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The Shareholder Action Guide

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“A valuable call to action for small shareholders to change the ways big corporations do business.”
—Robert Reich, former US Secretary of Labor

Want to make misbehaving corporations mend their ways? You can! If you own their stock, corporations have to listen to you. Shareholder advocate Andrew Behar explains how to exercise your proxy voting rights to weigh in on corporate policies—you only need a single share of stock to do it. If you've got just $2,000 in stock, Behar shows how you can go further and file a resolution to directly address the board of directors. And even if your investments are in a workplace-sponsored 401(k) or a mutual fund, you can work with your fund manager to purge corporations from your portfolio that don't align with your values. Illustrated with inspiring stories of individuals who have gone up against corporate Goliaths and won, this book informs, inspires, and instructs investors how to unleash their power to change the world.

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CHAPTER 1 Who Let the Dog Out

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If your dog escaped from your yard and rampaged around the neighborhood, knocking garbage cans into the street, your neighbor would probably show up at your door, and you would, of course, accept responsibility and clean up the mess, scold your dog, and fix the fence.

What about your investments? Perhaps, like 91 million Americans, you own stocks directly in companies or funds that are composed of dozens, hundreds, or even thousands of stocks. Are you responsible for the behavior of these companies?

Figure 2: Are you responsible for your dog’s actions? Photo used with permission of the author.

If a company that you own causes an oil spill that does damage (like your dog did in the neighborhood), would you feel that this is your responsibility? Or would you think, “That’s for management and the board to deal with.” Do you give it a second thought? Do you even track the activities of the companies that you own?

Although the corporation shields investors from direct legal liability, moral responsibility is another story: Do you want a company that you’ve invested in—and that is benefitting you financially—to act in ways that are contrary to your values? In addition, can you use your influence as a shareowner to help your company become more profitable and have a positive impact on society by adopting policies that enhance its image, increase employee retention, and reduce risk from liability?

 

CHAPTER 2 How Ordinary Investors Can Bring Real Change to Big Problems

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Have you ever called a major corporation to correct a problem? Once you’ve navigated the endless phone tree and listened to a symphony’s worth of scratchy hold music, you’re finally connected to a representative who, with studied empathy, asks how she can help. This alone feels like a victory. With luck, they’ll correct the problem, and, although there are periods of aggravation during your quest, you hang up, satisfied. As far as it goes, the system works.

However, exactly who do you email about slave labor used in the manufacture of your cell phone? Who do you call if you’re distressed because your donut contains nanoparticles that are small enough to penetrate the blood-brain barrier? How do you find out if your hamburger comes from a steer raised on a concentrated feedlot where it is fed antibiotics? What’s Big Agriculture’s 800 number so you can ask farmers to stop using genetically modified organisms (GMOs)? How do you air your concerns about excessive CEO pay, lack of diversity in the workplace, packaging that is destroying the ocean ecosystems, toxic dumping on the poorest minority groups, the risks of fracking, or the decimation of the rainforests?

 

CHAPTER 3 What You Can Ask a Corporation to Do

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In 1971, the British blues-rock band Ten Years After had a Top-40 hit with the lyrics “I’d love to change the world / But I don’t know what to do / So I’ll leave it up to you.”

The song may reflect the frustration and confusion of the time. Ironically, perhaps, it also surrenders to confusion and leaves it up to others to take action.

Fortunately, hundreds of thousands of people have chosen to not leave the work up to others and have taken action themselves. Whether you are voting your proxies, contacting legislators, calling and writing to corporate leaders, signing petitions, participating in demonstrations, boycotting certain products or companies, filing or co-filing a resolution, or divesting, your participation in bringing about positive reforms has an impact around the world and across the global economy.

As Mahatma Gandhi said, “When the people lead, the leaders will follow.”24 Contrary to popular belief, policy makers in general follow civil society. Our “leaders” are actually our followers, and there are many ways for each of us to lead, but it takes coordination and strategy to build a movement.

