The workers-on-the-board resolution that goes to the vote at Microsoft today builds on the Business Roundtable’s statement on the primacy of “stakeholders” over shareholders.
Before August this year, this would have been unthinkable. But since the business lobby group placed the primacy of employee stakeholders above that of shareholders, investors seeking to place employee representatives on corporate boards now have an unexpected new ally.
While it does not refer to the BRT statement in its shareholder resolution in the proxy statement, the filer of the resolution – SRI firm Northstar Asset Management — explicitly quotes it in its supporting filing with the SEC: its “exempt solicitation”.
NorthStar is asking the board “to prepare a report to shareholders describing opportunities for the company to encourage the inclusion of non-management employee representation on the Board”.
"Directors elected by employee shareholders unambiguously increase firm valuation and profitability."
It is shareholder resolution number one at today’s annual meeting – a second resolution asks for a report on gender pay. The proposal notes three occasions when Microsoft employees publicly dissented against management actions: its poor record on gender discrimination and sexual harassment, its connection with ICE [Immigration and Customs Enforcement], and its contract to develop augmented reality headsets for the US army.
The exempt solicitation goes into more detail on the benefits of a worker director – as well as noting successful adoption of such policies in France and Germany. Research has shown that it “confers valuable first hand operational knowledge to corporate board decision-making”, it improves human capital efficiencies and has been “shown to provide employee ‘checks’ on several structural incentives for management opportunism.”
And: “Directors elected by employee shareholders unambiguously increase firm valuation and profitability.”
Microsoft advises shareholders to vote against the resolution. Proxy firm Glass Lewis recommends a vote against the resolution because director elections are best left to management and the board. Glass Lewis adds that the company’s statement on the shareholder resolution actually answers the request of the proponent for a report on the feasibility of adding an employee representative.
Rival ISS also recommends a vote against the proposal, noting that the company's Corporate Social Responsibility Report, and “responses to recent employee demands” show that it is aware of workforce related issues.
The Regulatory and Public Policy Committee also provides a good avenue of communication, its report says. While ISS recognises that there continue to be “litigation and reputational risks with Microsoft's alleged gender discrimination, and reputational risks related to the use of its product by certain government agencies” and that this could affect the company’s reputation and its ability to recruit the best employees, it claims that the requested report would not address these risks, despite the fact that these risks are precisely what the resolution is attempting to mitigate.
Given that most of Silicon Valley, with the addition of Amazon, faces precisely the same set of risks, more such resolutions can be expected.