INVESTMENT & ECONOMIC ANALYSIS: Summer 2003

SOCIAL TOPICS (Archive): INVESTMENT & ECONOMIC ANALYSIS  

Published, Summer 2003

What has happened to the “typical” company annual stockholder meeting? Isn’t it the occasion for management to demonstrate its PowerPoint prowess with feel-good business presentations and to proclaim overwhelming shareholder approval as the proxy results are announced?

Not anymore. This proxy season investors are casting more votes for shareholder resolutions, or against management, on social issues and corporate governance reforms than in any previous year. Record levels of support of 20, 40, 60, even 80 percent have been realized on topics from climate change risk to equal employment opportunity polices, from stock option expensing to annual election of directors. The 10 percent threshold¾once extolled by shareholder advocates as the level of significant support because it allows continued access to the proxy¾has yielded to new measures, including majority support. Investor passivity and indifference to proxy responsibilities has seemingly vanished, and corporations should take notice.

American Electric Power (AEP) is the largest electric utility and consumer of coal in the country, and the industry’s highest emitter of carbon dioxide. At its annual shareholder meeting, 26.9 percent of shareholders called for AEP to report on the risks of greenhouse gases and other emissions and the benefits of a substantial reduction in such emissions. At Cooper Industries, 44.3 percent of voting shareholders supported a resolution requesting a "sustainability report," double the vote of a similar proposal in 2002. Sustainability reporting incorporates comprehensive social and environmental monitoring along with financial information. At many annual meetings, shareholder majorities have supported new resolutions requesting companies to expense stock options; not doing so contributed significantly to misleading financial statements and fueled excessive executive pay.

This growing investor disquiet has also benefited Walden-led initiatives. At New York-based Dover, 42.8 percent of voting shareholders in April backed Walden’s request to amend its nondiscrimination policy to explicitly include sexual orientation. As with Cooper, this vote is among the largest ever in favor of a shareholder proposal on a social issue when management recommended voting against the proposal. The vote sends a strong signal to management that shareholders care deeply about Dover’s reputation for inclusiveness and its ability to attract employees from the widest pool of talent. With 9 out of 10 of the Fortune 100 explicitly prohibiting discrimination based on sexual orientation, and with the Sexual Orientation Non-Discrimination Act enacted in New York State last December, Dover would do well to heed this non-binding appeal from its owners. A similar Walden-led initiative at FedEx led to its adoption of an inclusive policy without going to the proxy¾a much more decisive victory for employees, shareholders, and ultimately, for FedEx.

Our Avon resolution requesting annual election of each Board member instead of staggered (or classified) elections, which aims to increase director accountability, was favored by 80.5 percent of shareholders. One of the highest votes in U.S. corporate history, this "post-Enron era" support signals that shareowners are exercising their rights and responsibilities to press diligently for better governance and greater corporate responsibility. Avon CEO Andrea Jung noted a "groundswell" of support for the annual election of directors and committed the Board’s Governance Committee to a serious review of the issue. In his presentation at the Avon meeting, Walden’s Tim Smith read from Pfizer’s 2003 proxy statement in which that company acted to repeal its staggered board: "All Directors should be equally accountable at all times for the Company’s performance and that the will of the majority of shareholders should not be impeded by a classified board…. Because there is no limit to the number of terms an individual may serve, the continuity and stability of the Board’s membership and our policies and long-term strategic planning should not be affected."

Active investors are being heard. Indeed, they are redefining the "typical" annual meeting. –H. Soumerai