Shareholder proposals focusing on environmental issues are not only becoming more frequent but also increasingly sophisticated, with resolutions evolving from requests for greenhouse gas emissions cuts to demands for disclosure of strategies to manage climate risks and for linking executive pay with sustainability performance.
Socially minded investors who began seeking greater transparency from corporations’ environmental policies in the past decade are now looking for more detailed plans on how companies mitigate risks associated to climate change, such as more weather disasters. They are also pushing for more details of business models that would profit from greater regulatory obligations for more energy efficient operations and practices, said investors and governance specialists.
So you still think Environmental, Social and Governance (ESG) issues are not terribly ‘gritty’? Think again. Under the auspices of an ESG issue brief, MSCI – whose indices and analytical information help investors build and manage portfolios – recently published a report on concerns around the under-funding of global pensions.
Its results are startling. The ratio of under-funding is worst in North America, followed by Europe.Britain’s BT has a whopping 36% gap between its pension obligations and the resources set aside to fund them, second behind America’s DuPont, which has an even larger 42% funding gap. BT has around £50 billion ($62.4bn) of underlying pension liabilities, the largest of any U.K. company.
Vying for lucrative deals in China, JPMorgan Chase deployed all the usual wining-and-dining tactics that big banks use to woo clients. JPMorgan, federal authorities now say, also had ways of sweetening the deal that crossed a legal line.
Federal prosecutors and regulators announced on Thursday a settlement of roughly $264 million with the bank and its Hong Kong subsidiary, accusing them of a vast foreign bribery scheme that may have spread to a number of Wall Street banks.
The case centered on JPMorgan’s hiring practices in China, where it hired the children of Chinese leaders to win business in the fast-growing nation. Some of the well-connected candidates were unqualified, the authorities said, and often “performed ancillary work” — telltale signs of hidden bribery.The case could lay the groundwork for the authorities to pursue penalties against other big banks as well. Banks including HSBC, Goldman Sachs and Deutsche Bank have hinted that they face investigations into their hiring practices in China as part of a larger sweep by the agency that began in 2013.
James Surowiecki writes in the New Yorker:
Business professors once talked about “the imperial C.E.O.,” but, increasingly, we’re in the era of what Marcel Kahan, a law professor at N.Y.U., calls “the embattled C.E.O.” He told me, “Big shareholders and boards of directors have more power, and are more willing to use it. And C.E.O.s have been the net losers.” The breakdown of the old order began more than thirty years ago, but things have accelerated since the turn of the century. The Sarbanes-Oxley Act, passed in 2002, required greater disclosure to investors, and increased the independence of corporate boards. “In the old days, boards were often loyal to the C.E.O.,” Charles Elson, a corporate-governance expert at the University of Delaware, told me. “Today, they’re more loyal to the company.” The rise of activist investors—who campaign aggressively for change when they’re not satisfied with performance—has exacerbated the trend. One study found that when activist investors succeed in winning seats on the board of directors the probability that the C.E.O. will be gone within a year doubles.
The Teamsters union called Tuesday for health-care giant McKesson to take back millions of dollars in incentive pay from chief executive John H. Hammergren, citing damage to the company’s reputation caused by its role in the opioid crisis.
In a letter, Ken Hall, general secretary and treasurer of the International Brotherhood of Teamsters, urged the company’s board of directors to use its “executive clawback policy to recover all or a significant portion of CEO Hammergren’s incentive pay” over the past year and suspend future payouts until it restructures its compensation system. He also suggested that the board investigate rescinding incentive pay for other executives.
First Use of Proxy Access Bylaw
On November 10, 2016, GAMCO Investors, Inc. and its affiliated funds filed a Schedule 14N disclosing their nomination of a proxy access candidate for election to the board of directors of National Fuel Gas Company pursuant to the company’s recently adopted proxy access bylaw.
National Fuel has a nine-member classified board, and its access bylaw has a 3/3/20/20 formulation. GAMCO disclosed in its Schedule 14N aggregate beneficial ownership of 7.8% of National Fuel’s common stock, and based on its Schedule 13D filings, GAMCO has beneficially owned more than 3% for more than three years. In 2015, GAMCO submitted a shareholder proposal, which did not pass, requesting that the company engage an investment bank to effectuate a spin-off of the company’s utility segment.
Alice Korngold writes about the importance of board diversity.
“By increasing diversity among their board members, companies can unleash their greater potential to grow their value by finding innovative solutions to worldwide challenges. This will be good for business and good for the world.”
