On Your Behalf - December 2007 Report

Shareholder Advocacy 2008: a Look at Next Year’s
Proxy Season

Socially responsible investors have long known that companies with a strong social conscience also tend to be strong financial performers. The General Board of Pension and Health Benefits (General Board) uses shareholder advocacy both to fulfill its fiduciary responsibilities and to honor the social witness of the Church. Recognized by The Book of Discipline of The United Methodist Church as one of the tools of socially responsible investing, shareholder advocacy is an important element in the General Board's efforts to uphold the Social Principles while enhancing shareholder value.

Shareholder advocacy is a year-round activity involving letter writing, discussions with company officials and filing shareholder resolutions on environmental, social and governance matters. Most annual meetings take place in the first half of each year, and planning for filing 2008 shareholder resolutions already is well underway. So far, the General Board has filed more than 20 resolutions for consideration during the 2008 proxy season. A review of our upcoming major shareholder advocacy activities follows.

Corporate Governance

Corporations are responsible not only to their stockholders, but also to other stakeholders: their workers, suppliers, vendors, customers, the communities in which they do business, and for the earth, which supports them. We support the public’s right to know what impact corporations have in these various arenas. (¶163I, The Book of Discipline 2004)

Corporate governance continues to be a major issue among shareholders. In addition to the long-standing concern over board diversity and transparency, many shareholders are disturbed by reports of excessive executive pay and the lack of disclosure of corporation contributions to political causes.

For 2008, the General Board has filed resolutions calling for:

• increased diversity on the company’s board of directors and within the company’s workforce: Home Depot, Take Two and U.S. Airways;
• separation of the position of the chairperson of the board of directors from that of the chief executive officer: Monsanto and Whole Foods;
• shareholder advisory vote on executive pay: Merrill Lynch; and
• disclosure of political contributions: General Motors.

The General Board continues to monitor diversity issues at Six Flags and THQ, where resolutions were withdrawn following company commitments to address diversity concerns.

Sustainability

…let us recognize the responsibility of the church and its members to place a high priority on changes in economic, political, social, and technological lifestyles to support a more ecologically equitable and sustainable world leading to a higher quality of life for all of God’s creation. (¶160)

Sustainability has become a major concern for shareholders. A company’s ability to operate profitably into the future depends on how it integrates sustainable practices into its business model today. The General Board is encouraging companies to prepare sustainability reports. These reports generally disclose important operational information about environmental, social and governance issues not usually included in annual reports or other official documents.

For consideration at 2008 annual meetings, the General Board has submitted shareholder resolutions calling for sustainability reports at American Airlines, Comcast, Kellogg and Yum Brands.

Ongoing discussions on sustainability issues will continue with Allstate, AT&T, Best Buy, Caterpillar, Centex, Costco, Delta Airlines, General Mills, Marsh & McLennan, Microsoft, Morgan Stanley, Radio Shack, Sara Lee, Sears, Sunoco, Timberland and Wal-Mart.

Human Rights

We affirm all persons as equally valuable in the sight of God. We therefore work toward societies in which each person’s value is recognized, maintained, and strengthened. We support the basic rights of all persons to equal access to housing, education, communication, employment, medical care, legal redress for grievances, and physical protection. (¶162)

Investors increasingly are voicing concern over human rights abuses throughout the world, but especially in those parts of the globe experiencing civil and political unrest, such as Myanmar (Burma), Sudan and Israel/Palestine. Calls for companies to adhere to clearly-defined human rights standards—such as those articulated in the Universal Declaration of Human Rights, the Fourth Geneva Convention and the International Covenant on Economic, Cultural and Social Rights—are becoming more widespread.

The General Board has filed resolutions on issues related to the protection of human rights with Motorola, Nucor, Wells Fargo and J.P. Morgan for consideration at 2008 annual meetings,

Efforts to discuss human rights issues with companies operating in Sudan and Myanmar have been initiated with Chevron, Cummins, ONGC (Oil and Natural Gas Corporation), Schlumberger and Total S.A.

Human rights-related discussions also will continue with Coca-Cola and Newmont Mining.

The Environment

God has granted us stewardship of creation. We should meet these stewardship duties through acts of loving care and respect. (¶160) We applaud corporations that voluntarily comply with standards that promote human well-being and protect the environment. (¶163I)

In attempting to deal with the many repercussions that climate change will have on business, investors are asking companies to examine their business operations that contribute to global warming. For example, companies generating electricity through the burning of fossil fuels especially are vulnerable to possible greenhouse gas emissions limitations. The General Board has filed shareholder resolutions with four companies, Allegheny Energy, Dominion Resources, Pulte and Standard Pacific, seeking reports on company efforts to reduce greenhouse gas emissions and become more energy efficient.

The General Board continues to be in dialogue with Toll Brothers on energy efficiency issues, with Safeway on the labeling of genetically modified ingredients and with Coca-Cola on water issues in India.

Vendor Standards

We believe that persons come before profits….We support rights of workers to refuse to work in situations that endanger health and/or life without jeopardy to their jobs. (¶163D)

The General Board filed shareholder resolutions with Family Dollar Stores and Tellabs, calling upon the companies to adopt codes of vendor conduct based on International Labor Organization (ILO) standards and enforced through an independent monitoring process. Following the filing of the resolutions, both companies met with representatives of the General Board and other interested shareholders and agreed to publish a vendor code and to continue supply chain discussions. Accordingly, the General Board withdrew the resolutions.

Discussions on vendor standards and other labor-related issues continue with Apple Computer, Cintas, Disney, Dollar Tree Stores, Fred’s, McDonald’s, Nike, Wal-Mart and Wrigley.

Health

Health care is a basic human right. (¶162T)

The General Board has held ongoing discussions with Abbott Laboratories on the availability of HIV/AIDS medicines and with ExxonMobil on HIV/AIDS prevention programs. Conversations also have taken place with Baxter International and Mohawk concerning the presence of polyvinyl chloride in various products. These discussions will continue in 2008.

During 2008 and the coming years, the General Board will use shareholder advocacy to influence corporate behavior consistent with the ideals voiced in the Church’s Social Principles.