 

CHAPTER 4 How to Vote Your Proxy

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Sections of this chapter are based on the 2004 handbook Unlocking the Power of the Proxy,32 written by Conrad MacKerron, along with Doug Bauer and Michael Passoff. It was published by As You Sow. It remains a definitive source for information on proxy voting for foundations and endowments.

Publicly traded companies are required by law to report to share-holders. They do this through a variety of means, most notably by numerous SEC filings, including an annual report, and by inviting shareholders to an annual meeting. Prior to the annual meeting, shareholders are sent documents known as proxy statements that include details about the annual meeting; ownership, board structure, and executive compensation; and other issues that will be voted on at the meeting.

The annual meeting and proxy statement provide a formal communication channel between corporate management and shareholders. At a minimum, the proxy statement asks investors to ratify issues placed on the proxy by management, such as the election of directors, the auditor report, and CEO pay package. Management may also seek approval of more complex and controversial issues, such as mergers and acquisitions, stock option plans, or resolutions brought by qualified shareholders on a variety of issues.

 

CHAPTER 5 How to Influence Your Fund Manager

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If you do not hold equities directly but instead are invested in mutual funds or exchange-traded funds (ETF) or in a pension fund, you still have rights and can take action. The first step is to understand exactly what you own. Following are some basic definitions.

A mutual fund40 is an investment vehicle that is made up of capital from many investors for the purpose of investing in a basket of securities, such as stocks, bonds, money markets, and other assets. Mutual funds are actively managed by fund managers41 who invest the fund’s capital and decide what assets to hold in an attempt to produce income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.42

If you own shares in a mutual fund, you do not own the underlying stocks, bonds, and other assets. You own shares in the mutual fund itself. If you want to buy or sell shares of the fund, you put in an order, and it is executed at the close of business based on its net asset value (NAV), which is calculated at the end of every day.

 

CHAPTER 6 Engaging with a Corporation and Filing a Shareholder Resolution

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As a shareholder, if you feel that a corporation in which you have invested is doing something harmful and it fits within the environmental, social, and governance concerns as described above, one way to address your concern is to engage directly with the company in a collaborative way. By doing this, you can work through the process with them to understand why they have such a policy or have taken such an action, and if your engagement is not successful, you can file a resolution. Here is a hypothetical example to illustrate the step-by-step process of bringing about change in a company you own as an investor.

Requirements: You must own $2,000 worth of stock that you have held for one year prior to the filing deadline. You must commit to not selling the stock until after the annual meeting. It must also be a voting class of stock,50 as some classes of stock do not have the right to vote or file resolutions. There are minimum vote thresholds that also must be met for filing in subsequent years. Resolutions must obtain three percent of the total vote their first year to be resubmitted, six percent the second year, and 10 percent the third year and all subsequent years. If it fails to meet these vote levels, it may not be resubmitted for three years.

 

CHAPTER 7 Opportunities and Decisions to Make Real Change

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You have now entered the phase of direct engagement with a public company, and there are many twists and turns in the road ahead. There will be decision points along the way, and each is an opportunity to stay true to your purpose and keep the long-term impact that you want as the focus of your efforts.

There are also many SEC guidelines and rules that will shape the form of the interaction with the company. After sending in your resolution and paperwork, you will probably have to wait at least a few weeks for the company to respond. If the company does not challenge your resolution, it should appear on the proxy ballot. However, as mentioned before, management may formally submit a “no-action letter” to the SEC, which requests that the resolution be rejected on technical or legal grounds.

Most likely the company will contact you and ask you to discuss withdrawing the resolution. There could be any number of reasons for this. For example, they might already have changed their cotton suppliers and stopped using material sourced by known human rights violators. In other words, they may have already directly addressed your concerns. Or, the board of directors might want to avoid raising the issue with shareholders and the press and publicly admitting that they’ve committed such a massive oversight. Naturally, you agree to a meeting, because it is a chance to present your case. Generally these are by conference call, although they can be also face to face.

