Investor Coalition Fights Opioids Crisis

By LAURA E. WEISS, CQ

It began as a suggestion from a county health official to leaders of a group of nuns’ money management program. They were addressing climate change, modern-day slavery and immigration — why not the opioid epidemic?

A year and a half later, the mammoth coalition of investors born from that idea wields $2.2 trillion of influence, urging the largest U.S. drug companies to take accountability for playing a role in the opioid crisis. The group, Investors for Opioid Accountability, has cut deals with companies in the business of making or distributing opioid painkillers to review how they oversee sales of the highly addictive drugs and make other corporate governance changes aimed at improving supervision of opioid sales.

“No one is untouched by the opioid crisis in the country — or even globally now as it’s beginning to turn out — but we lead with the investor lens because that is our responsibility and our duty to give an investor voice to it,” says IOA co-leader Meredith Miller. She says the coalition”s 46 members — including state treasurers, public pension funds, faith-based investors and union benefit funds — are hearing from their ministries, citizens or union members about the crisis.

***

IOA’s shareholder proposals include requests for reports on board oversight of risks related to opioid sales, mechanisms for recouping executive pay in the case of misconduct, disclosure of lobbying spending, independent board leadership and other adjustments to oversight mechanisms and how the CEO and other top leaders are paid.

***

IOA has claimed several victories so far. The coalition’s opioid risk report proposal won support from 62 percent of investors in Assertio Therapeutics Inc., which makes opioid painkiller Nucynta. The same proposal neared majority approval at AmerisourceBergen Corp., one of the “big three” U.S. drug wholesalers. IOA says it has a commitment from another large distributor, Cardinal Health Inc., to publish risk reports, recoup executive pay in cases of misconduct and split the roles of CEO and board chair. McKesson, the country’s sixth-largest company, and several manufacturers have also agreed to changes including reviews of how directors oversee opioid sales, avoiding votes on IOA’s proposals.

Read full article from CQ

Gender Pay Equity on the Agenda

Natasha Lamb
Managing Partner
Arjuna Capital

There are gender pay gaps … and then there are median gender pay gaps. Understanding the difference between the two may determine just how much progress women make in terms of fairer compensation in the next decade.

So first, the definitions:

“Equal pay” gap: What women are paid versus their direct male peers, statistically adjusted for factors such as job, seniority, and geography. Often referred to in the context of “equal pay for equal work.”

“Median pay” gap:  The median pay of women working full time versus men working full time. This is an unadjusted raw measure used by the Organization for Economic Cooperation and Development (OECD).  Women in the US, for example, make 80 cents on the dollar versus men on this basis.

Equal pay gaps measure whether women are being paid commensurate with their peers for the work they are doing today. But median pay gaps measure whether or not women are holding as many high-paying jobs as men. Narrowing the median pay gap means putting more women in leadership (and reaping the performance benefits that diversity affords). And that’s where investors come in. Concerned shareholders in major US financial and tech companies want to make sure the pay gap difference is understood—and acted upon.

Consider the case of Citigroup. While it is true that women at Citi are paid 99% of what men are paid on an equal-pay basis when adjusting for job function, level, and geography, the median pay gap at the financial giant paints a very different picture: Women at Citigroup earn just 71% of what the men earn.

What accounts for the difference? Women are dramatically underrepresented in high-paying positions at Citigroup—and nearly all other major corporations. So, when more US companies begin disclosing their median pay gaps, the numbers are going to be shocking. In fact, Citi’s 29% median pay gap could very well end up being at the lower end for large US financial and tech companies.

This kind of disclosure is not going to happen on its own. But investors are intent on making headway, and establishing benchmarks from which to measure company progress. Between 2016 and 2018, shareholder proposals and concurrent dialogues led by my firm, Arjuna Capital, persuaded 22 companies, including Citi, JPMorgan, Wells Fargo, Bank of America, Bank of New York Mellon, Amex, Mastercard, Reinsurance Group, and Progressive Insurance to publish their gender pay gaps on an equal-pay basis.

