Investors Object to Virtual-Only Annual Meetings

Some companies are hoping to avoid in-person challenges at the annual meeting by scheduling virtual-only online session. The Council of Institutional Investors, whose members have $3 trillion in assets under management, has also spoken out strongly opposing virtual only meetings and the pension funds of New York City are voting against directors serving on board Governance Committees of companies moving to virtual-only meetings. Of course, in-person meetings enhanced by virtual participation for those who cannot otherwise attend is entirely different and should be encouraged.

The Sisters of Saint Francis of Philadelphia have taken the lead in challenging these decisions with shareholder resolutions at ConocoPhillips and Comcast. The Conoco resolution has already been cofiled by the Church of the Brethren Benefit Trust and the Needmor Fund, a Walden client. The Sisters have also filed a similar resolution with Comcast.

Walden’s Tim Smith stated, “The decision to move an annual meeting to cyberspace has moved far beyond a minor internal management decision and become an important governance matter for companies. Imagine if companies facing major controversies had decided to forgo physical meetings. If a company faces debate on their comp package or its climate change position or has votes on shareholder resolutions it is also a problem to have a disembodied discussion on line for a stockholder meeting.“

OpenInvest: Put Your Money Where Your Heart Is

VEA Vice Chair Nell Minow interviewed Joshua Levin for the Huffington Post:

A new service allows even small investors to pick companies based on their values by swiping right. It is called OpenInvest, and it is available on iTunes. Joshua Levin, co-founder and chief strategy officer, explained how it works.

Where did this idea come from?

It comes from staring down “the giant paper packet.” If you own individual stocks, this is the thing that arrives at your doorstep, allowing you to vote in major company decisions. These shareholder votes are absolutely one of your most powerful tools to shape the world, often driving major corporate decisions on how to treat people and the planet – everything from climate change policies to treatment of LGBTQ employees and more. The corporations we all own are more powerful than governments and also happen to set the political agenda.

Yet no one fills these things out. It feels like you need a law degree and a free weekend, and none of your friends are doing it, so what’s the point?

Even worse, if you own funds, you’ve most likely signed away your voting rights. For example, in 2015, Vanguard voted against all 200 sustainability-related shareholder resolutions, according to Barron’s.

The shame in all this is that we actually have collective ownership of the economy. Individual investors directly and indirectly own nearly 80% of US equities markets. We’re literally in charge. The CEOs work for us and report to us. They are awaiting our commands. But no one is using their power due to unnecessary confusion, intermediaries, and red tape.


By disrupting this system, we are kicking off the world’s first digital democracy. We’ve spent years cutting through complexity and special interests on the back-end, to deliver a seamless and engaging democratic system on the front. People will only see the votes that matter to them, get a 2-sentence summary of the issue, vote with a swipe (as easily as picking a date on Tinder), and then share with others.

Does it just offer NYSE and NASDAQ stocks, or are other kinds of securities available?

Yes, OpenInvest portfolios are structured as a blended portfolio of equities listed in the S&P 500 index (which only has stocks listed on either the NYSE or the Nasdaq), but are reflective of the retail investor’s values, combined with a green or traditional bond fund. By design, each user’s equities portfolio will track the performance of the S&P 500. It’s like each person has their own index fund.

The SEC and state regulators have a lot of requirements about the information that has to be provided to investors.  How do you make that work on a “swipe right” system?

OpenInvest is an RIA and Fiduciary that serves the best interests of our clients. We took great pains to provide a robust and fully compliant proxy policy for our users, which explains our approach in full and is amended into our SEC filings. When clients receive a distilled summary of a vote, it is a prompt with a link to learn more through the official corporate proxy statement. When they swipe, the client is informing our vote, which is cast in accordance with this policy. It’s like a digital conversation with a client, who we already know very well. This makes it sound simple, but it took years to develop and is patent pending.

What kinds of priorities can people put into the system to shape their portfolios?

We currently have 11 “themes” – which are both positive and negative filters – that an investor can choose from and mix and match to suit their values. They can also swipe individual names in and out to further customize. The current themes include Carbon Emissions, Fossil Fuels, Deforestation, LGBTQ Rights, Tobacco, Weapons Manufacturers, Women in the Workplace, Divest from Trump, Supporting Refugees, Divest from Dakota Access Pipeline, and Human Rights in the Supply Chain.