 

CHAPTER 8 What Kind of People Engage with Corporations

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Many activists came of age in the 1960s, first with the civil rights movement and then with protests against the Vietnam War. Watch any episode of Mad Men to get a taste of the stifling social and political structure of the period, and you’ll understand why a rejection of authority was also a component of the protest period. If you are a millennial, you may have seen a movie set in that time when expressions like “Never trust anyone over 30” were common. In the wake of the civil rights and anti-Vietnam war movements, the focus then turned to what became the environmental movement with the publication of Rachel Carson’s pioneering Silent Spring80 in 1962 and the first Earth Day in 1970.81 For many, distrust of authority came along with these movements.

Distrust of the establishment isn’t misplaced. Many giant corporations are not instruments of social good. They are instruments of profit. In the past several decades, with the escalating globalization of the economy, corporations have grown far more powerful and far more remote from the concerns of ordinary people. The pressure for short-term profits drives decisions to externalize their pollution at no cost to companies’ bottom lines but at a huge cost to society at large.

 

CHAPTER 9 Foundations and Individual Shareholders Can Make a Difference

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In 1993, Steve Viederman, then heading up the Jessie Smith Noyes Foundation, noticed that the foundation’s portfolio included stock with Intel. Viederman knew that one of the Noyes Foundation’s grantees, the Southwest Organizing Project (SWOP), had been trying to get information on Intel’s environmental emissions and water usage in New Mexico. The foundation gave a grant to SWOP so it could become a shareholder, and it used its shares to begin a shareholder dialog with the company. The first year, the shareholder resolution got seven percent of the vote, which allowed Noyes to commit to filing a second year. But before that happened, the company responded and gave SWOP the information it sought. Viederman was an early leader in the foundation community, understanding how to combine shareholder and grassroots power.

In 2007, the Los Angeles Times101 published a blistering investigative story showing how some of the investments of the Bill and Melinda Gates Foundation were increasing social problems that the foundation’s programs sought to combat. The Times found that the foundation had invested $400 million in oil companies like Royal Dutch Shell, ExxonMobil, and Chevron, which were responsible for flares blanketing the Niger Delta with pollution, causing an epidemic of bronchitis, asthma, and blurred vision in children at the same time the foundation was spending millions of dollars to improve health in the area.

 

CHAPTER 10 The Power of Disclosure

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What do you need as a shareholder to make informed investment decisions? In short, you need material information, and thanks to shareholder advocates, there is more information available than ever before.

One prime example pertains to executive compensation. According to the AFL-CIO’s 2014 Executive Pay Watch report, the average CEO earns $11.7 million ($5,625/hour), or 331 times the average worker’s salary. Compared to a minimum wage worker ($7.75/hour), the average CEO earns a staggering 775 times more. To put that into context, it would take the minimum wage worker nearly eight centuries to earn as much as does the average CEO in one year. This isn’t a problem that started yesterday. Over the past 35 years, CEO pay has grown some 937 percent.113 Meanwhile, worker salaries have remained almost flat since the 1970s, increasing a meager inflation-adjusted 2.6 percent for the 12-month period ending March 2015, according the Bureau of Labor Statistics.

As You Sow is fighting excessive CEO compensation with disclosure, by annually publishing The 100 Most Overpaid CEOs114 report that details the scale of CEO pay and—of importance to shareholders—the disconnect with performance.

 

CHAPTER 11 Divestment as the Ultimate Escalation of Engagement

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You want to make change. You engaged with the company by writing and meeting with them. You filed a shareholder resolution and took it to the annual general meeting. You voted your proxy, and your resolution got a decent vote. But the company—in fact, the whole industry—is simply continuing with business as usual. What else can you do?

Paul Neuhauser’s shareholder resolutions with General Motors, asking the company to cease business in South Africa, shows that time and again, shareholders working together can bring about meaningful and lasting reforms. In the case of South Africa, a critical component that led to the fall of apartheid was a worldwide divestment campaign against firms doing business in South Africa. In this case, divestment was the tactic that ignited a movement that led to change.

There is a long history of shareholders using divestment as a powerful tool, from divestment of companies doing business with the apartheid regime in South Africa to divestment of companies engaged in pornography, tobacco, and the Sudan. It is a statement that you refuse to profit from the activities that a particular company or group of companies participate in. It is the ultimate shareholder escalation. It says that the company does not have the moral right to exist.

