Shareholder Activists

Investing in stocks is a risky business, but at least there are ways you can choose or leverage your investments in order to pose less environmental and societal risk. Two Christmases ago, Anne Wallace McAndrews, a writer and high-school teacher in Long Beach, California, and her sister started giving each other small gifts of stock rather than a sweater or scarf. "Very small is all we can afford," says McAndrews with a laugh, "but it's great to be looking out for ourselves and our children." Asked whether she'd like to combine that with looking out for the environment and our health, McAndrews replies, "That would be ideal. But can it be done?" It can, indeed. Even small shareholders are becoming a positive force for change, both by investing in socially responsible companies and by making companies more responsible through shareholder activism.

Socially Responsible Investments (SRIs)

In 1996, $476 billion was invested in SRIs, according to The Green Money Journal (GMJ). SRIs should continue to grow, writes Eric Leenson in GMJ, citing "...the increasing awareness among economists that development must be sustainable." SRI mutual funds or private money managers screen or support companies based on client preferences. Criteria frequently cover the environment (is the company engaged in sustainable farming and food production, pollution prevention, recycling, conservation?); employee and community relations; and types of products or services (frequent screens include tobacco, alcohol, firearms and other weapons, nuclear power and oil).

What is Shareholder Activism?

As part-owners of a company, shareholders have voting power and the right to offer their own ideas for what a company should do. Acting in concert, they wield the power of their combined votes. Even small investors such as Anne McAndrews can help redirect a company's policy by voting their proxies for a shareholder resolution presented at the company's annual meeting. The rules are dictated by the federal Securities and Exchange Commission (SEC).

In order to sponsor a resolution, shareholders must have owned a minimum of $1,000 worth of stock for at least a year from the annual filing date (which usually falls in September or October). They may then petition the company's CEO for inclusion on the proxy statement, which lists all business to be conducted at the annual meeting.

In 1993, the Jessie Smith Noyes Foundation of New York City called upon Intel to disclose information to communities that would be impacted by factory expansions. "When we filed our first resolution, we had 100 shares," says Stephen Viederman, the foundation's president. The foundation had been alerted about possible water waste, pollution, and workers' health problems by the Southwest Organizing Project (SWOP), a Noyes grantee.

"Through resolutions, investors have engineered changes in corporate behavior regarding the environment, health, social justice and workplace issues," writes Beth Gilbert in Co-op America's 1997 Financial Planning Handbook. One of the most successful examples of shareholder-motivated change was the boycott of South Africa. Over 200 corporations passed shareholder resolutions to keep the pressure on Pretoria to abolish apartheid. In 1996, shareholder resolutions on human rights moved PepsiCo to agree to divest itself of its Burmese operations, and pushed Mobil to issue a report on its activities in Nigeria.

Green Proxies

In addition to promoting workers' safety and human rights, investors are also trying to make companies protect the environment. For example, shareholders are becoming particularly active against the use of chlorine in paper processing, which releases dioxins as a byproduct. Dioxins are carcinogenic, hormone-disrupting chemicals that accumulate in the fatty tissues of animals (see Green Guide #23). In 1997, shareholders of Procter & Gamble, Time Warner, International Paper and Union Camp plan to press these companies to phase out chlorine-bleached paper production and use. The Time Warner and Union Camp resolutions were co-filed in 1996 by Progressive Asset Management, Inc.(PAM) and other organizations, including the nonprofit Educational Foundation of America, and religious groups.

Increasingly, shareholders have been able to demonstrate that paying attention to the bottom line doesn't have to mean bottom-feeding--a company can be profitable and green. In "Environmental and Financial Performance: Are They Related?", a 1995 statistical study of S&P 500 firms, the Investor Responsibility Research Center finds that companies do not pay a penalty in terms of lost profits for good environmental performance.

Most remarkably, shareholder resolutions have moved General Motors to sign the CERES principles. CERES is a coalition of environmental organizations and social investment institutions. "The purpose of CERES is to change corporate behavior towards the environment," says Paul Freundlich, a CERES board member. He notes that SunCorp, BankAmerica, ITT and Bethlehem Steel have signed on, and "we're closing in on about 20 more Fortune 500 companies now." CERES will work with any company, so long as it tells the truth about its operations and its primary products are not fundamentally detrimental to the environment or health--which excludes tobacco and asbestos, Freundlich says.

Smoking Out Tobacco

Tobacco has become one of the most popular targets for shareholders to attack--with considerable success. Co-op America reports that, in 1996, "after five years of shareholder pressure," Kimberly-Clark agreed to spin-off its tobacco business. In a shareholder resolution coordinated by the Interfaith Center for Corporate Responsibility (ICCR), 37 percent of shares were cast in favor of spinning off RJR Reynolds' Nabisco foods from its tobacco operations. Also last year, in response to shareholder resolutions, 3M announced that it will no longer accept tobacco advertising on its billboards. For 1997, resolutions are planned to urge Eastman Chemical to sever its tobacco arm, and to stop H.B. Fuller, a manufacturer of industrial adhesives and chemicals, from selling to or servicing the tobacco industry. Shareholders will also seek to make Wendy's, Kentucky Fried Chicken and Pizza Hut restaurants smoke-free.

Social Responsibility

Nike and Disney products, among those of many other American companies, are made abroad in sweatshops by contract (near-slave) laborers. The Working Group on Nike, a coalition of shareholders, human rights and religious groups, has brought a shareholder resolution asking Nike to respond to charges of inhumane conditions, substandard wages and union-busting in its Indonesian plants. Nor can Haitian workers sustain a living on the 28 cents an hour they're paid for turning out Disney-licensed clothing--while Disney CEO Michael Eisner made $7,100 an hour in 1995. One resolution brought by Disney shareholders and PAM in September 1996 asked the company to provide a comparison of executive compensation with both the lowest and average wage for contract workers. Another resolution asked Disney to improve contract labor wages and treatment under monitoring by human rights groups. Later this year, on behalf of shareholders of Walmart, PAM will be proposing a similar resolution about contract labor standards. Also of note: The U.S./Guatemala Education Labor Project is asking Starbucks Coffee shareholders to demand that the company implement a code of conduct that would improve working conditions and wages for coffee plantation laborers in Guatemala.

Votes and Public Awareness Keep the Pressure on Management

Transformation of company policy doesn't happen all at once. Legally, shareholder resolutions aren't binding, even if they get 100 percent of the shares. It helps to be tenacious; resolutions can be reintroduced, provided they receive enough votes: three percent in the first year, six percent in the second year, and ten percent thereafter. This April, for a second time, RJR Nabisco shareholders and ICCR filed a resolution calling upon the corporation to end its Joe Camel cigarette ads, "because we feel they encourage children to smoke," says Tim Smith, executive director of ICCR.

On the other hand, sometimes shareholders will put resolutions on hold if there are signs of a company's good faith attempts at change. "We withdrew our resolution in December 1995 after Intel began sharing information with the community," Steve Viederman says. "They have initiated contacts fairly regularly over the last year, which suggests you don't have to be very big to get their attention." However, he adds, despite the company's good-faith showing in many areas, SWOP has thus far found Intel's economic reports to be inadequate, and may reintroduce the resolution. Jean Gauna, director of SWOP, says she believes in the effectiveness of shareholder resolutions as "a step towards corporate accountability to the communities in which they are located."

Concerned about sweatshops, Ann McAndrews says she's buying a share of Disney so that she can receive the annual statement and vote on resolutions. "You have to get inside so you can get to them," she says. Meanwhile, she's urging a friend who owns a lot of Disney shares to cast her proxies in support of PAM's resolutions this year.