What other kinds of information will you be adding? 

Most of our upcoming themes are top secret. But we are on the brink of launching a screen that helps people divest themselves of the prison-industrial complex. We are also adding significant amounts of financial education and video content. How does the rebalancing work?  Is it affected by the limits customers place on their holdings?

The key to maintaining both diversification and values is technology. For example, when the Wells Fargo consumer fraud scandal occurred, many of our customers picked up their smartphones and swiped Wells right out of their portfolios. On the back-end, our systems instantly break apart and rebalance their portfolios to keep them diversified and tracking the performance of the benchmark. It’s the first time anyone can be a social activist investor, while always holding a passive portfolio.

By design, customers can select all of our screens and still hold a sufficiently diversified portfolio that broadly tracks the market. We do have some “power users” who divest from so many things that we have to engage them as a fiduciary. We let them know that they are at risk of creating significant variance (tracking error) from the benchmark, and we do not recommend that they proceed from a financial standpoint. However, if they would like to proceed, we can help them implement. We’re very happy to empower people; they just need to go in with their eyes open.

Do millennials have different priorities for investing than the previous generations?


When polled, 84% of millennials want to invest in companies that share their values, according to a Morgan Stanley study. Our internal data also shows, for example, that 63% of Americans under 40 care deeply about climate change, so that greatly affects their investment choices. However, millennials are also the most diverse American generation to-date. They desire customization to their particular values, as well as a visceral connection to their impacts, and an amazing digital experience. Recent tech developments are finally making this possible. We are putting socially responsible investing at the fingertips of the generation who will mainstream this movement.

VEA Comment to the SEC on Human Capital Disclosures Rulemaking Petition

VEA was proud to support the rulemaking petition at the SEC for better, clearer disclosure of human capital information.  This is the comment we have filed.

September 27, 2017


Honorable Jay Clayton


U.S. Securities and Exchange Commission

110 F Street. N.E.

Washington D.C. 20549


Re: Human Capital Management Disclosures Rulemaking Petition


Dear Chairman Clayton,


We write in support of better disclosure of human capital information on behalf of ValueEdge Advisors, a consulting firm specializing in corporate governance, working primarily with institutional investors. This comment, however, reflects only our own views, based on decades of working in the fields of corporate governance and capital formation.


As you know, GAAP data came out of an era when a company’s primary worth was based on real property, equipment, and its inventory of tangible products. We now live on a time when companies’ primary assets and liabilities are all human capital, the abilities, knowledge, and relationships of its employees. You can hardly find an issuer’s annual report that does not claim the company’s primary assets are its people. And yet you would not know that from looking at balance sheets, which are skimpy when it comes to information we find essential for evaluating investment risk. Just as important, it is information corporate executives themselves must have in order to develop strategy and evaluate operations.


We strongly endorse the position of the Human Capital Management Coalition (HCM) as outlined in their comment letter of July 6, 2017,  that better disclosure of an issuer’s record on human capital is achievable at very low cost, and of enormous value to investors, analysts, and the issuers themselves. The kind of information we would like to see includes employee turnover, employee training, and opportunities for advancement.


It is important to emphasize that this is not in any way a political agenda. It reflects concerns raised by respected institutional voices like BlackRock’s Larry Fink and the Sustainability Accounting Standards Board (SASB), which produces reports like “Human Capital in the Age of Fintech.” As noted in the HCM letter, “SASB has identified one or more human capital issues as ‘material’ for accounting purposes for at least some industries in each of its 10 sectors. It has characterized human capital as a ‘cross-cutting’ issue.” (footnotes omitted)


Such disclosure will not inhibit capital formation. Quite the contrary, it will make capital allocation more efficient, and any such claims should be closely examined for proof. And it will not impose any additional costs. The information needed for disclosure is already available and relied on by executives and managers, or, if it isn’t, they are overlooking critical data and that in and of itself is of vital interest to investors. If part of what investors need to do is evaluate risk, it is far more significant to know how much a company is investing in employee development and whether employees are satisfied enough to stay in their jobs, keeping crucial institutional knowledge in-house, than to know what the depreciation schedule is for some forklifts. There is hard data, readily available, about employee capabilities, training, and treatment. And there are unprecedented changes ahead from the development of AI and the increasing seamlessness of global outsourcing. Both can be enormous accelerants for corporate operations, but both pose enormous risks as well, in oversight and in the scope of problems, like cybersecurity, that are difficult to predict.


