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WHITE SUPREMACISTS, animal rights activists, and some large pension funds
have at least one thing in common. They all have used shareholder resolutions
at major U.S. corporations to promote their political interests. Nearly
every burning social cause has found its way into the minutes of corporate
board meetings since 1970. In that year, overtly political issues were
deemed admissible for shareholder consideration for the first time by the
Securities and Exchange Commission (SEC), which regulates shareholder-company
interaction.
Today, although the "greening" of corporate America has not
occurred, directors have been forced by determined activists to reconsider
many of their actions from a social justice perspective. In 1988 alone,
111 companies considered 157 resolutions on about a dozen social issues.
Shareholder proponents often do not fit the traditional mold of political
activists. They have, moreover, moved from the left to the more mainstream
political center, and a number of conservative resolutions have surfaced.
Companies have been asked about their dealings with Communist countries
by Young Americans for Freedom and about "media fairness" by Accuracy in
Media. Also, in 1988, AT&T was required to consider a particularly
poisonous proposal from a neo-Nazi group that asked the company not to
hire blacks and other minorities. Such proposals, however, are the exception.
The vast majority of shareholder resolutions raise questions about investment
in South Africa and Northern Ireland, military production and the environment.
Some have targeted infant formula and tobacco marketing in the Third World,
while others have dealt with labor issues such as equal employment. Animal
rights groups took on the corporate arena with shareholder proposals for
the first time in 1987 and plan to propose 10 resolutions in 1989.
The History
The activists who challenge companies on their own ground today
had far different forerunners two decades ago. If someone had told community
organizer Saul Alinsky in 1966 that in 22 years the New York State Common
Retirement Fund would sponsor proxy resolutions asking corporations to
withdraw from South Africa, he might have believed it. But Alinsky liked
to think that nothing was impossible. It was while he was helping to organize
the black community of Rochester, New York, against Eastman Kodak, that
Alinsky hit upon the idea of proxy politics.
The community group he assisted convinced the owners of 39,000 Kodak shares to sign over their proxies
to it, in opposition to Kodak management. In the end, the company agreed
to implement a minority hiring program agreeable to the dissidents.
Then, in 1968 and 1969, a group of young physicians--the Medical Committee for
Human Rights--challenged Dow Chemical's production of napalm for use in
Vietnam. The SEC ruled in 1969 that the group's proxy request "that the
company shall not make napalm" was not admissible under its rules governing
proxy statements. The Medical Committee went to court and persuaded the
U.S. Circuit Court of Appeals for the District of Columbia to rule in its
favor, breaking the ground for hundreds of shareholder proposals to come.
The Medical Committee ruling was issued in the summer of 1970, shortly
after the first round of Campaign GM, another definitive event for shareholder
activism. Extensive press coverage and the support of consumer advocate
Ralph Nader accompanied the submission of the Campaign's proxy resolutions
that questioned corporate responsibility at GM. Although the resolutions
received less than 3 percent of GM shareholders' votes, the considerable
publicity made it a success in the eyes of its initiators. Project director
Philip Moore stated, "The measure of victory is not the votes, but the
kind of debate we can have between shareholders and the public, so we can
explore new ways corporations can be made responsive to the public."
Institutional Dissent
The shareholder activism movement has grown from a smattering of
individuals questioning corporate power to a well-established, if fractious,
coalition of disparate institutional investors who regularly pressure major
companies. The individual shareholders who developed the tactic had few
hopes of changing company policy by forcing change. Instead, publicity
was their primary goal, with hopes that the general public and other shareholders
would become outraged enough to pressure management or legislators, and
ultimately create corporate policy changes. Other goals were to create
a more self-conscious business community, to educate the stock-owning middle
class politically, and simply to harass "bad" companies. These intermediate
goals remain important for some shareholder dissidents today, even though
most resolutions now come from institutional investors who may not share
these objectives.