In the next two decades, the greatest opportunities for businesses to profit are in emerging markets, where three billion people will enter the middle class. Women also represent an important growing market worldwide, as they will control close to 75 percent of discretionary spending in the next five years.Unfortunately for shareholders, the vast majority of directors of the largest publicly held companies are still quite homogeneous. S&P500 board members are 80 percent men, with an average age of 63, older in fact than the average age of 10 years ago. (At 63, board members grew up when school materials were mimeographed; most were first exposed to the Internet at the age of 40.) Furthermore, in spite of extraordinary opportunities in emerging markets, directors of non-U.S. origin account for only 8 percent of directors on the boards of the top 200 S&P 500 companies, fewer than one per board; they are primarily from the U.K., India, Canada, France and Germany—only one of which is an emerging market country. Among the top 200 S&P 500 companies, minorities account for only 15 percent of all directors—fewer than two per board; the percentage of companies with at least one minority director dropped from 90 percent in 2005 to 86 percent in 2015. Women account for 20 percent of the total number of directors, with the average number of women per board at 2.16 (Spencer Stuart 2015). Among MSCI World companies, women hold 17.3 percent of board seats (MSCI 2014).
Imagine instead a board comprised of 10.8 people, the average board size, where directors of a variety of ages bring the necessary and relevant expertise and leadership experience, having grown up in various regions of the world, in a variety of socio-economic conditions. Such a group, some with academic credentials or particular subject mastery, others having built and led innovative ventures, climbed the ranks of multinational corporations in various parts of the world, had life experiences in emerging markets, or played and worked with the latest technologies from childhood, can truly envision what’s possible and also know what questions to ask management.
Remuneration Principles: Clarifying Expectations is a new report from Hermes about CEO Pay.
They note that CEO pay is uniquely disconnected from the principles and structure of every other kind of compensation and offer guidelines for investor priorities in reviewing pay proposals.
Given the deep concerns of stakeholders over executive pay in many
jurisdictions, it is in the interests of companies and investors to resolve the
tensions. To do so requires all parties to engage constructively and be willing
to make demonstrable change. To date, public policy has put responsibility
firmly on investors to regulate and control executive remuneration and this
looks set to continue, following proposals to introduce a binding say-on-pay
for annual pay awards. We, within the investment management industry,
therefore must recognise our responsibility to engage with companies
effectively as interested owners and, where necessary, use our shareholder
rights collectively and consistently.
Our Remuneration Principles
1 Shareholding: Executive management should make a material long-term investment in the company’s shares
2 Alignment: Pay should be aligned to long-term success and the desired corporate culture
3 Simplicity: Pay schemes should be clear and understandable for both investors and executives
4 Accountability: Remuneration committees should use discretion to ensure that awards properly reflect business performance
5 Stewardship: Companies and investors should regularly discuss strategy, long-term performance and the link to executive remuneration
Karla Jo Helms, CEO of Tampa Bay-based international PR firm JoTo PR, says many companies are missing opportunities to tie national or community-focused programs to the company’s bottom line.
She says that 91% of global consumers will switch to brands that support a social or environmental cause. Another 90 percent will boycott a company if they think its business practices are immoral or irresponsible. Companies like Wells Fargo and Volkswagen have suffered incalculable damage to their reputations — and their brands — due to legal and ethical violations. The trust of the consumer is as vitally important as the value of its products. Helms says that 42% of a company’s reputation is based on consumer perceptions of the firm’s corporate social responsibility (CSR) efforts. She strongly encourages companies to not only give back, but communicate their CSR activities to increase the trust and public perception.
In an interview, Helms explained what helps consumers and shareholders evaluate a company’s social/environmental record and what companies can do to use CSR to enhance their brands and strengthen their relationships with the people who buy from and invest in them.
How do consumers and shareholders find out about corporate social/environmental records?
Google and other Search Engines tell the story of a company’s persona. Goodwill stories, publicity pieces, news clips of stories and social media that push out those stories, videos and pictures of corporate social responsibility efforts with comments and kudos are a big social proof factor – good news spreads.
There is no better return on investment (ROI) than third-party credibility. Media articles carrying unbiased stories about a company’s greater good efforts are one of the biggest brand strengtheners and corporate reputation protectors today. In a world where everyone is looking for their news and information from credible online sources, publicizing CSR on digital platforms gains the best word of mouth.
55% of global online consumers in 60 countries pay more for products and services provided by companies that are committed to positive social and environmental impact.
Publicity and social media are key to retaining that “memory” in the search engines.
What do data show about how they respond to companies that they feel are not in line with their social and environmental views?
