Ethical Performance
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US proxy set to stay central to corporate engagement – despite better dialogue

September 2012

Shareholder dialogue with US corporations is improving but Timothy Smith, of Boston-based Walden Asset Management, tells Robert Kropp that filing resolutions will remain a crucial element of engagement
 
 
It’s common knowledge that shareholders in the US and Europe practice corporate engagement differently. Europeans prefer quiet dialogue, while the first choice of action in the US has been going public with concerns through the filing of shareholder resolutions.
 
UN Principles for Responsible Investment (PRI) executive director James Gifford said in 2009: “There is a cultural difference between the US and UK on filing, with this tool being much more common in the US due to weaker shareholder rights leaving shareholders with fewer options, as well as a more confrontational corporate culture.”
 
But after years of often successful activism, do shareholders in the US now see a greater value in corporate dialogue? The experience of the Interfaith Center on Corporate Responsibility (ICCR), a network of faith-based institutional investors, would suggest it does. The 2012 proxy season marks the first time the ICCR has reported more corporate dialogues than shareholder resolutions. Its members, who have filed as many as 650 resolutions in a single proxy season, submitted only 160 this year, while engaging in 170 dialogues with companies.
 
But Timothy Smith, who served as ICCR executive director for 26 years, says the picture is more nuanced. Since 2000, he has been senior VP and director of ESG shareholder engagement for Boston-based Walden Asset Management.
 
He said: “Twenty-five years ago, companies viewed shareholder advocates with suspicion. There are still stories of companies that oppose shareholders being active, and tarring us all with the same brush.”
 
Yet, Smith said, addressing Gifford’s statement: “That kind of generalisation doesn’t give credit to the behind-the-scenes and less-controversial engagements with companies, such as dialogues, letters and sit-down meetings with stakeholders. Thousands of companies now strive to lead the ESG space. More companies have the experience and comfort level to engage with their shareholders.” 
 
As an example of improved dialogue, Smith pointed to meetings led by Ceres, in which stakeholders work with companies on continuous improvement and sustainability reporting. However, US provisions allowing shareholders to submit resolutions remains an important right, he said, adding that it is much harder for shareholders to do so in the UK and Europe. 
 
In fact, Smith said, the falling number of resolutions filed this year can be attributed in large part to successful legislative and regulatory initiatives addressing executive compensation. In 2010, the Dodd-Frank Wall Street Reform & Consumer Protection Act directed the US Securities & Exchange Commission to issue regulations allowing shareholders to vote on executive compensation packages proposed by management. “The issue didn’t go away, but the number of resolutions decreased. Because of say-on-pay, companies have had to engage with shareowners on executive compensation.”
 
Responsible investors in the US contend that robust legislation and regulation remain the most effective way of pressuring companies to act in more socially responsible ways. And despite the SEC’s interpretive guidance on corporate climate change reporting, much remains to be done to embed climate change mitigation and other sustainability concerns into the nation’s economy. 
 
“As regulation can move slowly, it’s all the more important for investors and other stakeholders to be engaging with companies to move certain agendas forward,” Smith said. And the filing of shareholder resolutions is an important part of that.



North America | Stakeholder involvement

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