Shareholder Activism on the Rise : Record Number of Issue Resolutions Put Up for a Vote
A record number of emotion-charged shareholder resolutions are bombarding U.S. companies in the 1989 annual meeting season, on topics ranging from South Africa to Northern Ireland to bans on animal cruelty and nuclear weapons.
The surge reflects a growing militancy among shareholders, especially large institutions such as pension funds, which now see annual meetings as an important forum to confront executives about their ethics and priorities.
“I think the reason this is growing is because institutional investors in particular have discovered they have responsibilities for their stakeholders, pensioners or others, beyond just getting as much of a financial return as they can,” said Diane Bratcher, director of communications for the Interfaith Center on Corporate Responsibility, a New York-based activist church concern.
Some also attribute the shareholder resolution movement to a matured population of baby boomers raised during the antiwar movement of the 1960s.
‘Lot of ‘60s People’
Many of these people are now stockholders and stock mutual fund investors, looking to put their money to work in ways that conform to their own political and ethical beliefs.
That’s led to an explosion in professional investment funds that use social concerns as a basis for what securities to buy. These funds have grown from $40 billion in assets a few years ago to about $400 billion now, securities industry figures show.
“There are a lot of ‘60s people who are still around and have the money to invest,” said Rosalyn Will, a researcher at the Council for Economic Priorities, a New York group that follows the shareholder resolution movement. “Many have retained those values. Many have kids who have those values, too.”
Others say many corporate executives themselves have begun to encourage shareholder resolutions as part of a strategy to show they are more sensitive and responsive to the people who own their companies.
“An interesting trend we’ve seen this year, more and more, is that companies are realizing how to open a dialogue with institutional investors,” said Robert Amen, a corporate consultant in Greenwich, Conn., who attends and evaluates dozens of annual meetings.
Three leading management consulting firms, Ernst & Whinney, Touche Ross & Co., and Deloitte Haskins & Sells, have started publishing special booklets for executives on how to answer shareholder queries at annual meetings, especially in an era of economic uncertainty and growing questions about business ethics.
South Africa Cited
“Company directors and officials prepared for the 1989 annual stockholders meetings will be responding to investors who are concerned about not only the potential impact of results on individual share prices but also the way companies are being run,” Deloitte says in its booklet.
The Investor Responsibility Research Center, a Washington-based group that monitors corporate behavior, says a record 176 shareholder resolutions on sensitive issues will be voted on during this annual meeting season, which generally runs from mid-April through early June.
That compares to 156 introduced in 1988, 108 in 1980 and 40 in 1973.
Shareholder activists say the catalyst clearly has been the effort aimed at compelling U.S. corporations to vacate South Africa because of its white-minority government’s systematic suppression of the black majority.
Although many South Africa divestment resolutions have been routinely defeated at annual meetings, their sponsors say mere discussion of the issue has raised management awareness and has played a role in the departure of more than 140 U.S. companies from that country since 1984.
Moreover, sponsors of South African resolutions have been gaining an increasing number of yes votes at annual meetings, forcing companies to reintroduce the resolutions the following year. Under Securities and Exchange Commission rules on publicly traded companies, shareholder resolutions receiving at least 3% approval the first year they are introduced must be on the next annual meeting’s agenda.
Bratcher, whose group has been a leading proponent of South African divestment, said the success of the movement has inspired other socially active investor groups to start their own campaigns.
She said the fastest growing efforts target U.S. divestment in British-ruled Northern Ireland and fair employment practices by U.S. multinationals operating in Third World countries.
Aerospace giant Lockheed Corp., for example, has been targeted by the pension fund managers of New York public employees over the fair-hiring practices of its subcontractors in Northern Ireland.
‘Better Idea’
Animal rights, long an issue raised by picketers at annual meetings, has become an agenda item as well. This year, shareholders in at least 10 U.S. companies will be voting on resolutions proposed by animal rights activists.
People for the Ethical Treatment of Animals, a Washington lobby group, has introduced shareholder resolutions on laboratory testing at the annual meetings of American Home Products Corp., Bristol-Myers Co., Colgate-Palmolive Inc. and the Gillete Co., among others.
Elsewhere, the Federation of American Scientists has introduced shareholder resolutions at BankAmerica, Citicorp and Manufacturers Hanover, three of Latin America’s biggest creditors, requesting them to persuade debtors Brazil and Argentina not to develop nuclear weapons.
Other shareholder issues on the agenda this season include human rights in Chile; nuclear reactor safety; antibiotic-fed poultry; Third World debt; and contributions to political action committees.
William Morley, chief counsel for the SEC’s division of corporate finance, said he’s noticed a growing sophistication by shareholder activists who want to get resolutions on meeting agendas.
“A lot of social issue people have been writing them for years,” Morley said. “But each time you go through a season you get new groups involved, and they have a better idea of how you jump through the hoops.”
