Kris Douma is no stranger to the politics that goes with lobbying some of the world’s biggest and sometimes most controversial companies. Prior to becoming head of responsible investment support and active ownership at Mn Services, the Dutch pension fund manager in April 2007, he stood for four years as a member of parliament for the Dutch Social Democratic Party (PvdA). In that time, he worked on major social and economic reform such as the Tabaksblat code of corporate governance and the European Transparency Directive. Before that, he spent 15 years at FNV Bondgenoten, the largest Dutch trade union.
More recently, Douma was a member of the group of European institutional investors including F&C, the UK fund manager, that called for support for a resolution they placed on the agenda at the June annual general meeting (AGM) of Wal-Mart, the world’s biggest supermarket chain. The investors expressed concern over the company’s apparent intransigence faced with continued bans by some US cities on Wal-Mart type, out-of-town hypermarkets. They also challenged its failure to comply with international labour standards. Wal-Mart’s poor business reputation, they said, was driving away customers and putting their investments at risk.It was not the first time Wal-Mart had faced investor ire. In 2006, the Norwegian Government Pension Fund blacklisted the grocer because of child labour violations by its suppliers in the developing world and the obstruction of union representation for US workers. The Norwegian fund sold off more than $400m worth of Wal-Mart shares. At the time, the decision provoked sharp criticism from Benson Whitney, US Ambassador to Norway, who accused the fund of a “national judgment of the ethics of these companies,” and took up the issue with the Norwegian government. Douma says the latest resolution was dropped just days before the Wal-Mart AGM, reflecting a change of attitude at the company: “We are now talking with Wal-Mart on these concerns. They decided that we as shareholders were not something to be scared of and we eventually managed to liaise with their legal department. Sometimes the most difficult barrier in an engagement is talking with the right people.” Subsequently, the investors issued a joint engagement statement with Wal-Mart. Douma says the success of the engagement requires vigilance: “Wal-Mart says it will establish a policy to ensure that certain kinds of labour rights abuses do not happen again. We as investors need to look at implementation and make sure there is no subsequent relapse of the problem.”
Mn Services, which manages €65bn ($96bn) in assets for 15 Dutch pension funds and two insurance companies, has become one of the most vocal supporters of responsible investment. The fund manager is wholly owned by the two main Dutch pension funds for the metal industry: the €33bn PMT and the €21.5bn PME funds. Both funds and Mn Services are signatories to the United Nations Principles for Responsible Investment (PRI). Douma says the PRI has been crucial in rallying investors around a set of general responsibility guidelines. But he believes the initiative needs to be “more specific” in what it means for investors as it matures. At Mn Services, Douma’s role is to lead share voting, engagement and, where necessary class action law suits, across all asset classes. Effectively, he is the proxy holder of rights in approximately 2000 companies worldwide. In June this year, PMT and PME issued a joint responsible investment policy via Mn Services, aligning all investments with eight principles from international agreements and standards. It covers company strategy, company governance, human rights, labour rights, the environment, anti-corruption, supply chains, and transparency. Notably, the funds said the use of voting rights was key, adding: “The recent attention on the personnel policy of the American supermarket giant Wal-Mart shows how an active dialogue and the voting policy can work in practice.” Douma says there were two main drivers of the new policy. The first was a growing call for such policies by Dutch trades unions. The second was the influence of 2007’s Zembla documentary on pension fund investment in companies manufacturing cluster bombs, which gave rise to a huge public outcry. Douma says: “As a result of the policy, we now work closely within existing international guidelines such as the UNGlobal Compact, OECD guidelines, and international guidance on the use of company sub-contractors, etc. The first step for us was to look at Dutch companies to see that they were compliant.” One of the next moves, he says, was to screen portfolios for links to cluster bomb manufacturers: “There were 60 companies where we had concerns. If the company was non-compliant on cluster bomb production, then we excluded it. If there was an issue with the company over links to cluster bomb production, such as being a component supplier, then we engaged.”
“They decided that we as shareholders were not something to be scared of and we eventually managed to liaise with their legal department.”
Douma explains that for engagements with smaller companies, the fund manager approaches the target company on its own. With bigger companies, engagement either involves the services of F&C, which Mn Services employs to engage on its behalf, or happens via collaboration through the UNPRI Clearing House, a private intranet engagement forum for PRI members. Douma says: “F&C often makes first contact, but with some companies it is extremely difficult to get that far. Other companies are extensive in explaining what they propose to do about certain concerns. For example, we have an engagement with Lundin Petroleum in Sweden about potential issues of complicity with the Sudanese government on human rights issues. Our role now is to be sure they are proactive in implementing some of the best practices they have identified for future projects.”
On country-specific issues like state human rights violations in Sudan or Burma, Douma believes the role of the investor is to use all possible influence to ensure there is no complicity via the companies it invests in: “We want to be sure that companies in these countries are using every lever they have to pressure the authorities to change. We are not asking companies to leave Sudan or Burma, because it’s questionable what that would achieve.”
This kind of engagement, he says, can take a long time – sometimes years: “If the company is not open to discussion, then the divestment option is there. In other cases it is black and white. For example, with the use of forced labour or child workers, either companies comply and change their policies according to international standards, or we divest.”Gradually, Mn Services is finessing its engagement strategy to include other issues such as people displacement as a result of mining or large-scale infrastructure projects such as dams: “We recently hired someone who was formerly at the World Bank and has experience of resettlement projects and we are now examining oil companies that have been involved in forced resettlements.”
To date, the manager has also focused responsible investment activity on equity holdings. “The next step is to adapt the strategy to other asset classes. We are looking at hedge funds, for example, and how they can be socially responsible. We are also examining private equity, which can play a very important economic role, particularly in the venture stage,” says Douma.