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Shareholder Advocacy: David vs. Goliath Replayed Hundreds of Times Each Year
By Holly Testa, Director, Shareowner Engagement

Few investors think of themselves as part owners of large multinational companies, but many of us are. We may work with an investment advisor who helps us invest our money in portfolios of stocks or mutual funds, or we might contribute to a 401(k) plan that owns stock or stock funds. The idea that a small shareholder can influence the behavior of a behemoth corporation may seem like an idealistic pipe dream, but all shareholders have the right to have their voices heard in the corporate boardroom.

Shareholders exerting influence on corporations is known as shareholder advocacy.  It is simply a process of effectively and persuasively communicating with corporate management, other stakeholders, policy makers, and customers. There are several ways in which this communication takes place—such as actively voting proxies, engaging in dialogue with companies, filing shareholder resolutions, and working to shape public policy.

Shareholder advocates used to feel like the proverbial voice in the wilderness; but today, more investors are evolving from passive holders of stock to determined shareholder activists. There is growing awareness that public companies have not been accountable to shareholders. Short-term desire for quick profits is endangering the long-term viability of many companies and the global community in which they operate. The recent mass failure of banks due to lax lending practices, weak corporate governance, and weak regulatory oversight illustrates the problem. Corporations are becoming more responsive to shareholder demands. In 2009, a record 722 requests for action were gathered in the Interfaith Center on Corporate Responsibility (ICCR) activism database. From those requests emerged 390 resolutions that were ultimately filed by ICCR members; the rest led to meaningful dialogues with companies.

A single shareholder can indeed feel like “David” when faced with a “Goliath”  multinational corporation. Forming a coalition can increase the impact of a shareholder proposal and improve the chances of success. A few of these coalitions include The Advocacy and Public Policy Group of the Social Investment Forum, the ICCR, and Ceres. All have differing priorities and memberships, but all focus on corporate sustainability by demanding accountability, disclosure, and continuous improvement of environmental and social performance.

First Affirmative is committed to shareholder advocacy. We work on behalf of our clients who are concerned with good corporate governance, ethical corporate behavior, and the impact corporations have on healthy societies and the natural environment.  We have published proxy voting guidelines that guide our shareholder resolutions and proxy votes. We often participate in letter writing campaigns which address environmental, social, and governance issues within companies. We also selectively participate in efforts to shape public policy. We co-file resolutions with other investment managers and investor groups addressing issues of concern to our clients.

Are you interested in learning more about Shareholder Advocacy?  Visit the January 2009 Deeper Thinking for more details!

Holly Testa, Business Development Consultant

Posted: February 2, 2010