US SRI houses write to SEC to slam Chamber of Commerce voting report as fatally flawed

Problems of methodology and bias pepper report, claim critics.

US SRI firms and advisors have atacked as “fatally flawed” a recent report published by the US Chamber of Commerce that claims that shareholder proposals at corporate AGMs show no clear evidence of short- or long-term improvements in operating or stock market performance of target firms and could be placing trustees in breach of their fiduciary duty under ERISA guidelines.
One SRI advisor, Creative Investment Research, is understood to be corralling signatories to the $18 trillion United Nations Principles for Responsible Investment to write to the Securities & Exchange Commission (SEC) to point out what it says are problems of bias with the research and ensure it does not influence future SEC policy on shareholder voting.
At a Responsible Investor conference on ESG in New York last week, Adam Kanzer, managing director and general counsel of Domini Social Investments, said the research methodology was not rigorous and claimed it showed significant political bias in its data selection.
Navigant Consulting, which carried out the study for the US Chamber of Commerce, said it had examined “key vote” shareholder proposals put forward between 2002-2008 by the AFLCIO, the US’ largest union federation,which were supported by union-sponsored and public pension funds, employee shareholders and other investors. Over seven years, Navigant said it had relevant data on 170 shareholder proposals. The consultant said its research found no statistically significant overall short- run or long-run improvement and said there was actually some indication of a long-run decrease in market value for target firms in the sample. Conversely, it said there was anecdotal evidence that both target firms and the sponsors of shareholder proposals incurred costs as a result of the proxy proposal process. The SRI critics say the AFL‐CIO Proxy Voting Guidelines from 2002 to 2008 represent a very narrow voting set amongst at least 100 other proxy voting guidelines and so cannot be claimed as representative. The timeframe, they say, is also too short, to make such general conclusions. Furthermore, the investors said the methodology used to determine statistical significance – comparing actual stock price with a predicted stock price – is “fatally flawed.” They said the analysis also failed to account for opportunity costs arising out of the shareholder resolution process related to activities that could increase shareholder value.