We will not reiterate the extensive points made by HCM; we incorporate them by reference, and provide this comment only to underscore our strong belief that this is an essential area for SEC action. We request that hearings be scheduled and would be glad to provide any additional information that may be of help.


Sincerely yours,





Richard A. Bennett                                          Nell Minow

President and CEO                                          Vice Chair



Do Performance Share Units Work?

Aubrey E. Bout and Blaine Martin of Pay Governance evaluate the effectiveness of a decade of performance stock units on shareholder value.

PSU plan payouts in aggregate were aligned with company total shareholder return (TSR): plans paying out above target showed significantly higher TSR than plans paying out below target during the same period.

There is no one-size-fits-all approach to pay-for-performance: PSU plans using both operating metrics and relative TSR metrics show strong alignment with TSR over the contemporaneous period.

We found that PSU payouts for plans implemented in and after the first year of say-on-pay (SOP) had higher payouts than plans before SOP, but this trend is likely influenced by broad stock market trends independent of SOP.

PSU plans based entirely on operating metrics had median plan payouts at or below plans that included Relative TSR metrics in 7 of 10 years reviewed. This finding suggests that Compensation Committees closely scrutinize goal setting when using operating metrics in PSU plans, which rebuts arguments that companies commonly set easy operating financial goals to get above-target payouts.

WSJ Nearly Gets it Right on Accountability to Shareholders for Political Expenditures

We can’t argue with this part:

The fiduciary responsibility of a CEO is to safeguard the company’s assets and acknowledge this overriding principle: “It’s not our money but that of the shareholders.”

And we agree that shareholders (they say small but we say all shareholders) should be allowed to sue corporate managers and boards for political expenditures.

But the reasoning that follows in the Wall Street Journal op-ed by Jon L. Pritchett and Ed Tiryakian is skewed. Their definition of “political” would not be recognized by any dictionary and they are wrong in the examples they pick (and ignore) of corporate decisions unrelated to financial metrics.

The authors mean by “political” a decision that puts principle above immediate financial gain. They use as an example Target’s decision to make their bathrooms free from trans-phobia, attributing a drop in stock price to this particular decision. Is there a single Wall Street analyst report suggesting that this is the case? Is there no way to tie this decision to not just human decency but to Target’s brand choice of inclusion and dignity for all customers?

We would argue that the decision had no impact on the stock price and challenge the authors to prove otherwise. And on the topic of politics we would think a better example from Target would be their making a political contribution to a candidate who opposed gay rights contrary to the company’s longtime gay-friendly brand (they liked his economic policies), which led to extended protests and a lot of bad publicity, and then which led to an apology. That is what we consider politics, not making bathrooms available to customers.

The “Christmas cups” at Starbucks example the authors give in the article qualifies as fake news. Starbucks did have Christmas cups. They were red, which is a color associated with Christmas, and just as Christmas-y, or more so, than their previous cup with snowflakes or the one with a snowman, which somehow never offended anyone. Did the year the cup featured ice skaters constitute a “political decision?” It is the very definition of “ordinary business.”

The same applies to the near-unanimous decision of the CEOs to resign from President Trump’s advisory councils. The CEOs who left are experts at cost/benefit and risk/benefit analysis. They understand that associating themselves with a president who cannot bring himself to explicitly oppose Nazis and the KKK carried significant risk of damage to the reputation of their companies and their brands. As for benefit — the councils met just once and were not doing anything. To the extent that any potential prestige was beneficial to their companies, they rationally concluded that it had was disappearing quickly. An article in the Harvard Business Review the same week as the departure from the President’s advisory councils explicitly points to diversity as a brand and reputation enhancer for companies and Professor Jeffrey Sonnenfeld calls the decision to leave “courageous.” David Gelles, who covers business for the New York Times, wrote about the “forthright engagement” of executives.

Even this past week, it was easy to discern careful calculations made by executives who chose to speak out against Mr. Trump. Many faced calls to resign from the presidential advisory councils, and the prospect of boycotts if they did not.

