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Buying stock for a change
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April 9, 1999: 5:35 p.m. ET
Social investments are beginning to affect change in Corporate America
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NEW YORK (CNNfn) - It all started with a little push from shareholders.
For the past five years, General Motors Corp. has been releasing to shareholders its annual report on environmental compliance.
Walt Disney Corp. is well underway with a massive campaign to eliminate sweatshop manufacturers from its supply chain.
And Kimberly Clark, maker of Kleenex brand tissue, cashed out of its tobacco-related businesses long ago.
"Smart managers are starting to understand that these shareholder advocates are the barometer to the American psyche in the future," said Elizabeth Elliott McGeveran, head of the Social Investment Forum. "We've been asking about sweatshops for the last five to seven years and now all of a sudden it's sweeping that nation. I think that's a good example of how powerful shareholder advocacy work is."
Inciting change
It's tough to quantify the level to which socially responsible investors (SRI) have played a part in shaping corporate policy, even in the examples above.
But few would argue that SRI mutual funds and religious shareholders who use their ownership stakes to fight for change, are frequently the catalysts for opening up dialogue with senior level management.
"It's hard to measure our successes in the same terms you'd measure an election," said Conrad MacKerron, director of corporate accountability for the As You Sow Foundation. "Most often, a company won't come out and say we were pressured into this by shareholder activists. But change often comes after shareholders vote [for proxy resolutions] and the company becomes concerned about the attention an issue is starting to get."
Getting the votes
Proxy resolutions that support socially responsible corporate behavior generally receive only a fraction of the shareholder vote.
That's because grass roots organizations and social investors have to communicate their message to the thousands of shareholders. Even when they do, many are too focused on the bottom line to care.
Tim Smith, executive director of the Interfaith Center for Corporate Responsibility (ICCR), added that the voting mechanism for proxy resolutions is stacked against activists.
"In the corporate voting system, shares that come in unmarked (or those that did not register a vote) automatically come in in favor of management," he said. "And in virtually every case, the companies ask shareholders to oppose these resolutions."
Add that to the bias of large institutional investors, like some insurance companies and banks which automatically vote management line, and Smith said garnering support for social causes can be a challenge.
"You make a significant showing if you get 5 percent of the vote," he said. "But I believe if you have [even a fractional] showing by shareholders you are sending a message to management and that's a form of a win."
Smith said some "wins" result in direct change within an organization, while others merely call important issues to the attention of decision makers.
"I think real success is about changing corporate behavior," he said. "If you asked the management to diversify its board and the company said they are willing to tell shareholders within six months how they will take steps to diversify, then that's a win-win situation. Even if shareholders withdraw the resolution."
According to estimates, 25 percent to 33 percent of socially responsible shareholder resolutions are withdrawn each year because the sponsors and management come to a mutually beneficial agreement.
"The interesting thing is that size doesn't automatically bring you clout," Smith said. "A person with 1,000 shares can just as easily [pressure a company into change] if the issue is something management takes seriously."
The global community
Sister Patricia Daly, a Catholic nun from Northern New Jersey and long-time activist, said she believes socially responsible investors, including religious shareholders, have been instrumental in ending social injustices throughout the world.
"Certainly the whole movement really can take a good bit of responsibility for helping to end apartheid in South Africa," she said. "We asked companies to leave South Africa and to stop financing the apartheid regime. Hundreds of companies left and the government lost that tax base. The economic stress of that certainly led to finally sitting down and dealing with the issue of systemic racism."
Daly said the SRI movement also played a pivotal role in helping to reign in infant formula companies in the 1970s and 1980s. According to her, companies began pushing their products abroad in efforts to offset lost sales in the domestic market after breast feeding regained popularity.
The companies, she said, were distributing free samples of their product to mothers in poor countries - but just enough to stop them from lactating. The idea was to create a captive customer base, but many were unable to afford the formula, or were mixing it with contaminated water sources, which lead to a dramatic rise in infant mortality rates abroad.
"What the infant formula companies were doing was creating a market internationally," Daly said. "Children were dying. It was terrible."
At the time, Daly said Nestle (NESN), Bristol-Myers Squibb (BMY) and American Home Products (AHP) were targeted by social investors for irresponsible marketing. The dialogue with these and other companies, which continues today, led the United Nations to step in and establish a code of conduct for the sale of breast milk substitute.
"We asked these companies to go along with the code of conduct and most have, but problems still exist," she said.
Up in smoke
Promoters of corporate responsibility also point to the tobacco industry as one of its greatest areas of achievement - one where they say there is concrete evidence of change.
