28 May. 2019 | Comments (0)
On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the ESG Center research team, is meant to serve to spark discussion on some of the most important corporate governance issues.
So far this proxy season, the Environmental, Social and, Governance (ESG) issues of corporate political spending disclosure, climate change-related reports, and board diversity have taken center stage. And that was before the peak proxy season date of May 16, when there were 171 annual meetings.
While none of these issues are new to the targeted companies, there are more of them. And they are starting to get more votes and, in some cases, are changing company practices. For example, three energy companies (Entergy, Xcel Energy, Pinnacle West Capital Corp.) agreed to issue reports related to the impact their companies have on carbon emissions after receiving shareholder proposals asking for such disclosure.
Corporate political spending disclosure
As of April 29, 97 corporate political spending (59) and lobbying (38) resolutions had been filed by shareholders this proxy season, compared to 80 last year. Of those, 12 already have been withdrawn by their proponents as they have reached settlements with the target companies, which include such S&P 500 names as AT&T, GE, Bank of America, Hilton Worldwide, IBM, and JPMorgan Chase. In these “private ordering” settlements companies generally agree to disclose corporate political spending policies on their websites in exchange for the shareholders withdrawing the proposals. According to Bruce Freed, president of the Center for Political Accountability (CPA), close to 60 companies received the CPA model resolution filed by its partners. As of May 30, the votes have averaged just shy of 37 percent in support with many over 40 percent and one majority vote. (See our op-ed, “Expect Demands for More Corporate Political Spending Disclosure” in Agenda – subscription required.)
In the case of corporate political spending disclosure, a coalition of 70 investors led by the New York City comptroller, the Connecticut treasurer, and the AFL-CIO has asked 33 public companies to disclose their payments for federal and state lobbying, trade associations and social welfare associations that help write and endorse legislation, in particular regarding climate change and corporate responsibility issues.
Climate change-related reports
New York City Comptroller Scott Stringer’s efforts to ask TransDigm Group, an aerospace parts manufacturer, to adopt goals for managing GHG (greenhouse gas) emissions was a more radical example of a shareholder proposal vote. His office sued TransDigm in federal district court when the company attempted to omit the shareholder proposal from its proxy. TransDigm relented by withdrawing its request and the proposal went to a vote, receiving 34.9 percent support.
Another notable vote involved Starbucks, where a proposal requesting a report on reducing the company’s environmental impact by increasing sustainable packaging initiatives received 44.5 percent support, despite management opposition.
As of April 29, the following climate change-related proposals have been filed: 51 calling for a report on climate change/GHG emissions and 42 calling for a report on sustainability/energy goals.
A coalition of 20 public pension funds, social investment funds and faith-based investors earlier this year launched a campaign to require the 20 largest electric power utilities to eliminate carbon pollution by 2050. The coalition has vowed that if those utilities don’t commit by their 2020 annual meetings to “net-zero by 2050” they will recommend that asset owners and managers vote against the board chairman and/or lead directors.
So far, only one of the utilities – Xcel Energy – agreed to the net-zero commitment. Most of these companies faced related shareholder proposals calling for the issuance of climate change-related reports to investors. Of those proposals, three were withdrawn after the companies agreed to the report and four were omitted after the SEC issued a no-action letter.
Board diversity and independent chair
As of April 29, The number of board diversity shareholder proposals in 2019 had climbed to 45 from 29 in all of 2018, according to Vinson & Elkins. The number of independent chair (separation of chair and CEO) proposals rose to 60 from 53 in 2018.
One of the most notable board diversity shareholder proposal proponents this year has been the New York State Common Retirement Fund led by New York State Comptroller Thomas DiNapoli. The fund filed proposals seeking increased board diversity (inclusive of sex, race, ethnicity, age and gender diversity) at four companies that didn’t have women on their boards. One of the four companies – Trip Advisor – agreed to expand its board and add two women directors. The other three (Gaming and Leisure Properties, New Residential Investment Corp., and Sinclair Broadcast Group) included the proposals in their proxies, which will be voted on over the next month.
That fund has a policy of opposing all incumbent directors on boards that have no women directors; that includes 616 companies as of March 6, 2019. Additionally, the fund has voted against incumbent nominating committee directors on boards with only one woman director. To date, that includes 450 such companies.
Regarding diversity-related shareholder proposals, there are two cases worth noting so far this proxy season: ExxonMobil (see the section below on ExxonMobil and Amazon) and Analog Devices. At ExxonMobil, shareholders will consider a proposal filed by the New York City Retirement Systems that would require the board to use a matrix when disclosing each director’s/nominee’s gender and race/ethnicity, as well as skills, experiences, and attributes. In the case of Analog Devices, a proposal requesting the preparation of a report regarding employment diversity and diversity policies and programs received nearly half support, despite the board’s opposition.
ExxonMobil and Amazon
ExxonMobil has the distinction of having to include shareholder proposals in all the following areas on its proxy – independent chair, special shareholder meetings, board matrix, climate change board committee, report on risks of Gulf Coast Petrochemical Investments, report on corporate political contributions, and a report on lobbying. The annual meeting is scheduled for May 29. While it included the shareholder proposals on climate change reporting and separation of the chair and CEO after the SEC would not issue a no-action letter, the company filed an addendum to its proxy statement that included a blog post from ExxonMobil Investor Relations VP and Secretary Neil Hansen. That post cited how the company had already published a report on how it manages climate change risks and how it had engaged with the two shareholder proposal proponents – The Church of England and the New York State Common Retirement Fund.
Amazon may be one of the other companies with nearly as many shareholder proposals as ExxonMobil. In its May 22 annual meeting, the technology giant’s shareholders voted down proposals concerning workplace diversity, hate speech, sale of distasteful products, and sale of facial recognition technology. What is unique about one of the Amazon shareholder proposals – request for the company to report publicly on how it plans to reduce its reliance on fossil fuels and manage climate change risks – is that it is supported by more than 7,600 Amazon employees who signed a letter.
The views presented on the ESG Blog are not the official views of The Conference Board or the ESG Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, others associated with The Conference Board or the ESG Center.