Tech giants like Apple, Amazon, Microsoft, Google, and Facebook have been compelled to do the same. And commitments from leading companies often have a domino effect through an industry, putting pressure on more companies to act. The adjusted equal pay gap picture is, in many ways, the easy part of the gender equity story to tell.  But it is only half the story.  Now, shareholders like us want companies to follow Citigroup’s lead and disclose their median gender pay gaps.

Today, Arjuna Capital is announcing an important new phase of our work: a median pay gap shareholder resolution engaging a dozen major US companies across the banking, tech, and retail sectors, including: Adobe, Amazon, Intel, Facebook, Alphabet/Google, Bank of New York Mellon, Bank of America, Wells Fargo, AmEx, JPMorgan Chase, and Mastercard.

The 12th company we targeted with the shareholder proposal—Citigroup—opted to respond almost immediately, disclosing its median pay gap data through a blog, and pledging to narrow this wider gap. On Jan. 16, 2019, Citi became the first US company to reveal its global median pay gap.

The result was a bit of rough sledding for Citi. National and financial news outlets zeroed in on the shock factor in the data. Headlines read: “Citigroup Admits It Pays Women 29% Less Than Men;” and “Citgroup’s business is money, but not a lot of it goes to its female employees.” Others got it right with headlines focusing on the significance of Citi’s groundbreaking decision to release median figures: “Citigroup is revealing pay day data most companies won’t share” and, perhaps most bluntly, “Citigroup Bravely Announces It Pays Women Like S—t.”

Citi had the courage to break the mold and disclose median pay numbers, and that bravery will pay off in the long run, not only for the company but for its investors, by improving gender diversity throughout the company. A recent study cited in the Harvard Business Review found that wage transparency, in countries that mandate it, not only narrowed the wage gap but increased the number of women hired and promoted into leadership positions.

Citi also made it clear that it is taking the proactive steps needed to fix the median gender pay gap. Its goal is to increase representation at the assistant vice president through managing director levels, to at least 40% for women globally and 8% for black employees in the US by the end of 2021. (Yes, there is a minority pay gap and a minority median pay gap problem, too.)

Multinational companies, including Citi, that operate in the United Kingdom are now under regulatory mandate to disclose median gender pay gaps. In 2018, peer Bank of America revealed a 41% gap for its UK operations. Citigroup reported a 36% median gap for the UK, but prior to January’s announcement, the company had not published median information for its global operations, including the US.

Revealing the whole story of the gender and racial pay gap is essential to create change. Indeed, what gets measured (and disclosed) gets managed. As it stands, the World Economic Forum estimates the gender pay gap costs the economy $1.2 trillion annually. The 20% median income gap for all women working full time in the United States is a disparity that can equal nearly half a million dollars over a career. And the income gaps for African-American and Latina women are at 60% and 55% respectively. At the current rate, women will not reach pay parity until 2059. This depressing statistic is not only bad for women, it’s bad for the economy, and it’s bad for the companies that can benefit now from women’s leadership and talent.

It remains to be seen how many of the 12 companies targeted by Arjuna Capital will agree to the shareholder resolution in 2019. Our pledge is to continue to work with the companies’ leadership to find common ground on our resolution, and to educate the media and public about the median pay gap. We will applaud all good faith efforts to publish median pay numbers because the most effective shareholder activism is not about shunning; it is about casting light on a problem, calling companies to task, and nudging them through the sometimes difficult process of disclosure and reform.

Citi learned that disclosing its median gender pay gap meant a little PR pain in the near term. But it also established itself as the leading US institution on pay equity, doing the honest and real work to address inequity for women and minorities. Concerned shareholders will continue to press other companies to follow suit, because, unfortunately, there remains glaring inequality in the US workplace. And it is high time to tell the whole story.

Kroger agreed to protect tropical forests

Kroger Co., the largest grocery chain in the U.S., agreed to develop and implement a no-deforestation policy after Green Century filed a shareholder resolution with the company, urging them to take action. After the announcement, they withdrew the shareholder resolution with the company.

According to the agreement, Kroger will implement a no-deforestation policy in its private label Our Brands products supply chain by 2020. It also will report on the progress it makes toward its goals through reliable third-party questionnaires.

