Shareholder activism is the most active approach to social investing. Investors are beginning to appreciate their right and responsibility to affect an organization's policies and practices. There are four aspects of shareholder activism: proxy voting, dialogue, resolutions, and divestment.
The first phase of shareholder activism is voting on shareholder resolutions through proxy ballots. Although shareholders do not need to be present at the annual meeting to vote, many do not vote because they feel they are uninformed about the issues, which usually pertain to labor or human rights. Unmarked proxy ballots are voted in accordance with management's recommendations, which often are opposite that of the resolution. Therefore, it is critical for investors to vote their proxies.
The second phase of shareholder activism is dialogue with management. Although a single investor may not be able to sway an organization, a group of investors can have an impact. Dialogue occurs with the assumption that both the shareholders and management are working toward a resolution that is mutually agreeable.
The third phase of shareholder activism is proposing a resolution to be voted on at the next annual meeting. The shareholder resolution process provides a formal communication channel between shareholders, management and the board of directors, and with other shareholders, on issues of corporate governance and social responsibility. Any shareholder owning more than $2000 worth of stock for a minimum of one year is eligible to propose a resolution. Resolutions must follow a standard SEC format and be no more than 500 words in length. Responsible Wealth and the Interfaith Center for Corporate Responsibility are two organizations whose mission it is to assist shareholders in proposing resolutions. Each year more than 200 resolutions do not come to vote because they do not meet SEC guidelines or are withdrawn. A withdrawn resolution usually means that the shareholders and management are going back to the dialogue phase and is seen as a positive event by the shareholders. The SEC regulates resolutions and has the authority to omit (allow the resolution to be removed from the ballot) any resolution that does not meet its guidelines. The first year a resolution is voted on it must receive at least a 3 percent favorable vote in order for it to be considered the following year. The second year, the resolution must receive a 6 percent vote in order to be passed along to the third year where a 10 percent favorable vote is needed.
The forth phase of shareholder activism is divestment. This is the last resort for shareholders to get their message across and has little impact without considerable support. Divestment is the sale of stock in order to relinquish affiliation with an organization. Divestment was a popular method used by investors regarding companies who continued to do business in South Africa and Burma. Ultimately, the role of shareholder activists is to influence companies to make changes in the interest of long-term financial sustainability. Although is sends a strong message to management, divestment is not necessarily the most effective method of promoting change within an organization in that other investors who are not concerned with corporate social responsibility issues will maintain investment in the company.
Top 10 most widely supported
shareholder resolutions in 2000
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