Paul Hodgson: How to tell the story of shareholder engagement?

In response to the RI article on withdrawn shareholder resolutions published in February, Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management, commented that he felt that “we have been derelict as investors in ‘telling our stories’ about how engagement resulted in or contributed to key changes by companies.”
He went on to describe the many ways that Walden engaged with companies. Some success stories are “specific and direct e.g. under pressure a company places a woman on its board or sets GHG reduction goals, or discloses its lobbying expenditures or moves to annual election of directors.”
In other cases, he added, “investor pressure was part of a much larger public campaign,” such as forcing companies to adopt meaningful supply chain monitoring. “But the major point,” he said, “is that the story often does not get told and [people] would not know the result of a successful investor engagement.”
So, Tim sent me a series of articles, press releases and reports that detail Walden’s corporate engagement activities – successful and unsuccessful – in partnership with a range of other organizations.
These are summarised below, and continue RI’s series reassessing the shareholder/corporation engagement relationship.
So, in a spirit of seeing how much just one firm can do, while recognising that it is just one among many peers, here’s a look at Walden’s activities. The firm has been engaging with companies on ESG (environmental, social and governance) issues in partnership with other shareholders and activists since 1975. The most recent list of its engagement issues includes:

• Board diversity
• Climate change
• Equal employment opportunity
• ESG or sustainability reporting
• Governance
• Human rights
• Labor practices
• Political spending/lobbyingFor example, under equal employment, in the past three years alone, Walden has engaged with 35 companies on LGBT (lesbian, gay, bisexual and transgender) Workplace Equality. In all, 31 of them made the desired improvements to their equal opportunity policies. In 2014 and early 2015, Walden has seen further progress on this issue with some companies publishing their EEO (equal employment opportunity) policies to their websites, others adding sexual orientation and gender identity to policies, and yet others amending medical benefits plans to offer spousal and dependent coverage to employees in state‐recognized same sex unions. Moreover, several EEO resolutions filed for 2015 have already been withdrawn because companies have agreed to improve their nondiscrimination policies.
  In a substantial amount of its engagement process, Walden does not act alone. On LGBT issues, it often works in partnership with Pride Foundation, an organization focused on advancing equality for the LGBT community in the US Northwest. Pride led resolutions at nine companies for the 2015 proxy season, supported by Walden. Five resolutions have already been withdrawn after companies agreed to implement the requested inclusivity and disclosures.
  Given the lack of federal workplace protection for LGBT employees, and the fact that gay marriage has somehow become a political issue in the US, it would suggest that government protection is far from imminent. While this issue might not initially seem to be of the highest level of importance to shareholders, its value is clearly articulated by Walden. Carly Greenberg, ESG Analyst at Walden, said: “We believe it benefits long‐term shareholder value when companies ensure a respectful and supportive atmosphere for all employees. Employment discrimination on the basis of sexual orientation and gender identity diminishes employee morale and productivity. Further, Walden believes inclusive and public EEO policies help companies avoid costly discrimination litigation and reputation damage, all while enabling the company to attract employees from the broadest possible talent pool.”

This is a long-term shareholder value protection that companies clearly recognise as well. Walden notes that according to the Human Rights Campaign (HRC), approximately 91 percent of companies in the Fortune 500 currently have EEO policies that include sexual orientation and 61 percent have policies that include gender identity. Even ExxonMobil, which had resisted adding protective language to its EEO and non-discrimination policies for 15 years, has now agreed to add such language.
Walden also provides a perfect example of how prolonged engagement can lead to more effective engagement with a company. Expeditors International of Washington is a logistics company based in Seattle, Washington in the US. In 2007, Walden co‐filed a shareholder proposal led by Trillium Asset Management which called for the addition of sexual orientation to the company’s non‐discrimination policy. The proposal received 43 per cent support, but the company did not take any action. The resolution was, therefore, re‐filed in 2008, at which time it received receiving majority support. Following this, the board agreed to the essentials of the proposal. The company’s reaction some years later was very different. A 2015 shareholder proposal led by Pride Foundation, and co‐filed by Walden and Clean Yield Asset Management, requested that the company add “gender identity or expression” to its non‐discrimination policy. In contrast to its earlier reaction, the company quickly agreed to the request and the resolution was withdrawn. But the company did not simply agree to the resolution, it went further, and indicated that it would also be updating its employee non‐discrimination training policies to reflect the change.
Walden’s wider impact in 2014, of course, covered more than EEO issues. For that proxy season, 27 shareholder resolutions were either co-filed or filed by Walden. The firm encouraged six companies to establish greenhouse gas (GHG) emissions reduction goals; Colgate-Palmolive, among others, agreed. In addition, McDonald’s developed its first ever “climate change position” statement. After years of engagement with ConocoPhillips, it set a public GHG reduction goal to reduce absolute emissions 3-5 per cent in 2015. Also, engagement resulted in numerous companies agreeing to increase transparency related to climate risk, including Apple and Cabot Oil & Gas. In autumn 2014, in partnership with Calvert Investments and Pax World, 21 companies were sent a letter asking them to: set GHG reduction goals aligned with climate science predictions; commit to renewable energy; find opportunities to mitigate climate change in their value chain; and reexamine their role in influencing climate-related public policy.The year before, Walden addressed board diversity issues at 11 companies. By the beginning of 2014, five of those companies had added a woman non-executive director to their boards.
Walden’s tools of engagement aren’t limited to shareholder proposals. They also include: dialogue with companies, proxy voting, and public policy advocacy; a list that incorporates almost all the tools listed in the recent Croatan Institute report. Dialogue engagement includes direct requests to companies to engage or disengage with trade associations that do not fit with a company’s public stance on issues. For example, unsuccessfully, so far, it has been calling on corporations to ask trade associations, such as the U.S. Chamber of Commerce, to stop opposing legislative and regulatory action on climate change. In addition, it rightly challenges the contradictions involved in corporate support both for renewable energy and for the American Legislative Exchange Council (ALEC). ALEC is a US conservative non-profit that sponsors state legislation on everything from promoting gun rights to weakening environmental regulations. More successfully here, approximately 85 companies have withdrawn from ALEC. More specifically, Walden and several co-filers submitted a resolution on increasing Google’s disclosure of its spending on lobbying at trade and other non-government associations, citing its involvement with ALEC. At its annual meeting, Google expressed its disagreement with ALEC on a range of issues and agreed to review the resolution.

In the wider public policy arena, Walden joined investors with $300 billion in assets under management to urge the US Environmental Protection Agency (EPA) to regulate methane emissions from the oil and gas industry.
Work continues in encouraging companies to publish sustainability reports, calling for controls in the production of palm oil and increasing involvement in CDP disclosures. If this is how much Walden accomplished in a single year, either alone or in partnership with other investors or clients, what would the totality of successful shareholder engagement look like? It’s time the story received a wider audience.

Paul Hodgson is an independent governance analyst.