As one of the largest retailers in the world with an extensive supply chain, Kroger’s new commitment is the kind of corporate buy-in needed to preserve the world’s forests

Ceres: The Role of Investors in Supporting Better Corporate ESG Performance, April 2019

For over half a century, the shareholder proposal process has served as an effective way for investors to provide corporate management and boards with insights into their priorities and concerns regarding corporate governance, policies and practices.  The process has resulted in numerous important changes to corporate governance in the U.S.  Examples include:   

• Resolutions were the impetus behind the now standard practice – currently mandated by major US stock exchanges’ listing standards — that independent directors constitute at least a majority of the board, and that all the members of the following board committees are independent: audit, compensation, nominating and corporate governance.

• In 1987 an average of 16 percent of shareholders voted in favor of shareholder proposals to declassify boards of directors so that directors stand for election each year. In 2012, these proposals enjoyed an 81 percent level of support on average. Ten years ago, less than 40 percent of S&P 500 companies held annual director elections compared to more than two-thirds of these companies today.

• Electing directors in uncontested elections by majority (rather than plurality) vote was considered a radical idea a decade ago when shareholders pressed for it in proposals they filed with numerous companies. Today, 90 percent of large-cap U.S. companies elect directors by majority vote, largely as a result of robust shareholder support for majority-voting proposals

• A proposal that built momentum even more rapidly and influenced the practices of hundreds of companies in the last few years is the request for proxy access. Resolutions filed by the New York City Comptroller to allow shareholders meeting certain eligibility requirements to nominate directors on the company’s proxy ballot achieved majority votes at numerous companies. As a result, since 2015, at least 400 companies have adopted proxy access bylaws.

• “Say-on-pay” vote requirements — now mandated by the Dodd-Frank Act — also resulted from shareholder proposals.

• Shareholder proposals or related engagements played a key role in moving close to 160 large companies (including more than half of S&P 100 companies) to commit to disclosure and board oversight of their political spending with corporate funds.

• Since 2009, 85 companies have agreed to issue sustainability reports as result of shareholder resolutions. According to the G&A Institute, 81 percent of S&P 500 companies published sustainability reports in 2015 compared to just under 20 percent in 2011.

• The first resolution requesting that companies source deforestation-free palm oil that went to vote was in 2011 and received 4.2 percent support. By 2016 more than 20 companies had responded to similar resolutions and protected their brands’ reputations by committing to source deforestation-free palm oil produced by workers free from human rights abuses.

• Shareholder proposals have led to wide-scale adoption of international human rights principles as part of corporate codes of conduct and supply chain policies, protecting companies from legal and reputational risk.

• A substantial majority of large companies have sexual orientation nondiscrimination policies largely as a result of hundreds of shareholder proposals. A 2016 analysis by Credit Suisse found that 270 companies which provided inclusive LGBTQ work environments outperformed global stock markets by 3 percent annually for the previous six years.

 The impact of investor influence strategies 

The evidence reveals that investor efforts to engage companies on ESG-related risks and opportunities are associated with better shareholder returns: 

• Academic research on corporate social responsibility engagements with US public companies over the period between 1999-2009 shows that after successful engagements, companies experience improved accounting performance and governance.

• An examination of private engagements conducted by fund manager Hermes demonstrated financial outperformance associated with investor engagement rather than stock picking.

• An analysis of the stock performance of 188 companies placed on the ‘focus list’ for ESG engagement by California Public Employees’ Retirement System (CalPERS) found that these companies performed significantly better than their peers (15.27 percent above the Russell 1000 Index) over a 14-year period.

• Evidence from collaborative dialogues involving 225 investment organizations over the period between 2007-2017 shows that after “successful” engagements (as defined by a set of pre-determined criteria and scorecards) have occurred, target companies experience improved profitability (as measured by return on assets), while unsuccessful engagements demonstrate no change.

• Research from Harvard Business School indicates that filing shareholder proposals is effective at improving the performance of the company on the focal ESG issue, even though such proposals nearly never received majority support. Proposals on material issues are associated with subsequent increases in firm value.

Read the original article here.

