It’s that time of year when investors get to make demands of US corporations – and it’s actually a chance for constructive dialogue

The shareholders are getting restless. As times have become tougher and the future less certain, company boards are coming under closer investor scrutiny.

In the US, the trend of increasing shareholder activism becomes apparent during the annual “proxy” season, when shareholders put forward resolutions in response to company proxy statements. In 2006, 377 shareholder resolutions were voted on at the annual meetings of Fortune 250 companies. By 2011, the number had more than doubled to 788, according to figures compiled by thinktank the Manhattan Institute.

The 2013 US proxy season is now under way, with its high point in April because most companies close their accounts on December 31 and hold annual meetings in the spring. According to a report jointly prepared by US research firm the Sustainable Investments Institute (Si2), campaign group As You Sow, and shareholder advocacy consultants Proxy Impact, US public companies will face 365 shareholder resolutions specifically on ethical issues this year, up from 345 in 2012.

Heidi Welsh, Si2 executive director, says the US proxy season is “like a formal dance” between companies and shareholders. There is a “fairly low bar” to take part. Shareholders can propose resolutions if they have held stock worth $2,000 for one year, making shareholding attractive for individuals or groups seeking to push greater environmental and social sustainability.

More detail

In most ethical resolutions, “the request is for disclosure in more detail”, Welsh says. The largest share of 2013 ethical resolution proposals – 33% – push companies to be more transparent about their spending on political lobbying. Other prominent issues are disclosure relating to climate change, and publication of information on environmental risks, such as use of chemicals, minimisation of packaging, and animal welfare. Issues such as non-discrimination, and workers’ and human rights feature less prominently.

Political lobbying concerns often dovetail with environmental and social issues, Welsh says. Shareholders want to check that companies are not making ethical claims while quietly “exerting undue influence” over environmental or social laws.

Prominent among this year’s resolutions are attempts to persuade oil companies to consider the contradiction between their activities and tackling climate change. ExxonMobil, for example, faces a call to “factor climate change into its models for measuring, pricing, and distributing risk if it continues using its current business model that depends almost exclusively on fossil fuel production”.

Welsh says some see the proxy season “as an adversarial process”, but companies should not fear pushy shareholders. Many issues are dealt with in dialogue between companies and shareholders, and consequently the associated resolutions do not make it to a vote.

“For companies, it is an opportunity to talk to shareholders, and it makes public both the issue and the company’s response,” Welsh says. “Many shareholder resolutions are part of campaigns by large institutional investors that want business sustainability, including environmental and social sustainability.”

Allie Rutherford, associate director of the Corporate Governance Centre at management consultants Ernst & Young, agrees the proxy season is not a one-way street. “Many companies are using engagement to understand investor concerns, secure support for management proposals, and possibly mitigate exposure to shareholder proposals or activism,” she says. “Engagement will continue to have a role in the governance landscape – but practices and expectations will continue to evolve.”

corporate governance  stakeholder engagement  Stephen Gardner  USA 

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