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Baseball, Apple Pie, and Advocacy
By Mike Sakraida

In May, I presented two shareholder proposals on behalf of First Affirmative clients at annual general meetings. At Kinder Morgan, the proposal asked the company to disclose its analysis of carbon asset risk and its plans to address climate change. At Travelers, the topic was disclosure of lobbying policies and expenditure. For me, this tool of democracy is as American as, well, baseball and apple pie. Unfortunately, The Financial CHOICE Act threatens such advocacy efforts at public companies.

While presenting at Kinder Morgan, I was reminded of the Norman Rockwell illustration of a man standing up to speak at a town hall meeting—afforded the respect of expressing his opinion to both opponents and proponents. Likewise, shareholder proposals allow a broad spectrum of investors, large-to-small, with diverse views, to communicate with management and fellow investors regarding their priorities and concerns. The Kinder Morgan proposal garnered 38.2% support, which is a significant result.

At Travelers, the outcome was 37.4% support. The CEO told me and the audience that, although the First Affirmative resolution didn't pass last year or this year, the resolution did prompt the board to make their policies, decision-making and oversight processes more explicit.

In addition to the above, other shareholders also presented their proposals to each board. At Travelers, in response to a proposal asking the company to improve diversity efforts through the creation of a gender pay equity report, a company representative noted that the company had limited resources and shouldn't commit a "rounding error amount of money" (my words) for the enhanced reporting the proposal would require. While it is true that public company advocacy efforts are a cost of doing business, for investors and the companies involved, the benefits of such efforts can generate long-term value and protect against risks. Advocacy on ESG issues works with, not against, capitalism. Better governed companies – i.e. those that actively manage ESG risks and opportunities – have been shown to bounce back more quickly from crises and they may avert many of them in the first place. Therefore, the role of minority shareholders in improving governance has broader impact than just the few minutes speaking at the AGM.

However, if The Financial CHOICE Act is successful, the Norman Rockwell painting would depict only the wealthiest person in town being allowed to present his or her view. As we stated in the prior article, very few of the largest shareholders even file proposals in the first place. If the CHOICE Act was already in place, only an investor with $420 million of Kinder Morgan shares or an investor with $350 million of Travelers shares could have filed these proposals, leaving the majority of shareholders silenced.

Posted: July 26, 2017