US SIF: US Sustainable, Responsible and Impact Investing Trends, October 2018

US SIF

Since 1995, when the US SIF Foundation first measured the size of the US sustainable and responsible investment universe at $639 billion, these assets have increased more than 18-fold, a compound annual growth rate of 13.6 percent.

Through surveying and research undertaken in 2018, the US SIF Foundation identified:

• $11.6 trillion in US-domiciled assets at the beginning of 2018 whose managers apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and

• $1.8 trillion in US-domiciled assets at the beginning of 2018 held by institutional investors or money managers that filed or co- filed shareholder resolutions on ESG issues at publicly traded companies from 2016 through 2018

After eliminating double counting for assets involved in both strategies, the net total of SRI assets at the beginning of 2018 was $12.0 trillion.

Read the full report here.

Faith Based Investors Elevate Wells Fargo's Boardroom Ethics

Sister Nora Nash and Father Tom McCaney meeting with Wells Fargo

Wells Fargo, on its webpage states: “As part of its commitment to transparency, Wells Fargo agreed to develop the Business Standards Report following a shareholder proposal from a group of shareholders led by the  Interfaith Center on Corporate Responsibility. To create the report, Wells Fargo worked with more than 175 leaders and team members under the guidance of the Board of Directors and the company’s top-level Operating Committee.”

The Wells Fargo Business Standards Report was the result of several shareholder resolutions and meetings with the CEO and other Executives.  The company supported the proposal when it appeared on the proxy, with a commitment to continued engagement.

The investors, including the Sisters of St. Francis of Philadelphia,  continue to seek transparency and monitor performance in light of the company’s past violations of trust, ethics, human rights, and failures to respect employees and customers. The company continues to reckon with its commitment to bringing about change in its culture, risk management, customer services and corporate citizenship.

Jane Jagd, Center for ESG Research: Bank of America— ESG risk is best signal for future risk, July 2017

Jane Jagd

What if we told you how to avoid stocks that go bankrupt?

We think you would listen. Environmental, Social & Governance (ESG) factors are too critical to ignore, in our view. In our earlier report ESG: good companies can make good stocks, we found that ESG-based investing would have offered long-term equity investors substantial benefits in mitigating price risk, earnings risk and even existential risk for US stocks — ESG would have helped investors avoid 90% of bankruptcies in the time frame we examined. Our findings were encouraging enough to warrant a closer look. We here assess how US corporations, regulators and investors are positioned for ESG, and how the market is responding.

ESG is the best signal we have found for future risk

Prior to our work on ESG, we found scant evidence of fundamental measures reliably predicting earnings quality. If anything, high quality stocks based on measures like Return on Equity (ROE) or earnings stability tended to deteriorate in quality, and low quality stocks tended to improve just on the principle of mean reversion. But ESG appears to isolate non-fundamental attributes that have real earnings impact: these attributes have been a better signal of future earnings volatility than any other measure we have found.

US corporates may be behind the curve . . .

Despite empirical evidence of its efficacy, ESG is not drawing much enthusiasm from US corporates. Among companies participating in our survey at our March 2017 BofAML US Investor Relations conference, almost half of the survey respondents indicated they have no resources dedicated to ESG initiatives, and no intentions of implementation. Globally, the theme is burgeoning: ESG-related regulations have doubled since 2015; over 6,000 EU member state companies will be required to publish disclosures; and 12 global stock exchanges require written ESG guidance – but not one is in the US!

. . . but investors are ahead of it & PE multiples are responding

In our May survey of BofAML institutional clients, 20% cited using ESG, well above the estimated 5% of float that corporations believe is held by ESG-oriented investors. In another investor survey, 66% raised issues on sustainability disclosures, and 85% called for improved disclosure in filings. And the investment industry is changing to accommodate governance: for the first time ever, FTSE Russell ruled out the addition of zero voting rights stocks, citing “concerns raised by shareholders.” The market is listening: shareholder-friendly companies have seen significant multiple expansion — and we see strong signs that this re-rating continues.

Read the full text here.

