Why an SRI pioneer feels that ‘the time is right’July 2009
Mike Scott talks to Walden Asset Management’s Tim Smith, who’s in bullish mood about changing attitudes to to risk and, more specifically, issues such as excessive executive pay and global warming
In the world of US shareholder activism, Tim Smith is a big name – as is the company of which he is senior vice president, Boston-based Walden Asset Management.
With the proxy voting season in the US having now largely drawn to a close, Walden has filed close to 100 shareholder resolutions this year, mainly as part of its ‘Say on Pay’ campaign on executive pay.
Say on Pay promotes a system similar to that in the UK, where companies have to ask shareholders for approval of their pay packages. However, the system has come in for some criticism in the UK because the vote is non-binding and many investors have been reluctant to vote against recommendations for fear of ‘rocking the boat’.
Smith recognises that it is not a panacea, but says it would improve on the current situation in the US, where the only option is to vote down the proposed board members something he describes as ‘a pretty blunt’ instrument.
‘We think the pay system in the US needs reform,’ says Smith. ‘There is a link between compensation policies and the way a company is run. Investors – as owners of companies – have an important role in communicating the need for change.’
Smith believes the momentum is now with investors such as Walden that have been pushing for change in this area for some time. Anger on Main Street has focused on executive pay, which has expanded out of all proportion to company performance. ‘In the US, there has been a rapid spiral of pay and bonus increases for executives, which continues even at this time of market crisis and tremendous lay-offs,’ he says .
‘The government is focusing on this as never before and any company that has taken government money is required to have it. The time is right.’
But executive pay is only one of a dozen issues Walden considers as part of its investment strategy, from climate change to child labour.
A pioneer of responsible investment since it was formed in 1975, it has around $1.4billion of assets under management and is not afraid to use its influence. ‘We are very active in advocacy,’ says Smith, who feels SRI issues are rising up the agenda because the financial crisis has highlighted the potential damage of risks of all kinds.
‘I’m very heartened that more and more companies seem to get it on climate change, for example,’ he says. ‘An increasing number feel that sustainable business practices really are important for shareholder value.’ Other SRI issues, such as diversity, remain difficult to value, but Smith argues that a growing number are becoming measurable.
He is also believes that a number of new risks are likely to present themselves in the next few years in ways that companies and investors will not always be able to anticipate. There is an increasing focus on political donations in the US, for example, while there will also be more emphasis on chemicals in products and their potential to harm consumers.
These two examples would seem to have little in common, suggesting it is difficult to generalise about how business should reduce its exposure to risk. However, Smith argues that a company with a considered approach to risk as a concept is likely to be better placed to deal with the unexpected. ‘It’s about being a smart strategic planner.’
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