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Research & Advocacy in Action by Heidi Soumerai, Director of ESG Research, and Marcela Pinilla, ESG Research Analyst From the Summer 2010 issue of ValuesAs summer begins we leave behind the high season of company annual meetings where stockholders introduce and vote on shareholder resolutions on environmental, social, and governance (ESG) topics. (See Summary of Walden’s 2010 Shareholder Resolutions.) For Walden, this is just one point on the continuum of portfolio company engagement, which often spans many years and employs multiple approaches to encourage more sustainable business practices.
Summary of Resolutions
To date this year, Walden has led or co-led 16 shareholder resolutions addressing corporate ESG performance. Of these, nine were withdrawn after reaching substantial agreements with the companies and seven went to a vote. We also co-filed five resolutions with other investors.
What leads Walden to withdraw a resolution? We look for significant improvement in a company’s policies, practices, or transparency related to the ESG topic in question. Such progress is exemplified in our withdrawals this year: Baldor Electric, Credo Petroleum, and Time Warner Cable agreed to initiate or expand ESG disclosure and public reporting. Team updated its policy on corporate social responsibility. Expeditors International and Watts Water Technologies amended their director nomination processes to address explicitly gender and racial/ethnic diversity in the director selection process. Colgate-Palmolive and Procter & Gamble strengthened accountability on executive compensation by agreeing to provide shareholders an advisory vote, known popularly as “Say on Pay.” Finally, PepsiCo announced its intention to boost U.S. industry container recycling rates (for PET plastic, glass and aluminum containers) to 50 percent by 2018 (from 32 percent today) through industry partnerships, consumer programs, and other initiatives with U.S. bottlers, suppliers, communities, governmental entities, and nongovernmental organizations.
When votes went to ballot, shareholder support for Walden’s resolutions was strong, ranging from 17 percent (requesting State Street to separate the positions of board chair and CEO) to majority support of 60 percent (asking Layne Christensen to produce a sustainability report)—an unprecedented result for a sustainability (or ESG) reporting resolution. Walden’s Say on Pay resolution at Walt Disney also won majority support. Certainly, shareholders are sending an unambiguous signal that investors value good ESG performance and better accountability.
Progress through Dialogue
Strong voting support in one year often leads to constructive dialogue and action in the next. Walden did not file repeat shareholder resolutions on Say on Pay at several companies that provided the advisory vote this year including General Mills, Hain Celestial, and Microsoft. Shareholder leverage in company dialogues is amplified when institutional investors work in coalition. In January, over two dozen investors joined Walden—including large pension funds such as TIAA-CREF, public retirement systems of California and Connecticut, and AFSCME; faith-based investors; and mutual fund companies and investment firms—in an open letter to 18 major financial firms asking them to voluntarily provide shareholders with Say on Pay. Nearly all (16 companies) implemented the advisory vote, including some that were not required to do so given that they had paid back Troubled Asset Relief Program (TARP) funds.
Sale of BP
Along with so many others, we are horrified by the human, environmental, and economic devastation being wrought by the blowout of the Deepwater Horizon drilling rig operated by BP in the Gulf of Mexico. Previously, in February, we sold the bulk of BP shares in Walden accounts where there were no significant tax consequences because our internal assessment concluded that the company demonstrated a continuing pattern of safety violations. The decision was informed by the Occupational Safety and Health Administration’s strong rebuke of BP in the fall of 2009, resulting in a record $87.4 million fine, for failing to address adequately the hazardous work environment that led to the fatal explosion at its Texas refinery in 2005.
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