Institutional Shareholder Services ("ISS") recently released a report on engagement between investors and public corporations in the United States that included the finding that this “engagement is expanding beyond financial and strategic issues and ‘traditional’ governance topics to include more environmental and social issues.” The report, The State of Engagement between U.S. Corporations and Shareholders, was based on a survey of 355 issuers of stock and 161 investors.
While popular attention to shareholder advocacy often focuses on the filing of shareholder resolutions, engagement between shareholders and companies often begins with letters and phone calls. Asset managers reach out to investor relations departments, corporate secretaries, and other senior executives, to initiate dialogue about issues of shareholder concern. The report notes that
"Asset managers with an ESG (environmental, social, and governance) or SRI (socially responsible investment) orientation often contact an issuer's CSR (corporate social responsibility) or sustainability office, and one such asset manager noted that ‘the most effective engagements tend to be with the people actually working on the issue.’
Notably, the report found that both investors and issuers believe that “constructive dialogue” is indicative of a successful engagement, but investors were, unsurprisingly, much more likely to be satisfied with concrete corporate actions. Both sides felt that a withdrawn shareholder proposal was as much a sign of accomplishment as a proposal with high support votes. A withdrawn proposal is often a sign of productive discussions.
The report by ISS is intended to provide a comprehensive picture of engagement between investors and issuers and, in doing so, raises a number of questions for those monitoring shareholder advocacy on social issues, particularly in the area of human rights.
In the 2011 proxy season, members of the Interfaith Center on Corporate Responsibility have filed a number of resolutions raising human rights concerns including: resolutions asking for the adoption or amendment of human rights policies (e.g., Carnival Corporation, Caterpillar); resolutions asking for the identification of gaps in existing human rights policies (e.g., General Dynamics, KBR); and resolutions asking for companies to adopt policies articulating respect for the human right to water (e.g., Johnson & Johnson, Green Mountain Coffee Roasters).
Resolutions like the ones noted above likely reflect unsuccessful attempts at constructive dialogue. It is important therefore to ask what needs to happen, on both sides, for these resolutions to lead to the types of discussions, and/or actions, that each side can view as successful.
What types of engagement might preclude the filing of resolutions? Who, on the corporate side, should be engaged in responding to the shareholder concerns regarding human rights policies and impacts? Who are the people "actually working on the issue" that can respond effectively? The answers to these questions are likely to vary considerably depending on the company and the specific issues involved. That said, they are important questions for both sides to consider as shareholder concerns about social concerns, especially with regard to human rights, continues to grow.