"One of the most important effects socially responsible investing has had was the isolation of the tobacco industry," said McGeveran, of the Social Investment Forum. "These companies are finally being viewed as the social and health pariahs that they are."
As a result of repeated shareholder resolutions and public advocacy campaigns, the Forum, along with Co-op America, reports that outdoor advertising firm 3M Media stopped accepting tobacco advertising contracts for its billboards.
Kimberly-Clark (KMB) spun-off its tobacco-related businesses five years ago. And, Knight-Ridder (KRI) established a voluntary set of guidelines in 1995 to reign in children's and teenagers' exposure to tobacco ads in its publications.
The report said Knight-Ridder's decision followed a related shareholder resolution sponsored by the ICCR, which received 4 percent of the shareholder vote at the company's 1994 shareholder meeting. The vote grew to 14.2 percent the year the guidelines were issued.
Lastly, tobacco giant Philip Morris (MO) agreed in the early 1990s to put warning labels on all packages worldwide, even if the company was not required to by governments overseas. That, too, came on the heels of a shareholder advocacy campaign.
Ceres Principles
The Ceres Coalition, an environmental group founded 10-years ago in the wake of the 11-million gallon Exxon-Valdez oil spill in Alaska, also has made great strides in the push for corporate accountability.
The group travels the country asking industry leaders to endorse the Ceres Principles, a strict set of guidelines that hold companies responsible for disclosing annual reports on their production processes and the impact they have on the environment.
Today, 48 corporations have agreed to abide by the principles, including General Motors (GM), Sunoco (SUN), and Coca Cola, USA. (KO)
Exxon (XON), so far, has resisted.
"We feel we are on a tremendous role," said Bob Massie, executive director of the coalition, which holds its 10th annual conference this weekend in New York. "When we created this coalition 10 years ago, the idea of investors and environmentalists coming together and working with business to help them take a more positive role in the environment was a very radical idea. Now it's much more widely accepted."
Earlier this year, the coalition issued a broader set of environmental reporting guidelines for the international community.
"The Ceres Principles have been advocated now for 10 years and at least half of the Fortune 500 companies have either received resolutions or been queried about it," Massie said. "Always the first reaction within these companies is for them to come and show you what they are already doing. When the issue is raised over and over again by these big funds, though, they start thinking about what they are going to say to stakeholders."
The fight continues
ICCR members this year have filed numerous resolutions that would force companies to better enforce and monitor their ban on sweatshop suppliers. Among the companies to receive resolutions this year: Wal-Mart (WMT), Sears, Roebuck & Co. (S), Toys R Us (TOY), Dayton Hudson (DH), Dillard's (DDS) and Kmart (KM).
"Most of these companies have a code (or a ban against using sweatshop manufacturers), but the question now is how do they monitor that," Smith said. "What is their compliance program?"
Walt Disney Co. (DIS) held its stockholder meeting earlier this year, at which time it reported significant progress in its previously announced supply chain audit. The As You Sow Foundation, however, is pressuring Disney to go one step further and develop a detailed plan for weeding out sweatshops permanently and monitoring its progress on an annual basis.
"Compared to two years ago, they've taken rather dramatic steps to address this issue," Smith, of the IRCCR, said. "I wouldn't say, and I don't think the company would say, that the job's over, but there's been progress."
The ICCR group, along with dozens of other grass roots organizations and SRI funds, also helped to kill a sweeping proposal last year by big business that would have raised the bar on which shareholders can file resolutions. After much urging, McKerron said, the Securities and Exchange Commission agreed it's in the best interest of shareholders to have proxy resolutions as an outlet for voicing concerns.
"A lot of companies view us as flies or knats that get in the way and they tried to limit resolutions to shareholders with large ownership stakes," he said. "To the SEC's credit, they said, 'no.'"
The long-haul
Socially responsible investors say they don't stop to tally their success-to-failure ratio very often. Instead, they focus their time and energy on the business of social change.
"A lot of these social investors write letters to companies year after year, asking them to tell us what the ethnic and gender make ups of their boards are, for example," McGeveran, of the Social Investment Forum, said. "What we see is that over time, these companies are making real efforts to diversify. They realize that it's not OK to have an all-male, all-white board anymore. Socially responsible investors are one of the ones who made that happen."
The SRI community, she added, has no plans to throw in the towel on other issues anytime soon.
"Social investors don't give up on things," McGeveran said. "I don't think we are where we'd like to be on the sweatshop issue but it's a very, very long road. And the money that is engaged in these issues is in it for the long-haul so it has staying power. We view that as an overall success story in social investing." 
--by staff writer Shelly K. Schwartz
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