James McRitchie, Corpgov.net: Historic Context for Retail Investor Rights, 2018

James McRitchie, Editor, CorpGov.net

While at one time, ownership of a single share of stock came with the right to submit a proposal without restriction as to number or subject, in 1983 the SEC decided it made sense to impose a modest but low submission requirement, setting the threshold at $1,000 held for at least one year. The SEC raised this to $2,000 in 1998, “to adjust for inflation” but did not raise it higher “in light of rule 14a-8’s goal of providing an avenue of communication for small investors.” (File No. S7-25-97)

A study of 286 shareholder proposals submitted between 1944 and 1951 found that 137 or 47% were submitted by the Gilbert brothers. (The SEC Proxy Proposal Rule: The Corporate Gadfly, p. 830 av) The fact that three families submit a disproportionately high number of proposals is not historically unusual.

Without early ‘gadflies’ like the Gilberts and Wilma Soss, shareholders would not have the right to file proposals, vote on auditors, or have executive pay disclosed and there would be even fewer women directors.

Read the full text here.

Pax World Fund: Sustainalytics — Understanding ESG Incidents: Key Lessons for Investors, December 2017

Sustainalytics conducted a quantitative analysis of their incident dataset, reviewing 29,000 company activities around the world that generated undesirable social or environmental effects. They found that incidents are increasing, some industries are more exposed than others, and some regions are more exposed as well. These activities can impact company share price, so asset managers and owners can benefit from applying incidents analysis in their portfolios.

Read the full text here.

Pax World Fund: ING— From Sustainability to Business Value, February 2018

ING interviewed 210 finance executives in US-based large-cap and mid-cap companies about the importance of sustainability to corporate strategies. They found that over 80% of firms are embedding sustainable thinking into their business growth plans and that nearly half reported that sustainability concerns actively influence their growth strategies. The firms with the most robust sustainability strategies tend to have had better revenue, borrowing and credit-ratings outcomes. 

Read the full text here.

New York City Pension Funds Promote Boardroom Accountability

Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment in the Office of New York City Comptroller Scott Stringer

With an average retirement benefit of $38,000 per year, it is likely that many of our members only participate in the capital markets through their role as pension fund beneficiaries. Our members are true Main Street investors, as opposed to a group using that name that represents the interests of company managers. We are long-term share owners of approximately 10,000 public companies around the world, including more than 3,000 U.S. companies.

A particularly good example of market change from shareowner proposals relates to “proxy access” — that is, a mechanism to permit shareowners to include their nominees on the company proxy card for a minority of board seats under certain circumstances. In 2014, Comptroller Stringer and the NYC Funds launched the Boardroom Accountability Project, a campaign to implement proxy access on a company-by-company basis in the U.S. market using shareowner proposals.

Today, largely as a result of the Boardroom Accountability Project, approximately 540 U.S. companies, including 70 percent of S&P 500 companies, have enacted proxy access bylaws with terms similar to those in the vacated SEC rule, up from only six companies in 2014 when we launched the project. In July 2015, economic researchers at the SEC released a study that analyzed the public launch of the Boardroom Accountability Project and found a 0.5 percent increase in shareowner value at the first 75 firms that received proxy access shareowner proposals from the NYC Funds. The SEC staff’s findings were consistent with a 2014 CFA Institute study that found that proxy access on a market-wide basis has the potential to raise U.S. market capitalization by as much as 1 percent, or $140 billion.

Investors Persuade Midwest Utilities To Address Climate Change

Seventh Generation Interfaith Coalition for Responsible Investment

Seventh Generation Interfaith (SGI) is a coalition of 40 faith-based and values-driven institutional investors located in the Mid-Western United States. Shareholder proposals have had a major impact on midwestern utility companies. Proposals submitted to the WEC Energy Group and CMS Energy Corporation asked  each to publish an assessment of the long term impacts on the company’s portfolio of public policies and technological advances consistent with limiting global warming to no more than two degrees Celsius over pre-industrial levels.   The proposals were withdrawn upon company commitments and subsequent publishing of scenario analyses, and leading to aggressive GHG reduction goals.  (See CMS Energy Climate Assessment Report;  WEC Pathway to a Cleaner Energy Future).  Engagement with Xcel Energy preceded a groundbreaking announcement of the company’s commitment to zero-carbon electricity by 2050 and  publishing of their Carbon Report (Xcel Energy Building a Carbon-free Future). A proposal at MGE Energy, subsequently withdrawn, also led to their announced commitment to net-zero carbon electricity (Wisconsin State Journal, May 14, 2019). 