 

CHAPTER 12 How Do I Know What I Own?

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Most people know the companies that they hold as direct equities. But very few know which company stocks are embedded in their retirement plans, 401(k), 403(b), mutual funds, ETFs, and other investing vehicles. This is why we built a free, open-to-the-public web tool specifically designed to compare fund holdings with any given list based on ESG criteria. The first version is called Fossil Free Funds.157 A gender diversity, gun, and prison version will be developed soon. These tools are described in detail in the next chapter.

The fundamental takeaway is that those who divest and those who engage have the same goal, and divestment and engagement strategies strengthen each other by using market forces to bring about change. As Executive Secretary of the UN Framework Convention on Climate Change,158 Christiana Figueres said in a recent New Yorker article, “Where capital goes over the next fifteen years is going to decide whether we’re actually able to address climate change and what kind of a century we are going to have.159

 

CHAPTER 13 How to Get Your Company to Offer Funds Aligned with Your Values

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This chapter is based on the input and review of three experts in this area: R. Paul Herman, founder and CEO of HIP Investor,164 Rob Thomas of Social(k),165 and Timothy Yee of Green Retirement.166

You’ve used one of the transparency tools available to understand what you own, looked inside your employer-sponsored retirement plan mutual fund holdings, and have determined that you want to make some changes. So what’s next?

If your investments are in your employer-sponsored plan at work, it is possible to change what the plan offers, but it will take more effort than if you have a personal investment you control. You will need to engage the plan administrator to help find the right blend of funds to satisfy the many employees that all invest in the same basket of mutual funds. This may take time and possibly some coordination with your co-plan participants.

To effectively advocate for new offerings through your employer-sponsored plan, first build a coalition of peers and interested co-workers inside your company. Your voice will be much stronger as a group. If you’re writing to someone in power, advocating on behalf of 10 or even 20 people carries a lot more weight than just one. One way to spur interest would be sharing the results from your search among fellow employees. All plan participants are offered the same basket of funds as you are, so they are probably asking the same questions right now. It will certainly make interesting conversation around the water cooler.

 

CHAPTER 14 A New Generation of Corporate Leaders

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I don’t know if corporate boards can ever plan seven generations ahead, but having been granted the advantages of personhood, corporations should at least be directed by their shareholders to conduct themselves as responsible “people” of a larger community. Shareholder advocates can push them to do it, but some CEOs are accepting that challenge of their own accord.

Several years ago, recovering from a near-death experience, Aetna Insurance CEO Mark Bertolini began meditating and doing yoga.170 He found the practices so beneficial that he rolled out meditation and yoga classes in the company’s offices. Some 13,000 employees—a quarter of the work force—have now taken part.

Class participants reported reduced stress, a 20 percent improvement in sleep quality, and a reduction in pain of 19 percent. In terms of investment return, class participants gained an average of 62 minutes per week of productivity, which the company, Aetna, estimated was worth $3,000 annually per employee. Medical visits and prescription drug use were also down by some 30 percent, resulting in enormous savings.

 

CHAPTER 15 Time to Take Back Your Power

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Buddhist teacher and writer Sangharakshita said, “Where you are is less important than whether or not you know where you are.”

Like a stone cast into still water, ripples emanate outward from every action we take, from the food we eat to the clothes we wear, the way we power our homes, and the way our savings are invested. It’s impossible to predict all of the ramifications of our impact on the financial ecosystem and the physical environment. What we do know is that finding our values and aligning our actions to create a better world from the inside out is the place to start.

As a country and as a planet, it’s clear that we are out of balance, and it is clear why. The most powerful entities in the world, global corporations, have filled the power vacuum abdicated by their shareholders and are focused on short-term profit at the expense of everything and everyone else. As owners of these companies, we are complicit with them. But often we aren’t even aware that we own them. Our savings, retirement plans, and pensions may hold companies that have policies and products directly in opposition to our most deeply held values.

 

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