contaminate the recycling stream. AptarGroup confirmed it uses a very small amount of PVC plastic in two products that are being discontinued this year. Green Mountain also updated its progress on product packaging challenges, reporting that a specific product line we questioned did not contain any PVC. Both companies are strengthening product life-cycle analysis to further reduce their environmental footprints.
Numerous recent Walden initiatives on sustainability reporting attest to the efficacy of constructive dialogue. Illinois Tool Works, New Jersey Resources, Under Armour, and Watts Water Technologies all initiated or expanded ESG reporting. At the invitation of Walt Disney, Walden joined Disney’s stakeholder review team, which provided feedback on the company’s first comprehensive corporate responsibility report, published in February.
Clearly, despite the tough economic environment, and often because of it, pressure to strengthen corporate responsibility and accountability is on the rise. By and large, companies with which we have contact seem to get that and are responsive.
The information contained herein has been prepared from sources and data we believe to be reliable, but we make no guarantee as to its adequacy, accuracy, timeliness or completeness. We cannot and do not guarantee the suitability or profitability of any particular investment. No information herein is intended as an offer or solicitation of an offer to sell or buy, or as a sponsorship of any company, security, or fund. Neither Walden nor any of its contributors make any representations about the suitability of the information contained herein. Opinions expressed herein are subject to change without notice. The writings of authors do not necessarily represent the views of Walden Asset Management, its parent, or affiliated entities. There are certain risks involved with investing, including various risks depending on the type of investment vehicle being used.
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