Churches
Churches became the mainstay of the shareholder
activism movement during the 1970s. They grounded their shareholder philosophy
in a religious commitment to social justice. Their approach has been both
tenacious and conciliatory. Before stepping into proxy pressures, churches
used selective investment screens to avoid "sin" companies; many still
do not invest in companies producing tobacco or alcohol products, for instance.
Although public pension funds recently have been in the limelight of dissident
shareholder activism, churches remain crucially important to the movement's
progress and show no signs of slacking their efforts. South Africa is an
issue as a matter of course for them, but many no longer address apartheid
through proxy resolutions because they have divested of companies directly
involved in South Africa.
A clear win for religious groups in the early 1980s was the adoption of World Health Organization (WHO) guidelines on
the sale of infant formula in developing countries by major U.S. pharmaceutical
companies. They continue to be concerned about formula use; military issues
and a relatively recent effort targeting worker rights at U.S. assembly
plants operating in Haiti also keep church activists busy.
Schools
Colleges and universities have been more unwillingly drawn into the socially responsible
investment debate. Despite their function as a cauldron of protest over
South Africa-related investment, educational institutions generally have
not been proponents of shareholder resolutions.
Although more than 140 schools have adopted some kind of South Africa divestment policy (often
under considerable student pressure), divisions within the educational
community and concern for "academic objectivity" have precluded stronger
activist positions. Nevertheless, the academic debate over socially responsible
investment defined a rationale for action now used by public pension funds,
which entered the fray in a serious manner for the first time in 1985.
Pension Funds
With billions of dollars in assets, the financial clout of
the public pension funds guarantees them a hearing when they raise concerns
with corporate management. Some of the richest funds in the country--notably
the New York City and New York State public employees' funds--have taken
a prominent role in the push to make companies leave South Africa. Teachers'
Insurance and Annuity Association/College Retirement Equities Fund, the
pension fund/insurance company for college and university professors with
some $30 billion in equities, has also sponsored resolutions calling for
withdrawal from South Africa.
Further, the New York City funds have promoted adoption of the MacBride principles, similar in spirit to the Sullivan
principles, that gauge U.S. companies' fair employment practices in Northern
Ireland. The MacBride campaign has increasing support around the country,
with laws enacted in 10 states and proposed in eight more and the District
of Columbia. Pension fund activism has been mandated by state and city
law in most cases. The idea that socially responsible companies provide
better returns is also percolating up into the circles of established financial
wisdom, a development that makes pension fund managers looking for good
returns more likely to consider support for social issues proxy proposals.
Does it work?
The big question for those considering proxy resolutions as a means to change corporate policy is whether such activism is worthwhile.
A critical view contends that it is an exercise with too many prerequisites
(ownership of at least $1,000 of stock for a minimum of one year) and too
few substantive results.
Supporters of the tactic, however, maintain that
they have found a unique form of access to the makers of corporate policies
that have direct impact on the lives of people around the world. They also
point to several instances of affirmative corporate response to shareholder
pressure. Numerical victories are rare, since management generally owns
a controlling interest and nearly always recommends voting against shareholder
proposals.
Success is measured in doses of low percentages of the overall
shareholder vote. Just 3 percent is required for a first-time resolution
to qualify for resubmission the following year, 6 percent if it is a second-year
proposal and 10 percent if it is under consideration beyond a third year.
Initially, activists had trouble meeting these modest requirements, but
now nearly all resolutions manage to survive at least one airing; in 1988
nearly 95 percent of all resolutions that came to votes were eligible for
resubmission. South Africa proposals have earned the highest consistent
support, but respectable scores on other issues have shown up as well,
with the average for all resolutions hovering around 10 percent for the
past two years.
The corporate exodus from South Africa since 1985 is the
most frequently cited example of shareholder victory. Shareholder activists,
however, can claim only partial responsibility for gains in this area;
many complex factors came into play. Restrictive contracting requirements
by major U.S. cities and states have been at least as important as shareholder
resolutions and adverse publicity. An overall picture of increased corporate
responsibility in other areas is harder to draw and less encouraging for
those wanting change across the board.
