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Responsible investors do well by doing good

Wed, Jan 2, 2013

As a former grade school teacher and principal, Gwen Farry, B.V.M. was concerned about childhood obesity and McDonald’s Happy Meals that encouraged children to eat unhealthy foods in order to get a toy. As a member of a religious congregation that was a significant McDonald’s stockholder, she had enough clout to file a shareholder’s resolution, so that McDonald’s officials came down to her office at the 8th Day Center for Justice in the Loop for a meeting.

“They were just very responsive and very good about explaining their point of view,” Sister Farry said of the morning meeting that included a McDonald’s attorney, a nutritionist and a marketing expert. Also joining in was another member of her religious congregation, the Sisters of Charity of the Blessed Virgin Mary (BVMs).

McDonald’s spokesperson Lisa McComb said the company has met with the BVMs over the years and remains in contact because, “We feel having ongoing dialogue helps us to learn about what’s important to our socially responsible investors. We take our responsibility to families seriously, and offer menu choices that can fit in anyone’s dietary choices. We’ll continue to look at our menu, evolve and do more.”

Won over by the automatic addition of apple slices in Happy Meals, reduced size French fries, buns and Chicken McNuggets that are lower in sodium, the group withdrew the resolution. McDonald’s also promised to have ongoing conversations with them and had already been compliant ahead of schedule with a requirement that it post calories on its menus, Sister Farry said.

December brings not only yearend charitable giving but the time to examine an investment portfolio with a eye to better returns in the new year. Aside from monetary gains, you can literally “do well by doing good” through socially responsible investing (SRI).

The SRI movement began in the 1980s with advocates who urged churches, colleges and universities to disinvest in companies doing business in South Africa during apartheid. Concerns about Environmental damage fueled interest, along with Social and Governance issues (ESG). According to the U.S. SIF, the Forum of Sustainable and Responsible Investment, SRI in the US amounts to $3.74 trillion, or 11.2 percent of professionally managed assets.

Established more than 40 years ago, the Interfaith Center on Corporate Responsibility (ICCR) is a group of more than 300 institutional investors representing over $100 billion in assets that lists more than 10 issue areas on its web site (see Page 11). Coordinated by members via the web site, these issues range from water and food availability, to human trafficking, environmental health, affordable health care and even financial practices.

“The initial approach when we talk to companies isn’t antagonistic. We want it to be a cooperative dialog,” said Dan Nielsen, director, socially responsible investing for Chicago-based Christian Brothers Investment Services, Inc.

CBIS has a $4.2 billion portfolio under management and is an ICCR member. CBIS screens out of its portfolio companies that deal with issues such as abortion, pornography or weapons in conflict with its Roman Catholic roots. Among its holdings, it encourages improvements in terms of human rights, environmental concerns and corporate governance.

“What I tend to do is contact the company, raise my concerns, share with them best practices I have seen other companies implement and request a meeting to learn about what they are currently doing,” Nielsen said.

Eight years ago, CBIS began engaging with Greenwood Village, CO-based Newmont Mining after protests by local communities over human rights violations, pollution of the environment and lack of local development. Two years later, CBIS filed a shareholder proposal also supported by Newmont’s board of directors, “which is unheard of for a mining company,” Nielsen said.

In April 2007, 92 percent of shareholders approved the resolution to commit the company to review its global policies on community relationships, including potential conflict. CBIS got input from 100 employees, 250 community members, and non-governmental organizations independent of Newmont.

“It’s our job as active owners in companies to not be satisfied with platitudes but to dig deep and make sure a company is doing what it says it is doing and when appropriate, pushing the company to do better,” Nielsen said.

Minimizing protests and danger keeps mines running safely, which lessens the likelihood of shutdown. That’s good for the community as well as the profits of the corporation in which CBIS has invested.

Could you say that working with them was “doing well by doing good?” he was asked.
“Absolutely,” he responded. “It’s a win-win. It’s a two-fer.”

Nielsen described subsequent relations with Newmont as “a good dialogue,” including two separate phone calls earlier this year with President and CEO Richard O’Brien, a meeting with board members and a trip to one of its operations in Peru, (for which CBIS paid).

Newmont’s vision is to be the most valued and respected mining company by demonstrating leadership in safety, stewardship of the environment and social responsibility, officials said in an email.

“We know that the relationships we build are fundamental to the success of our business,” said Newmont President and CEO O’Brien. “They require humility, mutual respect, a willingness to listen and a commitment to each other’s future success.”
The activism picture Nielsen paints is no Frank Capra movie, where a lone individual stands up in a shareholders’ annual meeting and urges a revolt.

“We’ve moved away from the antagonistic, just-file-shareholder-resolutions approach to an engagement approach.” It’s collaborative, but not quite to the point of holding hands, he said.

