The 2008 Shareholder Season

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by: Joel Makower

Some of the most important voting of the year doesn’t involve candidates or political parties. It’s taking place between shareholders and the companies they own.

It has become an annual rite of spring: a bumper crop of shareholder resolutions filed by activist investors aimed at compelling companies to address any of a wide range of social and environmental issues. This year is no different.

A new report on the 2008 season — the majority of companies hold their annual meetings in the spring — has been published by As You Sow (Free download). And while its intended audience are foundations, whose endowments typically include large stock holdings, the report offers insight for anyone interested at the state of the art of shareholder activism.

First, some background. Shareholders file all sorts of proxy proposals at annual meetings. Many have to do with corporate governance — such issues as selection of directors, appointment of auditors, and approving company stock plans. There are also social proxy proposal, frequently introduced at annual meetings by activist pension funds, especially those representing public employees and schoolteachers; universities (remember how schools divested investments in companies doing business in South Africa during Apartheid?), labor unions, foundations, and large faith-based institutional investors (what I lovingly refer to as "Little Sisters of the Immaculate Investment").

Over the past decade of so, shareholder proposals from such organizations have grown, from just over 200 in 1999 to 368 last year, according to As You Sow’s "Proxy Season Preview." Environmental topics have historically accounted for the largest category of social proposals filed, covering such issues as greenhouse gas emissions, recycling, water, forestry, genetically engineered food, nuclear waste, oil production, protected lands, and environmental justice.

Many of these proposals never come up for a vote, but that’s part of the process, As You Sow explains.

The goal of shareholder advocates is to change a company’s practice or policy. Most shareholders prefer to do this through a "good faith" dialogue with the company. Shareholders file proposals if a dialogue is not going well or the company is unresponsive. Filing a proposal can often bring the issue to the company’s attention and lead to a dialogue or change in policy or practice, in which case a proposal is no longer warranted and ultimately withdrawn.

Even when votes are held, success doesn’t always require a majority vote. While most social and environmental proposals receive votes in the single digits, a significant number have received 20% to 50% in the last few years. "These votes are comparable to or better than traditional governance proposals and serve as further evidence that social, environmental, and reputational risks are being viewed as legitimate concerns in their own right by mainstream investors," says the report.

Because of this, proposals tend to be repeated year after year, largely in hopes of garnering bigger and bigger support. Indeed, says As You Sow, many of last year’s top issues will dominate this year’s crop of proposals, though 2008 will also see a slew of new proposals and shareholder campaigns. Major issues include global warming (50+ proposals covering climate change, greenhouse gas emissions, energy, and related issues), sustainability (35+ proposals), and animal welfare (25+ proposals).

One topic entering the picture is "toxic TVs." On February 19, 2009, all television signals in the U.S. will convert to digital broadcast, rendering millions of analog TVs obsolete. This so-called Digital Deadline is likely the largest government-mandated planned obsolescence in U.S. history. Tens of millions of TVs are expected to be discarded as consumers purchase new digital sets rather than obtain a low-cost converter which will allow current sets to function. Absent a responsible recycling system, this flood of TVs will add to the growing electronic-waste stream, much of which is sent to unsafe overseas recycling facilities. As You Sow filed a proposal at Best Buy asking the company to study the feasibility of using its stores as a take-back venue for e-waste and to give special consideration to have infrastructure in place for the digital switchover next year.

If nothing else, the "Proxy Season Preview" is a good primer on environmental topics companies are being asked, or forced, to confront. Historically, a handful of leadership companies break ranks with their corporate brethren, taking a bold stance on a topic that has become a sore spot with investors and activists.

What topics and companies will be the talk of the 2008 proxy season? What will be the next domino to fall?

We should all take stock.

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