On Your Behalf - August 2007 Report

Proxy Season 2007: A Progress Report

Shareholder resolutions continue to be an important tool to influence companies toward greater corporate responsibility. Earlier this year, however, the Securities and Exchange Commission (SEC) began investigating the possibility of eliminating the right of shareholders to file advisory resolutions at company annual meetings. On July 25, the SEC released two proposals concerning the shareholder resolution rule (Rule 14a-8). Though the proposals do not eliminate the right to file resolutions, as was first feared, they do suggest that future restrictions may be possible.

The filing of shareholder resolutions is one of the major advocacy tools available to investors. The General Board is an active filer, filing or co-filing as many as 20 resolutions a year on a variety of issues. We have sent letters to the SEC expressing our concern on this important issue and encourage other investors to do the same. Restricting the right to file advisory shareholder resolutions would severely limit the advocacy efforts of all socially responsible investors.

Important Issues of 2007

According to the Social Investment Forum (www.socialinvest.org), during the first five months of 2007, shareholders already had filed more than 350 resolutions on a variety of social and environmental issues, an amount almost equal to the total number of resolutions filed in all of 2006. Resolutions addressing environmental issues have been the most numerous. Of the 80 filed so far this year, 39 are concerned, in some way, with climate risk. Another 60 resolutions address issues of corporate governance, especially the disclosure of political contributions. Calls for sustainability reporting can be found in at least 40 resolutions.

The General Board also has been active this proxy season, filing many resolutions on these, and other, issues. A summary of the General Board’s 2007 proxy season activity follows.

Human Rights

The most successful resolution co-filed by the General Board during the 2007 proxy season was the Newmont Mining resolution. This resolution called upon the company to report on its policies and practices around local community engagement. Because some Newmont Mining projects have met with significant community opposition, sometimes resulting in violence and the disruption of mining operations, shareholders felt the company should take a closer look at how it handles community concerns and protests. After the resolution was filed, Newmont Mining held a series of discussions with socially concerned shareholders and decided to support the resolution. As a result, the resolution received 92% of the shareholder vote.

The Church believes that companies, like governments, owe their workers, the communities in which they operate and the markets in which they sell goods and services the highest commitment to individual and community rights.

Sustainability Reporting

Sustainability remains a priority shareholder issue. Companies committed to sustainability know that their long-term viability depends on careful stewardship of limited resources. Accordingly, shareholders call for sustainability reports because these reports allow companies to document the policies and procedures (financial, environmental, social and governance) they have adopted to ensure viability into the future.

The sustainability report resolution filed at Wendy’s annual meeting received more than 30% of the shareholder vote, but the General Board was able to withdraw its sustainability resolutions from Morgan Stanley and Centex after both companies committed to begin the process of sustainability reporting.

Many companies in which we invest are developing sustainability reports. Throughout 2007, the General Board staff has been in dialogue with a number of these companies in order to review drafts of their reports. These companies include Best Buy, Caterpillar, FedEx, General Mills, Marsh & McLennan, Nike, Sara Lee, Sunoco, Timberland and Wal-Mart.

Vendor Standards

Methodism’s first social creed, adopted in 1908, was largely concerned with labor issues. Echoing concerns still keenly felt today, the Church called “for a living wage in every industry,” “the abolition of child labor,” “for the principle of conciliation and arbitration in industrial dissensions” and, ultimately, “equal rights and complete justice for all men in all stations of life.” (¶59, Appendix, The Book of Discipline 1908.)

These issues are still with us today. Of special concern are the working conditions in the overseas factories that supply American companies with manufactured goods. The General Board believes that companies should maintain and enforce clear codes of conduct (vendor standards) for their various suppliers and global facilities. These standards are meant to help ensure that workers are treated humanely, compensated fairly and allowed to organize without fear of intimidation or reprisal.

