Research & Advocacy in Action

by Heidi Soumerai

Many, if not most, of Walden's interactions with companies to strengthen environmental, social, and governance (ESG) policies and practices span several years. Corporate change is often a slow and incremental process. Fortunately our investment approach, which favors long-term investment in high-quality companies, is compatible with the sustained engagement we emphasize. Still, emerging issues, shifting priorities, and new portfolio companies ensure that Walden’s work is never static.

What's New?

In recent months we have pursued several new opportunities to help advance sustainable business practices.

During much of the 2008-2009 economic and financial market upheaval, Walden avoided investment in the banking industry. With increased confidence that the worst is behind us, we are once again establishing a foothold in banks. Working with CANICCOR, an expert consultant on financial institutions and corporate responsibility, we are reaching out to J.P. Morgan and SunTrust on their process and progress in modifying loans to help homeowners avoid foreclosure. Rarely do we see an issue where the human and financial benefits of a vigorous and successful corporate response go so hand-in-hand.

We launched an initiative encouraging portfolio companies to consider separating the roles of CEO and Chair (See article “Separating Conjoined CEO-Chair Is Smart Governance,” in this issue). Generally considered a best practice by corporate governance experts, a separate and fully independent board chair helps minimize perceived or real conflicts of interest in management oversight while also freeing up valuable CEO time. More than 80 percent of the 35 companies we wrote to on this matter have responded, including Staples, whose representatives came to our offices to explore the issue together. Few, however, are embracing this governance reform.

Along with Pax World, Walden is leading a coalition of investment firms that collectively wrote to more than 100 small companies in the industrial, energy, and utility sectors to encourage greater ESG disclosure. We are taking the lead with more than 20 of those companies, three of which represent new company dialogues: Carbo Ceramics, Genessee & Wyoming, and Wabtec. We also filed a shareholder resolution seeking ESG disclosure at Baldor Electric, which was withdrawn upon the company's commitment to prepare a report.

A Walden representative sits on a newly formed PepsiCo stakeholder committee organized by Ceres, an organization that promotes continuous improvement in ESG performance and reporting, after the company became a signatory to Ceres last spring. At the first meeting in November, issue experts, investors, and more than a dozen senior representatives of PepsiCo addressed a broad range of topics including nutrition, sustainable agriculture, water conservation, greenhouse gas mitigation, supply chain standards, and extended producer responsibility.

Fall Resolution Results and a Look Ahead

The "Summary of Walden's 2009 Shareholder Resolutions" in our summer edition of Values identified four resolutions filed by Walden with annual meetings pending in the fall. Three requested a shareholder advisory vote to ratify the compensation of executive officers, known as Say-on-Pay, as a means to enhance director accountability on senior executive pay. Microsoft agreed to give shareholders the advisory vote in November, prompting the withdrawal of the resolution. Procter & Gamble and General Mills both went to a vote, garnering 46 percent and 51 percent support, respectively, demonstrating broad-based investor interest. A Boston Common Asset Management–led initiative asking Cisco Systems to assess steps it could reasonably take to avoid the likelihood of complicity in violations of human rights in countries with poor records, such as China, received support from 34 percent of voting shareholders.

We have also begun filing resolutions for the 2010 season. Companies receiving Say-on-Pay proposals sponsored by Walden and clients include Colgate-Palmolive, The Walt Disney Company, General Electric, IBM, and Johnson & Johnson. Resolutions requesting ESG reporting were filed at Baldor Electric (subsequently withdrawn after reaching an agreement), C.R. Bard, Credo Petroleum, Gentex, Layne Christensen, St. Jude Medical, and Time Warner Cable (also withdrawn after reaching an agreement). Single company resolutions were filed on political spending disclosures (AT&T), container beverage recovery and recycling (PepsiCo), separation of the CEO and Chair positions (State Street), and board diversity (Watts Water Technologies). A more complete picture of Walden's 2010 resolutions will be available at the end of the year.

Company News

Significant developments at companies held in many client portfolios include:

BP is challenging a record $87.4 million fine brought by the Occupational Safety and Health Administration (OSHA) for failing to adequately address the hazardous work environment that led to the fatal 2005 explosion at its Texas refinery.

Google, in partnership with an endangered Amazon tribe, is using Google Earth technology to track illegal mining and logging that threatens the group's self-sufficiency.

Intel announced it will cease to hold inperson shareholder meetings, moving to a virtual-only format in 2010. While applauding the expanded access that internet meetings provide, the Council of Institutional Investors and many others advocate maintaining a no frills physical meeting as well to safeguard shareholders’ right to raise issues of concern directly with managements and boards. Separately, Intel pioneered a comprehensive 2008-2009 corporate social responsibility report on Intel China using the Global Reporting Initiative’s sustainable development report guidelines.

PepsiCo recognized formally that access to water is a human right, a groundbreaking position as companies increasingly address water scarcity. Consistent with World Health Organization and United Nations principles, PepsiCo’s statement on water addresses safety, sufficiency, acceptability, physical accessibility and affordability.

Staples launched Carbon Canopy, an initiative attempting to create market incentives for private forest owners to embrace more sustainable forest management practices and increase carbon sequestration.

SYSCO, the leading U.S. food service distributor, announced a partnership with World Wildlife Fund to develop a strategy for sourcing seafood in a sustainable manner. Their work together will focus initially on SYSCO’s top 10 seafood species.