Ethical Performance
inside intelligence for responsible business


a battle for proxy access has been won, but the war is far from over

December 2007

Last month, socially responsible investors in the US relaxed in the knowledge that the Securities and Exchange Commission was not, after all, going to kill off advisory resolutions and votes (see page one), following howls of protest from aggrieved investors. But this was just one battle in a long-running war. Last month’s retreat by the securities market regulator is a tactical one.

We have been here before. The SEC has attempted to rewrite the proxy access rules on earlier occasions, with limited success.

Shareholder activism has been one of the key planks of socially responsible investing since the early 1970s. It has improved the social, environmental and ethical performance of US companies. In recent years activists have scored notable victories, prompting companies to improve their reporting practices, introduce environmental management systems and strengthen labour standards in supply chains.

There are signs that companies are now starting to listen. One measure of this is the number of resolutions filed and then later withdrawn. In 2007 this has risen, mostly after the target companies had agreed to fully implement the proposals, sending a clear message to other companies.

But a much bigger game is being played. Institutional investors, who dominate the market, want greater proxy access so they can influence the nomination and removal of directors. Compared with this issue, votes on social and environmental issues are small beer. The danger is that non-binding shareholder resolutions become a negotiating chip in the struggle for who controls access to the boardroom of the world’s biggest companies. If the SEC allows investors greater rights to nominate and remove directors, bringing the US into line with international practice, it may offer to scrap proxy access for non-binding social and environmental resolutions as a consolation prize to business interests.

To avert this, the SRI community needs more big guns on its side. Those institutional investors already supportive must draw others into the fold, in particular from outside the US – one in five shares in US companies are held by foreigners. The time is right: climate change is transforming investor awareness. Proponents should stress that any loss of proxy access is a right lost to all investors, not just socially responsible ones.

Meanwhile in the UK, the Companies Act offers the prospect of a new tool for shareholder activists, who are looking closely at procedures for launching so-called ‘derivative claims’. These have yet to be tested. But with the prospect of fresh skirmishes on proxies in the US and legal challenges in the UK, 2008 looks like being an exciting year for companies and shareholders alike.


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