But they also faced notable and new kinds of pressure from within — from employees who expect or encourage their company to stake out positions on numerous controversial social or economic causes, and from board members concerned with reputational issues. In the past week, business leaders have responded with all-staff memos and town-hall meetings.

In short, while companies are naturally designed to be moneymaking enterprises, they are adapting to meet new social and political expectations in sometimes startling ways.

So, Pritchett and Tiryakian have no basis to assume that the decision to leave the councils was motivated by anything other than their fiduciary responsibility to shareholders. We disagree with the authors’ idea of what constitutes “political.” We do agree entirely, though that investors should be able to sue for misuse of corporate assets in truly political expenditures like campaign contributions and lobbying, as for example to thwart environmental or occupational safety or product safety rules. A good first step is to require companies to disclose those payments. We suggest this as the topic for their next op-ed.

Update: Trump’s Business Councils Disband in Light of His Support for Racist Groups

The New York Times reports that there was something of a race between the CEOs who wanted to abandon ship from President Trump’s business advisory councils and the President, who wanted to shut them down before there could be any more embarassing defections.

President Trump’s main council of top corporate leaders disbanded on Wednesday following the president’s controversial remarks in which he equated white nationalist hate groups with the protesters opposing them. Soon after, the president announced on Twitter that he would end his executive councils, “rather than put pressure” on executives.

Rather than putting pressure on the businesspeople of the Manufacturing Council & Strategy & Policy Forum, I am ending both. Thank you all!

— Donald J. Trump (@realDonaldTrump) Aug. 16, 2017

Moreover, the panels have not been seen to be particularly effective. After a few high profile events for the groups early in the Mr. Trump’s presidency, there have been few meetings since, and none more are planned.

“So far they haven’t done much,” Ms. Admati said. “They had a few meetings with a bunch of fanfare, but it was more symbolic than anything else.”

IRRCi Research Competition 2017

The Investor Responsibility Research Center Institute (IRRCi) has opened its sixth annual competition for research that examines the interaction between the real economy and investment theory. Practitioners and academics are invited to submit research papers by October 6, 2017, for consideration by a blue-ribbon panel of judges with deep finance and investment experience.

Two research papers – one academic and one practitioner – each will receive the 2017 IRRCi Research Award along with a $10,000 award. The winning papers will also be presented at the Millstein Center for Global Markets and Corporate Ownership at Columbia University in December 2017 in New York City.

The panel of respected judges includes:
Robert Dannhauser, Head of Capital Markets Policy, CFA Institute
James Hawley, Professor and Director of the Elfenworks Center for Fiduciary Capitalism at St. Mary’s College
Erika Karp, Founder, CEO and Chair of the Board of Cornerstone Capital
Nell Minow, VEA Vice Chair and Huffington Post Columnist

Business Leaders Respond to White Separatists Where Trump Failed

President Trump has been widely criticized by politicians of both parties for his failure to speak out forcefully about the racist demonstration in Charlottesville, Virginia that became deadly when a white man with a picture of Hitler on his Facebook page intentionally rammed the crowd protesting the demonstration, killing one person and injuring more.

Business leaders have been more effective at communicating their unequivocal opposition to the display, with marchers carrying Nazi and Confederate flags.  Airbnb not only canceled reservations made by people who were coming to Charlottesville to attend the event; it cancelled their accounts.   GoDaddy will be taking down the neo-Nazi website and Google has said they will remove it from their search engine.  Even the maker of the tiki torches carried at the event has expressed regret that they were used. The CEO of Merck, Kenneth Frazier, Intel CEO Brian Krzanich, and the CEO of Under Armor, Kevin Plank,  have resigned from President Trump’s Advisory Council in protest over his failure to respond appropriately to the demonstration.

merck statement

The New York Times asks, What About Other Executives? So do we. At Slate, Daniel Gross writes:

[S]even months into the Trump administration, we’re seeing that showing up and uttering pro forma support may not be a viable PR, business, or personal strategy for CEOs who want to lead their companies while being true to themselves.


Some CEOs have discovered that mouthing even anodyne support for Trump can have a really negative impact on their business relationships and stock price. In February, Kevin Plank, the CEO of apparel-maker Under Amour and a member of the manufacturing council, said “to have such a pro-business president is something that is a real asset to this country.” In response, some of the company’s leading endorsers, including Stephen Curry, expressed their anger, customers rebelled, and the stock was ultimately downgraded.