As a voice for workers’ rights, the General Board has joined other socially responsible investors in calling upon companies to establish, monitor and enforce codes of conduct. Of particular interest in 2007 was a first-time vendor standards strategy directed toward discount (dollar) stores. This strategy resulted in shareholder resolutions or dialogues with 99 Cents Only Stores, Dollar General, Dollar Tree, Family Dollar and Fred’s.

The General Board withdrew its resolutions from Dollar General and Dollar Tree after both companies committed to improving vendor standards reporting.

The General Board also withdrew a resolution it co-filed at Juniper Networks after Juniper agreed to adopt the Electronic Industry Code of Conduct (EICC), a compendium of best practices designed to improve working conditions in the electronic industry supply chain.

Working closely with Wal-Mart on issues relating to vendor standards, the General Board joined other faith-based investors early in the year to observe audits of several Wal-Mart supplier factories located near Delhi, India. Following that trip, the General Board provided Wal-Mart with recommendations on its ethical sourcing program and feedback on draft versions of its ethical sourcing report (final version released on August 15).

The General Board continues to hold discussions with Disney, McDonald’s and Sun Microsystems on vendor standards issues.

Corporate Governance

Socially responsible investors have made corporate governance one of the major issues of the 2007 proxy voting season. Recent ethical violations at companies such as Enron, WorldCom, Adelphia Communications, Tyco International and Qwest Communications, to mention a few, have resulted in increased calls for greater corporate accountability and adoption of corporate governance practices that are more open and transparent. The General Board has been a leader in calling upon corporations to govern themselves in a way that is more accountable to shareholders and more in line with internationally recognized “best standards.”

This year, the General Board co-filed several resolutions on corporate governance that received significant shareholder support:

• Home Depot (calling for a report on employment diversity): 26% of shareholder vote
• Monsanto (calling for the separation of the position of the chairperson of the board from that of the chief executive officer): 14% of the shareholder vote
• Wyeth (calling for the separation of the position of the chairperson of the board from that of the chief executive officer): 42% of the shareholder vote

The General Board withdrew its board diversity resolution from Six Flags in April when the company agreed to amend its corporate by-laws so that diversity “with respect to gender, race, and ethnicity in the composition of the Board” will be considered when identifying director candidates.

In September, the General Board will be presenting a board diversity resolution at Activision for the second year in a row. Last year, the resolution received 16.5% of the shareholder vote.

Global Warming

The scientific community overwhelmingly has acknowledged the reality of global warming. Based on data obtained by the Global Atmosphere Watch of the World Meteorological Organization (WMO), an agency of the United Nations, atmospheric levels of greenhouse gases are the highest ever recorded. Higher levels of greenhouse gases enable the atmosphere to absorb more infrared radiation, thus increasing the surface temperature of the earth.

Energy usage is a major culprit. In the United States, more than 80% of carbon dioxide emissions are the result of fossil fuel combustion. This proxy season, the General Board filed resolutions with two energy companies, Allegheny Energy and Dominion Resources, calling for an evaluation of the various impacts (environmental, health and cultural) of a proposed new power transmission line. Construction of this line would prolong electric production at many of the nation’s oldest and dirtiest coal-fired plants. Such plants are responsible for a substantial portion of the nation’s total emission of greenhouse gases.

The Allegheny Energy resolution received 8.2% of the shareholder vote. The Dominion Resources resolution received 6%.

The General Board continues to be in dialogue with retailers Circuit City and Costco concerning their policies and practices relating to energy efficiency. Global warming has also been raised in conversations with homebuilder Lennar and publisher Time, Inc. As a result of a General Board resolution that was later withdrawn, Toll Brothers has agreed to provide improved disclosure of its new home energy efficiency initiatives on its corporate Web site.

Influencing corporations to be better corporate citizens is a long-term commitment involving many activities, including the filing of shareholder resolutions and engaging company decision makers in dialogue. Using these socially responsible investing tools, the General Board feels that this proxy season, it has made significant progress with several companies on many important issues. In partnership with other faith-based investors, the General Board will continue to work for progress in calling the companies in which it invests to maintain the best environmental, social and governance practices.