Activists measure their success
in more ways than voting results, however. Although the ultimate goal for
activists may be stopping nuclear weapons production or ending apartheid,
intermediate aims--publicity, education and reminding corporations that
people are watching--figure prominently in shareholder strategy, and vary
depending on the type of activist. A close look at the South Africa issue
and its treatment in the corporate world provides a framework for assessing
shareholder activism in general. Because South Africa illustrates the most
fully developed instance of corporate reaction to pressure, it remains
an example of how far an issue may go, given the right conditions.
Substantive impact on corporate policy regarding South Africa is clear:
first, companies adopted the Sullivan principles (called the Statement of Principles since
Rev. Leon Sullivan disavowed them in May of 1987) to placate activists.
Then, many U.S. companies began to leave South Africa. Since 1985, 172
U.S. companies have ended their direct investment, a move widely attributed
to activist pressure of one sort or another. The cutting of non-equity
ties such as licensing and franchising agreements is next on shareholder
activist agendas; to date, 68 of the 149 US. and Canadian companies that
disinvested since January 1, 1986 are known to maintain such ties. Despite
these developments, the economic isolation that would bring South Africa
to its knees, has not occurred--and the Pretoria regime has granted few
concessions to its opponents. The recent treason trial and conviction of
South African anti- apartheid activists is a frightening example of the
government's position, whatever positive image it tries to paint through
apparently conciliatory regional moves.
In sum, U.S. companies substantially
reacted to anti-apartheid pressure, providing intermediate success for
shareholder activists, but the dissidents' ultimate goal of changing the
face of apartheid is still far from being realized. It may, however, be
too early to assess the effect of withdrawals over the long haul.
The South Africa fallout in other areas of shareholder concern seems to create at
least two apparently fallacious assumptions. From management's side, there
appears to be a tendency to assume dissidents want companies to pull out
if they direct concern at employment practices in a specific country.
Northern Ireland is a good example. Activists on that issue do not advocate corporate
withdrawal, recognizing the country's serious economic problems; instead,
they want to end potential discrimination against the Catholic minority.
But when companies hear mention of the MacBride principles, Sullivan and
South Africa may spring to mind, with the mental jump to disinvestment
not far behind. In this vein, the British government maintains that the
MacBride campaigners are making an already problematic investment climate
more unattractive. Since South Africa has attained such prominence, the
tendency is to assume a transferral of activist intent to other issues
when that is not necessarily the case.
A more accurate parallel would be
an image of progressive corporate involvement as a positive force in the
affected community--be it in Northern Ireland or elsewhere. Activists are
not immune from projecting improbable scenarios based on their South Africa
experience, either. Some tend to believe that additional codes of corporate
conduct can be promoted more easily now. But the level of outrage generated
by South Africa's institutionalized racism is quantitatively different
than that regarding other issues, however important those subjects are.
Although the Northern Ireland effort is making clear headway, its route
has not been smooth.
A less prominent example of limited issue coattails
concerns the Soviet Union. Shareholder resolutions on Soviet trade have
always fared poorly and companies so far have given a cool reception to
the recently devised Slepak principles for labor and religious rights there.
Still, dissident shareholder actions are granted more credibility today
than ever before, even if this increased respect is tied to the type of
sponsor and to the particular issue raised. If a broad political protest
movement with solid popular backing does not stand behind a shareholder
resolution campaign, the proposals probably will continue to face an uphill
battle in changing corporate behavior. But as familiarity with corporate
territory and sophistication increases, shareholder activists will have
ever greater impact. Ken Sylvester, who votes proxies for the New York
City pension funds, recently concluded that, "In the years that we have
been proposing resolutions, we have been able to convince many corporate
managements to adhere to our requests. That, I think, is a measure of success."
Heidi J. Welsh is a research analyst for the Investor Responsibility Research Center.
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