Read more

Beverage Container Recycling Boosted By Shareholder Engagement

As You Sow, an investor advocacy organization, began engaging bottled beverage companies 15 years ago to encourage them to improve their bottle/can recycling rates. After dialogue and the filing of proposals for several years, Coca-Cola agreed to recycle 50% of its PET, glass bottles, and aluminum cans by 2015; PepsiCo agreed to an industry recycling goal for 50% of PET, glass bottles and cans by 2018; and Nestle Waters NA agreed to an industry recycling goal of 60% of PET bottles by 2018. If these companies meet their 2018 goals, it will mean about 20 billion bottles and cans avoiding the landfill and instead providing valuable materials to bottling companies for recycled content in new bottles and cans.

Mark Preisinger, Director for Shareowner Affairs, Coca-Cola, told As You Sow: “I do believe [shareholders’ proposals] helped us get to where we are on the recycled content issue. The dialogue that we undertake with shareholders clearly helps advance agendas like this one inside our company.”

Further, what started out as an adversarial dialogue with Nestle Waters developed a couple of years later into a joint effort by As You Sow and Nestle Waters to convince other large brands to take financial responsibility for the collection and recycling of post-consumer bottles. This led to the development of a $100 million Closed Loop Fund by Walmart, along with Coke, Pepsi, Procter & Gamble and several other brands, to help fund improvements to U.S. recycling infrastructure, which will increase materials recycled.

Shareholder Proposals at Monsanto Were Warning of Troubles Ahead for Bayer's Acquisition

In 2016, shareholder John Harrington, the president of Harrington Investments Inc., filed a proposal at Monsanto regarding health risks from the company’s flagship weedkiller Roundup. The proposal noted “an increasing number of independent studies assessing the toxicity of glyphosate, the active ingredient in Roundup, associate it with cancer, birth defects, kidney disease, and hormone disruption, causing world-wide concern about its safety”. The proposal requested a report assessing the effectiveness and risks associated with the company’s policy responses … to the impact of recent reclassification of glyphosate as “probably carcinogenic,” and quantifying potential material, financial risks or operational impacts on the Company in the event that proposed bans and restrictions are enacted.

On its 2016 vote, the proposal received 5.3% voting support. Refiled in 2017, it still only received 5.5% support. Yet, this relatively small group of shareholders proved to be prescient in identifying a material issue.

Only two months after Monsanto was acquired by the German pharmaceutical company Bayer in June 2018, a jury granted a $289 million award in a suit alleging public health threats and cancer of a plaintiff caused by Roundup. This news sliced billions of dollars from Bayer’s valuation. Bayer’s market capitalization has descended steeply in the following months, from $99.1 billion as of August 10, 2018 (the date of the jury verdict), to $64.8 billion as of November 20, 2018 and after losing another jury verdict, $56.2 billion by May 24, 2019.

Read more

Linking Executive Compensation to Diversity and Inclusion

Pat Miguel Tomaino, Director of Socially Responsible Investing, Zevin Asset Management

The structure of executive pay often causes companies to cut corners, take unwarranted risks, and ignore pressing environmental and social challenges. Exorbitant and unfocused pay packages created perverse incentives that reduced oversight at Wells Fargo, leading to the bank’s fake accounts controversy. After the Volkswagen diesel emissions scandal and BP’s Gulf of Mexico explosion, experts and advocates have pressed to “claw back” misbegotten CEO paychecks — without much success.

Responsible investors can help shape incentives toward positive outcomes even as we examine the deeper problem in executive compensation. To this end, Zevin Asset Management has urged dozens of companies to link senior executive payouts to social and environmental risk metrics and performance goals. Late last year, Citrix responded to our proposal, agreeing to spell out how diversity and inclusion factors influence annual CEO performance evaluations.

Read More