“The goal is to get the company to change, to adopt and implement a policy, to disclose more information, to change a business practice,” Nielsen said. “The only strategy we have is not standing up at annual meetings. We prefer sitting down at a table.”

The BVMs also prefer a more controlled dialogue with corporations than shouting or holding posters at an annual meeting, Sister Farry said. The BVMs have set aside about $100,000 in a “shareholder activity fund” that meets the minimum $2,000 holding in 10 companies to allow filing shareholder resolutions. Sister Farry handles this job, along with attending three ICCR meetings annually and educating the Dubuque, IA-based religious community of about 450 nuns, roughly 300 of whom are retired.

The shareholder activity fund is held separately from other investments so that its stocks are not sold if they do not meet earnings goals. Shareowner resolutions require ownership for a year before filing, well ahead of the annual meeting.

The fund also includes companies that produce weapons or that run private prisons. Both are incompatible with the sisters’ views but they must hold the stock to be able to talk with the corporations about the human rights of inmates and employees.

The private immigration centers pitch themselves as a less punitive alternative to placing immigrants in jails with alleged criminals. But Sister Farry says most immigrants are detained only because they do not have papers. “That’s like a traffic violation, certainly not a felony,” Sister Farry said.

Thanks to years of shareholder resolutions, the BVM’s also won expanded worker rights with Halliburton. The Houston-based oil field service company stated in 2008 that it employed 55,000 people in about 70 countries.

“Without a human rights policy, the company faces reputational risk because it operates in China where human rights law is weak and abuses are well-documented,” Sister Farry said. In addition, one of its former subsidiaries had been linked to human trafficking-related concerns such as forced labor, substandard living conditions and confiscated passports.

The BVMs wanted Halliburton to follow United Nations human rights policies, which are even more stringent than those of the U.S.

In 2007, the first time they filed a resolution, they won 24.37 percent shareholder approval – far above the three percent required to bring the proposal back the next year. The vote was 30 percent in 2008; 23.8 percent in 2009; 36.92 in 2010 and 36.15 in 2011.

After the fourth filing, Halliburton asked for dialogue but the sisters said the company had not done what they asked. When the sisters filed this year, the company said it had complied and was putting the results on its web site. The BVMs withdrew their proposal, but agreed to keep up the dialogue, Sister Farry said.
Halliburton did not respond for comment.

Loyola University of Chicago co-filed with the BVMs on the Halliburton resolution and also led educational institutions in a dialogue with JP Morgan Chase in 2010 against mountaintop removal coal mining. The bank announced at its annual meeting that year that it would review its financing for companies that used explosives to level Appalachian mountains for this form of strip mining.

In an interview on Forbes.com, Responsible Endowments Coalition Executive Director Dan Apfel termed Chase’s announcement a milestone achievement for an educational institution. Apfel also called Loyola one of three institutions leading the way in SRI.

In the two years since its announcement, Chase greatly reduced its financing to mountaintop removal coal operations, said Elaine Lehman, secretary of Loyola’s Shareholder Advocacy Committee (SAC), in a telephone interview. “The executives with whom we met were actually very responsive to our students.”

Loyola also worked to get two coal-fired plants in Pilsen and Little Village closed. Now the focus is on testing soil, air and water there so that the sites do not become brownfields.

“When the emphasis had only been on getting them closed, the communities wouldn’t be holistically addressed, we wanted to make sure their needs were addressed,” said Patricia Graham, co-chair of the SAC, in the same interview. She is a senior at Loyola majoring in international studies who said she hopes to go to law school for a career in human rights advocacy.

Loyola’s responsible investing dates to the 1970s. Its board of trustees created the SAC in 2007 in response to student concerns about its holdings the previous year. Comprised of three staff, three faculty members and three students, the SAC hosts a university town hall meeting every fall in preparation for shareholder resolutions filed in November and December.

Similar to the BVMs, the SAC does not manage the university’s entire portfolio. Instead, it holds the requisite amount of amount of stock to meet the $2,000 minimum for filing resolutions, possibly as much as $100,000, Lehman said.

“This is an experiential learning opportunity for not only the students but the entire university,” she said.

Graham said issues important to the SAC include environmental concerns and water rights; labor and human rights; corporate governance, diversity and nondiscrimination; the environmental umbrella of global warming, sustainability and global pandemics; health care access; workplace violence such as human trafficking and weapons manufacture.

Loyola’s Jesuit roots figure prominently in the SAC’s social justice mission, Graham said.

“I’ve had conversations with students at universities that do not have religious affiliations and have faced hurdles when dealing with the administration that we do not face.”

By Suzanne Hanney,
StreetWise Editor-In-Chief

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