Proxy battles include efforts to get companies to give all employees sick leave, and to provide more transparency on carbon emissions
Many analysts of proposals tied to ESG issues thought last year’s epic proxy battle pitting startup activist investment firm Engine No. 1 (with $250 million in assets under management at the time) against one of the world’s biggest companies, Exxon Mobil (with a market capitalization at the time of $265 billion) was a landmark. Now they are anticipating more fireworks as emboldened investors push forward with a longer, broader and deeper array of shareholder proposals.
“Formerly patient capital has become impatient” and more willing to support or even propose what once would have been revolutionary changes, says Paul Washington, executive director of the Environmental, Social and Governance Center at the Conference Board, a research group.
The Apple resolutions
This year’s annual meeting of Apple Inc.
shareholders in March shows how the winds are shifting. A majority of Apple investors supported a resolution requiring the board to hire a third party to undertake a “civil rights audit” of issues at the company including pay equity, leadership diversity and others. In opposing the proposal, Apple said in its proxy statement that it “already fulfills the objectives of the proposal in several ways, including through impact and risk assessments, active governance and Board oversight, engagement with our communities and key stakeholders, and regular, transparent public reporting.”
By a slimmer margin, a majority of Apple shareholders also voted in favor of telling the board to study how the company’s alleged use of concealment clauses in employment contracts affects the reporting and oversight of harassment and discrimination. “Every employee has the right to discuss their wages, hours and working conditions, and this is included in our business conduct policy,” Apple said in its proxy statement, opposing this proposal as well.
It is too soon to determine whether the success of those resolutions is a harbinger or an outlier. The proxy season won’t end until June. What is already clear, however, is that the number of shareholder initiatives is on the rise. The Interfaith Center on Corporate Responsibility, a group of institutional investors that advocates for including social values in corporate decision making, reported that its more than 300 members had filed nearly twice as many shareholder resolutions by early March of 2022 as they did during the whole proxy season last year.
Moreover, the number of resolutions being filed addressing new topics has more than doubled, it said. For instance, the state pension funds of Connecticut and Rhode Island want Mastercard Inc.,
to evaluate how the credit-card company handles transactions involving unregistered firearms, including kits used to make so-called ghost guns. In its proxy statement, Mastercard, which opposes the proposal, said the company takes “a vigorous approach to ensuring that only lawful purchases, including only lawful firearms purchases, are permitted on our network.”
The SEC’s role
Regulators laid the groundwork for a broader range of shareholder initiatives at this year’s annual meetings.
The Securities and Exchange Commission last November released a staff bulletin spelling out a new approach to deciding whether or not a corporate board can simply not present a proposal to shareholders for their verdict. Since the 1970s, regulators had taken a broad view of what questions addressed “ordinary business operations” or asked CEOs to micromanage their companies, and thus could be excluded from the proxy. Now, the SEC says companies should generally present for a shareholder vote any questions raising “issues with a broad societal impact.”
When Boston-based Trillium Asset Management asked CVS Health Corp,
to give all employees—including part-timers—access to paid sick leave, the drugstore chain pushed back, asking the SEC for permission to omit the proposal from its proxy. Regulators ruled against the company, telling CVS that the proposal “transcends ordinary business matters because it raises human capital management issues with a broad societal impact.” A vote is scheduled for May 11. In its proxy statement opposing the proposal, CVS noted the array of healthcare benefits it offers its employees and said it has offered paid sick days to part-time employees during the Covid-19 public-health emergency declared by the federal government.
Apple isnt the only tech giant being pushed by shareholders. Meta Platforms Inc,
(the parent company of Facebook) faces a dozen proposals from various shareholders, including one that calls on the board to prepare a report analyzing why the company has been “ineffective at controlling the dissemination of user content that contains or promotes hate speech, disinformation, or content that incites violence and/or harm to public health or personal safety.” In its proxy statement, Meta opposed the proposal, saying it has 40,000 employees working on safety and security issues, and that “our actions demonstrate we do not put profits ahead of safety.”
Among the resolutions Amazon.com Inc,
shareholders will vote on is one that asks the board to examine and report on the company’s position on collective labor bargaining—hard on the heels of the first successful unionization drive at an Amazon facility. The proposal points to what shareholders describe as a “misalignment” between public statements and reality on this issue, and raises the question of the potential for reputational damage as a result. In opposing the proposal, Amazon said in its proxy statement that “our policies afford employees the freedom to form or join a labor organization” and engage in collective bargaining.
In an example of racial issues coming to the fore, shareholders at Maximus Inc.,
approved a resolution in March calling on the board of the company—which provides administrative support for key government programs, including Medicare and Medicaid—to undertake an audit of racial equality. The measure was presented to shareholders at the annual meeting by a Black employee from Louisiana. Maximus opposed the proposal and said in its proxy statement that it launched a companywide diversity, equity and inclusion initiative 18 months earlier and conducted a third-party audit in 2021 that resulted in the hiring of two more people for its diversity, equity and inclusion team and the implementation of new education programs for employees. In commenting for this article, a Maximus spokeswoman said the company is “committed to continuing to act on the findings of this initial audit, and build on this work to further analyze and improve our business through a racial equity lens.”
“This year is kind of a test case,” says Kate Monahan, director of shareholder advocacy at Trillium. “If these pass, or win significant support, then it opens up the door” to still more proxy proposals of this kind next year.
Ms. Monahan also expects more resolutions requiring companies to demonstrate that their lobbying, supply-chain management and other operations comply with their statements of support for controlling carbon emissions. “I’m also seeing a lot of interest in related topics, like supporting biodiversity,” she says.
Investors are concerned about the impact of climate issues on companies’ bottom lines, says Chuck Callan, senior vice president of regulatory affairs at Broadridge Financial Solutions, which oversees and administers the proxy-voting system for clients. “Institutions are saying there is risk on climate issues, and we need you folks to quantify that for us to evaluate what is going on,” he says. “The question now goes past, ‘What is your strategy?’ to, ‘Are you appropriately managing your business model?’ ,
For a sign of what might lie ahead, investors and corporate directors keep a keen eye on the topics that come up for debate in Europe, which has been in the vanguard when it comes to ESG issues. For Robeco, the giant Dutch asset-management firm, climate remains a priority, but Carola van Lamoen, head of sustainable investing, says Robeco’s efforts to influence corporate behavior are becoming more targeted. This year, for instance, Robeco is advocating for better management of natural resources such as fresh water, and maintenance of biodiversity.
The growing support of asset management behemoths like Robeco, BlackRock Inc,
Vanguard Group and State Street Corp.’s
State Street Advisors for initiatives made by activists like Trillium is causing companies to take notice. Larry Fink, CEO of BlackRock, adopted a notably blunt tone in his annual letter to corporate CEOs and directors in mid-January.
“Access to capital is not a right. It is a privilege,” Mr. Fink said in the letter. Board members who aren’t accountable not only to shareholders but also to other stakeholders—employees, customers, suppliers and communities—risk losing investor support, ESG analysts say.
the negotiation route
The new push by investors on the ESG front means that companies have a…
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