Actions taken by internet users worldwide in response to a company’s CSR efforts have been studied extensively:
• Bought a product with a social and/or environmental benefit 63%
• Boycotted a company’s product/services upon learning it behaved irresponsibly 53%
• Told friends or family about a company’s corporate responsibility efforts 47%
• Researched a company’s business practices or support of social/environmental issues 37%
Again – without publicity and social media, how would consumers know?
What are some examples of companies that have lost market share due to consumer social/environmental concerns?
Volkswagen: September 2015, the EPA discovered that many diesel engines of VW cars sold in America had a “defeated software” that was able to detect when cars were being tested and to change the performance of the engine, to improve the results of the test. The company at the highest levels deliberately set out to deceive emissions control to give the company an unfair advantage over its competitors; meanwhile it was poisoning the planet.
Wells Fargo: It was found that their customers nationwide were paying fees on a ghost account they didn’t even sign up for. Federal regulators said Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts – without their customers knowing it – since 2011.
Monsanto: Monsanto has a long history of generating public ill will. Today, Monsanto is perhaps most hated for its role in creating and utilizing GMO seeds and herbicides. Just look up any memes about Monsanto or the Millions Against Monsanto on Facebook and you see the public distrust and discord.
GrubHub: A 300-word email sent to the online food-ordering company’s 1,400 employees last week by the CEO led to a viral backlash with calls to boycott the food delivery service. The hashtag #boycottgrubhub was trending on Twitter through much of the next day. Whether Matt Maloney meant to or not, he made a statement about employees’ most basic social responsibility, which was their freedom and right to vote for whom they choose.
What are the social and environmental issues that matter most to consumers?
In the New Economy, studies show that being socially responsible has become essential for companies looking to meet consumer demand. Consumers say being socially responsible is an influence in their purchase decisions, rating
o “Being green” (83%);
o Reducing consumption (81%) and
o Contributing financially to nonprofits (65%) as important actions.
A study by Cone Communications and Echo Research of 10,000 global consumers found that 91 percent of shoppers worldwide will likely switch to brands that support a social or environmental cause. On the other hand, 90 percent of shoppers will boycott a company based off moral or irresponsible business practices. Hence the backlash on GrubHub.
What are some examples of companies that have incorporated social and environmental sensitivity in their brand messaging?
Starbucks: Starbucks did practically no advertising, but built its brand through good PR efforts. When annual sales hit around $1.3 billion, their advertising expenditures over a 10-year period totaled less than $10 million. See their site for all their CSR efforts and awards they do around the globe.
TOMS: Privately-owned shoe maker TOMS built its business model around social responsibility, giving a pair of shoes to a child in need for every pair purchased. Tom’s has given over 60 million pairs of shoes to children in need. (NOTE: Tom’s Shoes sell for $40 – $140 per pair.)
Nutiva: Nutiva aligns their CSR program with environmental and sustainability issues. Before ‘social responsibility’ was a Silicon Valley buzzword meant to put a face on faceless companies, John Roulac, CEO of Nutiva, has not only been outspoken about health fads and mainstream environmental causes, but has thrived on them, creating an empire.
Should CSR branding be closely tied to the industry or product?
What does your company do that can help in a broader way throughout the nation or in your own community? Does it align with your passions and the purpose of your company? What is your story for supporting it? If it doesn’t align with your company’s direction, you are really going to have to tell your story for getting behind it even better. CSR for the sake of CSR is as distasteful to the consumer public as lying, so companies need to have their CSR efforts make sense to the consumers and easily connect the dots on WHY they are doing it.
But sometimes it is the passion of the CEO that drives it – or a nationwide issue that employees get behind. Like with Outback Steakhouse (OSI Partners, LLC) when they made a $1 million donation in 2010 to Operation Homefront, a non-profit organization providing everyday and emergency support for active troops, veterans and their families. In June 2002, OSI launched Operation Feeding Freedom, sending a team of 15 Outbackers to Afghanistan to feed American troops stationed there. Over 100 members of the OSI team made another six trips serving troops in Djibouti, Afghanistan, Iraq, Kuwait and aboard the USS Nimitz in Bahrain. Overall, 137,000 troops were served at numerous bases and forward command locations. But as you can see, it still involved feeding people, so aligned with Outback Steakhouse’ line of business.
I have never been one to advocate PR for the sake of PR. In fact – I hate PR for those reasons. Public relations done to manipulate public opinion is for the birds, a crapshoot and the truth be told, the public can see right through it when it is superficial. So make it align – and if it doesn’t, really tell the story, because you will have to connect the dots for your consumers.
Donald Trump has tapped a longtime critic of heavy regulation to flesh out his new administration’s plans for remaking the financial rule book, including the potential dismantling of much of the Dodd-Frank financial overhaul.