Proxy Season 2009: A Review

On Your Behalf—July 2009

Any person or institution owning stock in a company has the right to vote at the company’s annual meeting. Since most shareholders do not attend annual meetings, they generally exercise their voting rights by way of a proxy ballot.

Companies distribute proxy materials to shareholders prior to each annual meeting. These materials include the proxy ballot itself and a description of all the items appearing on the ballot. Some of the most common ballot items include:

• the election of individuals to the board of directors;
• the selection or ratification of the company auditor;
• adoption of stock-option proposals;
• amendments to company bylaws; and
• shareholder resolutions on environmental, social and governance (ESG) issues.

The proxy ballot provides investors—especially socially responsible ones, such as the General Board of Pension and Health Benefits (General Board)—a real opportunity to influence significantly the governance of companies. It has been the General Board’s experience that taking the time to vote a proxy ballot can make a difference in how a company is managed.

The General Board owns shares of more than 3,000 companies. More than 2,500 of these hold annual meetings during the first half of the year, generally known as the “proxy season.” In order to vote these proxies in such a relatively short time period, the General Board retains a proxy-voting vendor to conduct research and assist in the casting of ballots.

During the 2009 proxy season, companies faced a record number of shareholder resolutions. Members of the Interfaith Center on Corporate Responsibility (an association of 275 faith-based institutional investors, including the General Board) filed nearly 400 resolutions on a variety of ESG issues.

“Say on Pay” Resolutions

Given the severity of the financial collapse last fall, it is not surprising that more resolutions were filed on corporate governance issues than on any other issue. Most of these were “say on pay” resolutions, asking that shareholders be given the right to an advisory vote on executive compensation.

Many of these resolutions were voluntarily withdrawn when federal legislation was passed requiring companies receiving Troubled Asset Relief Program funds to allow shareholders to vote on executive compensation. The General Board cofiled—and subsequently withdrew—two such resolutions with Goldman Sachs and Wells Fargo.

Nonetheless, more than 80 “say on pay” resolutions appeared or will appear on proxy ballots this year. So far, shareholder support for these resolutions has been averaging more than 46%.

Diversity

Citing multiple discrimination lawsuits over the last several years at Home Depot, the General Board cofiled, for the third year in-a-row, a resolution calling on Home Depot to prepare a diversity report, with sections dedicated to affirmative action and minority hiring policies. The resolution received 22% of the total shareholder vote.

Global Warming

Environmental issues were the subject of at least 50 resolutions filed by members of the Interfaith Center on Corporate Responsibility. More than 30 of these dealt specifically with global warming. The General Board cofiled a resolution with Dominion Resources calling upon the company to reduce greenhouse gas emissions. When Dominion promised to hold at least three meetings with concerned shareholders on global warming issues, shareholders withdrew the resolution. A similar resolution that the General Board cofiled with Pulte Homes also was withdrawn when the company agreed to include specific information about climate change and energy efficiency in its next annual report.

The General Board was the lead filer on a resolution calling for low-carbon research, development and production at Halliburton. The company officially opposed the resolution and challenged it at the Securities and Exchange Commission, but the Commission ruled in favor of the resolution, and it remained on the proxy ballot. Significantly, just a few days before the annual meeting, Halliburton used its Web site to announce a new carbon capture and storage program. The resolution received 6% of the total shareholder vote.

The General Board also cofiled greenhouse gas reduction resolutions with Mirant and Standard Pacific. Voting results are not yet available.

In addition, the General Board cofiled a resolution with Freeport-McMoRan encouraging the company to seek at least one board member with environmental expertise relating to mining operations. Voting results for this resolution have not yet been disclosed.

Sustainability

More and more companies are choosing to prepare sustainability reports. These reports provide companies a format to disclose their business policies, practices, goals, opportunities and challenges related to ESG issues. This type of information usually is not disclosed in annual reports or other official documents.

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 cofiled resolutions calling for the preparation of sustainability reports at Dentsply and General Growth Properties. Shareholders withdrew the resolution at Dentsply when the company met with investors and presented a draft report. The resolution at General Growth Properties was withdrawn when the company declared bankruptcy.

A letter encouraging consideration of sustainability issues was sent to Federated Investors.

Human Rights

Protecting the rights of individuals is not only the responsibility of governments. Companies also 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. Through abusive labor practices, disregard for local residents or association with repressive regimes, companies can be implicated directly in violating basic standards of human rights.

Citing allegations of forced and/or slave labor in Brazilian steel operations, the General Board cofiled a resolution asking Nucor to review its supply chain policies and practices in order to protect the human rights of its overseas workers. This resolution received nearly 27% of the shareholder vote.

A resolution seeking to align human rights policies and practices more closely with international standards was cofiled at Motorola. It received slightly more than 7% of the total shareholder vote.

Following last year’s crisis in the financial industry, shareholders increasingly are aware of the importance of proxy voting and other shareholder advocacy tools. The General Board will continue to embrace the filing of shareholder resolutions as an important way to influence corporations.

back to On Your Behalf index