Full Contact Investing
In the spring of 2008 dissident shareholders of the Exxon Mobil Corp. urged the company to adopt a proposal that would separate the titles of chairman and chief executive officer. At the time Rex W. Tillerson held both jobs and the board of directors believed that was best for the company.
The shareholders, who included several descendents of John D. Rockefeller, whose Standard Oil Company was the predecessor of Exxon, and a number of asset management firms and pension funds, first tried to negotiate with the board.
Unsatisfied they had the proposal included among a slate of resolutions to be voted on at the company’s annual meeting.
All of the shareholders believed that though Exxon had been delivering good returns for its investors in recent years, the company’s record was still lacking in its response to climate change. The shareholders felt that an independent chairman would diffuse “over-dominance by management.”
The Exxon shareholders fight is an example of a segment of a public company’s owners who take action to change a company’s behavior, even if the return on their investment is already acceptable. Essentially they wanted the company doing more to improve the environment because they, as owners of the corporation, were not satisfied.
Shareholder activism is one of the three basic strategies of socially responsible investing, including screening and community investing. Of the three, it’s the approach that involves the most communication between equity owners and a company’s management. By exercising their proxy vote, attending annual meetings, corresponding with management and submitting resolutions, socially responsible investors can make their priorities known to the directors and managers of their companies and try to influence corporate behavior.
The impetus for a shareholder action can vary. An investor might discover after the fact that a company in which it owns stock was acting in a manner contrary to their principles. They might learn of a poor record with the environment or questionable corporate governance. Rather than simply sell their stock, the investors would act to correct the problem.
In other cases, shareholder activists might identify a company that has ties to a government known for its human rights violations. To pressure the company into severing its ties, the activists will acquire stock and begin a campaign.
Just as socially responsible investing is growing in popularity, $2.71 trillion in total assets under management used at least one of the three SRI approaches at the end of 2007, so too has the evidence of shareholder activism for social change. According to the Social Investment Forum the average level of shareholder support for resolutions on social and environmental issues rose 57 percent from 2005 to 2007, from 9.8 percent to a record high 15.4 percent.
But resolutions are not the first step in shareholder activism. A shareholder dialogue, which is a discussion or a negotiation between management and a shareholder or a group of shareholders, can often produce the changes desired by investors. Not only can it be less confrontational, but the relationships built from the dialogue can lead greater communication between management and shareholders in the future.
But when the dialogue fails to produce the results the activists seek, they’ll draft a resolution to be voted on at the next annual meeting. There are specific rules designed by the federal Securities and Exchange Commission one must follow to file a shareholder resolution. The shareholder must own at least $2,000 worth of the company’s stock and have held it for more than a year. The proposal can’t be more than 500 words. It should be submitted before the company’s proxy statement materials are created and the shareholders submitting the resolution needs to attend the annual meeting.
Even following the rules doesn’t guarantee the resolution will be voted upon. Company management can urge the SEC to reject the proposal using one or more of 13 different reasons available under SEC regulations. If the SEC agrees with management, the proposal is kept out of the company’s proxy materials until the reason it was rejected is corrected.
Large shareholders with the time and resources to commit to preparing a resolution, use it often. Domini Social Investments filed 19 shareholder resolutions for the 2008 proxy season, for example, including 11 in which it was the lead filer. According to the Social Investment Forum, institutional investors that filed or co-filed resolutions on social or environmental issues in 2007 controlled $739 billion in assets.
Individual investors who want their voice to be heard on corporate matters can take other approaches.
The shareholders, who included several descendents of John D. Rockefeller, whose Standard Oil Company was the predecessor of Exxon, and a number of asset management firms and pension funds, first tried to negotiate with the board.
Unsatisfied they had the proposal included among a slate of resolutions to be voted on at the company’s annual meeting.
All of the shareholders believed that though Exxon had been delivering good returns for its investors in recent years, the company’s record was still lacking in its response to climate change. The shareholders felt that an independent chairman would diffuse “over-dominance by management.”
The Exxon shareholders fight is an example of a segment of a public company’s owners who take action to change a company’s behavior, even if the return on their investment is already acceptable. Essentially they wanted the company doing more to improve the environment because they, as owners of the corporation, were not satisfied.
Shareholder activism is one of the three basic strategies of socially responsible investing, including screening and community investing. Of the three, it’s the approach that involves the most communication between equity owners and a company’s management. By exercising their proxy vote, attending annual meetings, corresponding with management and submitting resolutions, socially responsible investors can make their priorities known to the directors and managers of their companies and try to influence corporate behavior.
The impetus for a shareholder action can vary. An investor might discover after the fact that a company in which it owns stock was acting in a manner contrary to their principles. They might learn of a poor record with the environment or questionable corporate governance. Rather than simply sell their stock, the investors would act to correct the problem.
In other cases, shareholder activists might identify a company that has ties to a government known for its human rights violations. To pressure the company into severing its ties, the activists will acquire stock and begin a campaign.
Just as socially responsible investing is growing in popularity, $2.71 trillion in total assets under management used at least one of the three SRI approaches at the end of 2007, so too has the evidence of shareholder activism for social change. According to the Social Investment Forum the average level of shareholder support for resolutions on social and environmental issues rose 57 percent from 2005 to 2007, from 9.8 percent to a record high 15.4 percent.
But resolutions are not the first step in shareholder activism. A shareholder dialogue, which is a discussion or a negotiation between management and a shareholder or a group of shareholders, can often produce the changes desired by investors. Not only can it be less confrontational, but the relationships built from the dialogue can lead greater communication between management and shareholders in the future.
But when the dialogue fails to produce the results the activists seek, they’ll draft a resolution to be voted on at the next annual meeting. There are specific rules designed by the federal Securities and Exchange Commission one must follow to file a shareholder resolution. The shareholder must own at least $2,000 worth of the company’s stock and have held it for more than a year. The proposal can’t be more than 500 words. It should be submitted before the company’s proxy statement materials are created and the shareholders submitting the resolution needs to attend the annual meeting.
Even following the rules doesn’t guarantee the resolution will be voted upon. Company management can urge the SEC to reject the proposal using one or more of 13 different reasons available under SEC regulations. If the SEC agrees with management, the proposal is kept out of the company’s proxy materials until the reason it was rejected is corrected.
Large shareholders with the time and resources to commit to preparing a resolution, use it often. Domini Social Investments filed 19 shareholder resolutions for the 2008 proxy season, for example, including 11 in which it was the lead filer. According to the Social Investment Forum, institutional investors that filed or co-filed resolutions on social or environmental issues in 2007 controlled $739 billion in assets.
Individual investors who want their voice to be heard on corporate matters can take other approaches.
- Know your company well. Check its web site regularly for company announcements. Check its investor relations page for quarterly and annual filings with the SEC.
- Carefully read the company proxy materials sent before the annual meeting. They’ll include resolutions that the company or other shareholders have submitted and upon which individual owners can vote.
- Carefully read material provided by mutual fund managers. Understand how the managers of funds that hold your money are voting on environmental or social resolutions.
- Attend the company’s annual meeting if possible. You would have the right to be recognized and speak on a resolution.
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