Other CEOs have discovered that while the policies of Trump and the GOP may be theoretically good for “business,” they are really bad for their particular business. Duh. Musk was the first to bail from Trump’s manufacturing council after Trump announced the U.S. would pull out of the Paris Agreement on climate change.

Meanwhile, companies are coming to two collective realizations. First, while the Trump administration is delivering favorable policy to energy companies, Wall Street, and for-profit colleges, the prospects for broad-based tax reform (or even tax cuts) aren’t particularly good. Second, given Trump’s unpopularity, his power to inflame the public against any single company has diminished.

Updated to add additional resignations.

Recommendations of the Task Force on Climate-related Financial Disclosures

The Financial Stability Board’s industry-led “Task Force on Climate-Related Financial Disclosures” has issued its final report with standards and guidance for voluntary climate-related financial risk disclosures in SEC filings.  The most significant aspects are the imprimatur of the G20 and the credibility and support it lends to investor initiatives calling for portfolio companies to adopt its recommendations. The report notes:

As you know, warming of the planet caused by greenhouse gas emissions poses serious risks to the global economy and will have an impact across many economic sectors. It is difficult for investors to know which companies are most at risk from climate change, which are best prepared, and which are taking action.

The Task Force’s report establishes recommendations for disclosing clear, comparable and consistent information about the risks and opportunities presented by climate change. Their widespread adoption will ensure that the effects of climate change become routinely considered in business and investment decisions. Adoption of these recommendations will also help companies better demonstrate responsibility and foresight in their consideration of climate issues. That will lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy.

The industry Task Force spent 18 months consulting with a wide range of business and financial leaders to hone its recommendations and consider how to help companies better communicate key climate-related information. The feedback we received in response to the Task Force’s draft report confirmed broad support from industry and others, and involved productive dialogue among companies and banks, insurers, and investors. This was and remains a collaborative process, and as these recommendations are implemented, we hope that this dialogue and feedback continues.

Since the Task Force began its work, we have also seen a significant increase in demand from investors for improved climate-related financial disclosures. This comes amid unprecedented support among companies for action to tackle climate change.

Another Shareholder Proposal? McDonald’s Deserves a Break Today – WSJ

Sigh.  Another whine about those pesky shareholders from those who insist they are the ultimate capitalists.  James R. Copland of the Manhattan Institute, which is funded by right-wing foundations (whose names should be disclosed in published material like this column), writes in the Wall Street Journal that poor McDonald’s should not have to bear the terrible burden of shareholder proposals.  He argues that the oxymoronically named CHOICE Act would not go far enough in merely requiring investors to hold one percent of the stock to submit a shareholder proposal; he wants to eliminate all “social” shareholder proposals entirely.  Since “ordinary business” proposals are already prohibited, that reminds me of the baseball manager who said that his team couldn’t win home games and couldn’t win away games “so all we have to do is find another place to play.”

He writes:

According to an SEC survey, it costs more than $100,000 merely to respond to a shareholder proposal and include it on the ballot. The far greater cost comes from the distractions such proposals create for directors and senior executives, as well as the risk that companies will change their policies under pressure.

We are find this self-reported, self-serving number highly suspect.  If, as Copland says, the proposals are re-submitted, how expensive can it be to cut and paste the previous year’s rebuttal?  How much time can it take for executives and board members to vote to oppose it again?

He also complains that some companies have made changes to respond to shareholder proposals, even if they did not get a majority vote.  That’s called a market-based response.  Since even a 100 percent vote is advisory only, we have no concerns that the executives and board members who have all of the decision-making power will be unduly persuaded unless the case is effectively made.  This is literally why we pay them the big bucks.

I do share some of Copland’s frustration with the shareholder proposal process, however.  I wonder if he would be willing to support my suggestion for improvement: no more shareholder proposals, but a strict majority vote standard so that instead of raising issues like the transparency of political contributions and the sustainability of the supply chain through non-binding proposals, a majority of shareholders can simply remove directors who are not satisfactory.


Source: Another Shareholder Proposal? McDonald’s Deserves a Break Today – WSJ