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May 08, 2006
Proxy Season Report Geared to Foundations Helps Others Navigate Proxy Landscape
by Bill Baue
As You Sow Foundation and Rockefeller Philanthropy Advisors report allows for stepping back by
providing a useful overview as well as an in-depth look at behind-the-scenes dialogue.
SocialFunds.com --
The 2006
Proxy Season Preview, produced by the As You
Sow Foundation and Rockefeller Philanthropy
Advisors, is intended to help foundations vote their proxies in alignment with their missions.
However, the report also acts as an important resource for anyone trying to track the proxy
season--which can feel a bit like fighting the many-headed Hydra, with so many different issues
addressed. The report is a rare publicly-available source that comprehensively encapsulates the
hundreds of shareowner resolutions on social, environmental, and corporate governance issues that
are up for vote at company annual meetings (most of which happen in the spring).
 The report establishes the importance of proxy voting
for foundations by pointing out that only a tiny portion of their assets provides direct support to
their missions, while the vast majority of their endowments sits in investments.
"Foundations generally commit five percent of their endowment annually to support their
mission, but how many consider the potential embedded in the remaining 95 percent to promote this
same mission?" asks Michael Passoff, associate director of As You Sow’s Corporate Social Responsibility Program and author of the
preview.
If foundations do not support shareowner resolutions aligned with their missions,
then the lion's share of their assets may ironically be working against their missions.
"It has long been our belief that when foundations do not consider the implications of
their proxy votes, they are overlooking powerful opportunities to advance their missions and are
often acting against their own best interests," adds Doug Bauer, senior vice president of
Rockefeller Philanthropy Advisers. "We have now given foundations the tools that can both anchor
them in a constantly changing corporate landscape and help them be catalysts for change."
The report surveys the landscape of the current proxy season, first looking as social
resolutions, then corporate governance resolutions. The report finds almost a quarter (24 percent)
of social resolutions devoted to environmental issues such as global warming, genetically
engineered foods, nuclear waste, natural resource management, recycling, and sustainability. Of
the 34 resolutions filed on global warming, 20 have been withdrawn due to constructive advancements
in dialogues between shareowners and companies. Dialogue related to global warming is ongoing at
57 companies, according to the report.
Interestingly, the report notes that while global
warming has traditionally been addressed by social progressives, this year marks a development
whereby social conservatives are filing resolutions on the issue pushing their own agenda. This is
the second issue to experience such a bifurcation of advocacy from opposing viewpoints, following
sexual orientation policies. The report notes that conservative groups have nearly 20 resolutions
filed in 2006, including four resolutions calling on American Express (ticker: AXP), Bank of America (BAC), Ford (F), and JPMorgan (JPM) to drop sexual
orientation from their Equal Employment Opportunity (EEO) statements.
On the governance
side, the report focuses on the more than 120 resolutions seeking majority vote director
elections--"making it by far the biggest governance issue of the year."
"Some analysts are
predicting that this issue has so much traction that majority votes will eventually become
universal," writes Mr. Passoff in the report. "In less than two years at least 90 companies have
adopted majority vote rules."
To illustrate how shareowner advocacy campaigns work, the
report includes a case study on the political contributions campaign initiated by the Center for Political
Accountability three years ago. In this very short period of time, the campaign has increased
from three institutional investors partnering to 19 partners, from 23 resolutions filed in 2004 to
more than 50 in 2006, and average support for the resolution rising from 9.1 percent in 2004 to
10.4 percent in 2005. The campaign has met success in its ultimate goal of effecting corporate
change, as six companies--Morgan Stanley (MS), Johnson & Johnson (JNJ),
Schering-Plough (SGP), Eli Lilly (LLY), PepsiCo (PEP), and Coca-Cola (KO)--have agreed to
board oversight and disclose of their political donations.
Another case study profiles "Project
Kaleidoscope," a shareowner dialogue between As You Sow and Walt Disney (DIS) over vendor standards in the
supply chain.
"During one of the early meetings the shareholder group asked the company
how many suppliers they had and it became apparent that they were not sure because they had not
been monitoring them closely," writes Mr. Passoff.
As a result, Disney developed an
International Labor Standards program to audit the policies and practices of its suppliers--now
numbering 6,000 licensees and vendors operating in 40,000 factories globally. The shareowner group
leveraged this development to suggest a pilot project in partnership with McDonald's (MCD) for
independent monitoring of their supply chains in China.
"This led to the development of
Project Kaleidoscope, a collaborative effort to improve compliance with codes of conduct at 10
Disney and McDonald's supplier factories," states Mr. Passoff in the report. "The goal is to
strengthen compliance through a factory-based process in which workers 'own' the compliance
process."
"It is hoped that this approach to monitoring will be more effective than the
traditional approach of external audits, which is frequently considered unwelcome and subverted by
factory management," he continues.
While this case study exemplifies how shareowner
engagement in dialogue develops, the report acknowledges that it represents more in-depth effort
than most foundations and institutional investors can afford to expend. The report ends with a
guide to establishing a proxy voting policy, including examples of foundations with excellent
policies already in place as models, such as the Jessie Smith Noyes Foundation, the Nathan Cummings Foundation, the Needmor Fund, and the Shefa Fund.
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SRI World Group, Inc. All Rights Reserved.
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