On Your Behalf - February Report

Shareholder Advocacy: The Importance of Proxy Voting

As owners of corporations, shareholders have important voting rights that they exercise each year when corporations hold annual meetings. These rights may include, among other things, voting for individuals who have been nominated to serve on boards of directors, stock option and/or distribution plans, executive compensation arrangements, mergers and acquisitions and choice of company auditor. They also include voting for any resolutions that have been properly submitted by shareholders.

Most shareholders do not attend the annual meeting(s) where voting takes place. Instead, they cast their votes by means of a proxy. Prior to the scheduled annual meeting, a company sends official proxy materials, including a proxy ballot, to all shareholders. Shareholders may vote for or against items on the ballot or they may withhold their vote, abstain or simply not vote at all.

Proxy voting is an integral part of the shareholder advocacy process that also includes letter writing, corporate dialogues/discussions and the filing of shareholder resolutions. It provides shareholders a mechanism to hold directors accountable for company performance and an opportunity to voice concern over policies and operation.

Proxy Voting at the General Board

The General Board of Pension and Health Benefits of The United Methodist Church (General Board) owns shares in approximately 3,000 U.S. and non-U.S. companies and strives to vote all of its proxies. Like many large institutional investors, the General Board does not vote its proxies directly, but relies, instead, on a proxy voting service. This service provides background information on the issues appearing on each proxy ballot, offers its own recommendations for voting but casts votes based on General Board guidelines. When a guideline does not exist for a particular proxy item, the proxy voting service returns the ballot to the General Board for direct voting.

The General Board’s proxy voting record is available on the Web. We make this record available to assist other United Methodist-related investors who do not have access to a proxy voting service and who may want to cast their proxy ballots in alignment with ours.

A Look Ahead at Proxy Season 2007

Besides voting on routine matters that come before shareholders, socially responsible investors seek to influence corporations through shareholder resolutions. These resolutions, filed under strict U.S. Securities and Exchange Commission guidelines, are a good indicator of prevailing socially responsible investing concerns about corporate behavior. Though corporations are not bound by the results of shareholder resolutions on proxy ballots, they usually are conscious of shareholder opinion as expressed through proxy voting. Even a negligible vote on a shareholder resolution may open the door to dialogue and discussion.

The General Board is an active filer of shareholder resolutions. We already have filed more than 20 resolutions at annual meetings taking place in 2007. These resolutions, reflecting United Methodist values as found in the Social Principles and The Book of Resolutions, encourage corporations to look carefully at how their operations affect the environment, the communities in which they operate and the workers who help manufacture the goods they sell.

Sustainability

The January 2006 On Your Behalf  took a close look at the issue of sustainability and sustainability reporting. Fortunately, more and more companies are embracing the concept of sustainability, a concept that is rooted in stewardship. A company reporting on the sustainability of its business practices should affirm that it is committed to ensuring that its current practices do not detract from its ability to viably operate in the future. Sustainability is an especially vital issue for most corporations and the General Board continues to promote the concept by encouraging companies to prepare sustainability reports. So far in 2007, the General Board has filed sustainability report resolutions at the following companies:

• Comcast
• Costco
• Lennar
• Morgan Stanley
• The Ryland Group
• Wendy’s International

Three of these companies (Costco, Morgan Stanley and The Ryland Group) already have committed to holding discussions with the General Board on sustainability issues. The General Board, consequently, has withdrawn these resolutions from consideration at the annual meetings.

Vendor Standards

Another important issue, highlighted in the December 2006 On Your Behalf, is worker or vendor standards. Despite the efforts of many socially responsible investors over many years to improve the working conditions of overseas workers supplying U.S companies with manufactured goods, reports of harsh and abusive working conditions persist. The General Board has filed three resolutions and is continuing or initiating dialogues with several others on this long-standing issue. These companies include:

• Apple Computer
• Dollar General
• Dollar Tree Stores
• Family Dollar Stores
• Fred’s
• Juniper Networks
• Wal-Mart

The Environment

Environmental issues, especially global warming, energy efficiency and water usage, continue to be important concerns for the General Board as discussed in the September 2005 On Your Behalf. Several resolutions have been filed for consideration at 2007 annual meetings. They include:

• Allegheny Energy
• Coca-Cola
• Dominion Resources
• Standard Pacific

Political Contributions

In addition, two resolutions seeking greater disclosure of political contributions have been filed at:

• General Motors
• TXU Energy

Other resolutions and dialogues are scheduled for 2007, but the above examples give some idea of the breadth of General Board shareholder advocacy for the current proxy season.

It is not too late to become involved in the proxy season. Take a careful look at your proxy ballots, check our Web site, consult other socially responsible investing resources and let the companies you own know of your concerns. By working together, socially responsible investors can influence corporations to greater stewardship of our world.