Overview and New Issues in 2018
This section provides a summary of the main issues raised in each of the topics covered in this report, with special attention to new issues and key points of contention that have yet to be resolved concerning SEC Staff Legal Bulletin 14I, issued last November.
The topic of climate change makes up the vast majority of resolutions filed on environmental topics and undergirds many other corners of shareholder activity this proxy season.
Out of the 83 resolutions on climate, three-quarters raise familiar requests, seeking more information about how companies will report and manage carbon asset risk and set goals to reduce their greenhouse gas (GHG) emissions.
Carbon asset risk—A core request is for companies to explain how they will adapt to a low-carbon economy that is needed to prevent global temperature increase above 2 degrees Celsius, as agreed in the Paris climate treaty. Most of the 27 recipients are energy and utility companies that routinely get these requests in some form.
GHG emissions—On emissions management, there are another 27 proposals. In addition to the long-time request to set quantitative, time-bound reduction goals, some resolutions asked companies to report on net-zero GHG goals. But the SEC agreed with some companies that the net-zero resolutions were too detailed and there will be only one or two votes on this more specific request. A new resolution asks for a report from Ford Motor and General Motors about auto emissions regulation and a decarbonized vehicle market, which is being pushed off domestically by the Trump administration’s move to relax what would have been much higher fuel efficiency standards set by the Obama administration.
The SEC has yet to weigh in on whether companies being sued about adverse climate change impacts such as Chevron may omit climate-related shareholder resolutions, since information adverse to the litigation might come to light from a response to the proposal. Given the burgeoning number of suits being filed against energy companies, proponents are watching the Chevron challenge closely.
Unconventional fossil energy—Methane is the primary concern of resolutions about unconventional oil and gas operations, where there are 11 proposals. A new resolution to JPMorgan Chase also seeks information on its financing of energy-intensive Canadian tar sands extraction.
Energy solutions—On renewable energy, proponents simply want to see more of it and they are asking utilities, communications companies, retailers and others to set goals. A few companies argue that these resolutions are excludable under the new legal bulletin, contending this amounts to “micromanagement,” an ordinary business concern, and because energy costs account for only a small part of their expenses. The SEC concurred in late February, casting a shadow on the future of these proposals.
Forests—Deforestation proposals address the impact of commodities supply chains on food companies, including new proposals at US Foods Holding and Bunge, the world’s biggest palm oil firm. These raise human rights issues, as well.
These 15 proposals relate to recycling, water and nuclear power, with a new resolution raising old issues about the Bhopal disaster 34 years ago.
Recycling and waste—As You Sow scored what it sees as a major victory to reduce ocean plastics when McDonald’s agreed to eliminate polystyrene from its global operations including one billion coffee cups each year, prompting a withdrawal. A few weeks later, Dunkin’ Brands agreed to stop using one billion foam cups each year, without a corresponding shareholder resolution this year. Other companies now face pressure to match these actions.
The new legal bulletin came up again at Dunkin’ Brands, where last year the SEC disagreed with the company’s argument that a resolution on K-Cups could be omitted; this year, the company says the proposal doesn’t meet the “significantly related” standard. Amazon.com also says a food waste proposal, considered last year at Whole Foods, is insignificant. The SEC agreed at Dunkin' Brands but has yet to respond to Amazon.com.
Water—Water stewardship is on the agenda at two new companies—Blue Buffalo Pet Products and B&G Foods, a packaged foods firm, while a resubmitted proposal to Tyson Foods has earned 15.8 percent, a high vote at the closely held company.
Nuclear power and Bhopal legacy—Shareholders will get the chance to vote about whether DTE Energy should explain the economic impact of an early closure of its controversial Fermi 2 nuclear plant, since the proposal survived an SEC challenge. They may also vote on the legacy of Bhopal and how that might affect DowDupont’s plans for expansion in India.
Antibiotics—Chicken producer Sanderson Farms still disputes that antibiotics in animal feed have a negative impact on human health and investors voted 43 percent in support of a phase-out resolution in early February; it earned 31 percent last year. Proponents also want antibiotic-free meat supply chains—including beef and pork—and have gone back to McDonald’s on this issue and added Denny’s.
Pesticides—There have been two withdrawals related to pesticides, with Tractor Supply agreeing to conduct a risk assessment; one resolution is still pending on protecting pollinators by cutting pesticide use in the Dr Pepper Snapple supply chain.
Animal products—Investors already voted on attending to animal welfare in Luby’s supply chain, giving a disclosure resolution there 9.4 percent on February 9. On a related front, People for the Ethical Treatment of Animals (PETA) seeks the elimination at VF of all animal-derived products, including down, wool and leather.
Various resolutions on the ethics of using laboratory animals, selling glue traps and breeding orcas, most from PETA, appear unlikely to go to votes given pending SEC challenges; five proposals were filed.
Corporate political activity:
The overall tally of resolutions about political influence spending has reached 80 this year, down from 90 in 2017, again with more on lobbying than election spending. In both cases, the enduring sticking point remains the requested and resisted disclosure of “dark money” spending by trade groups and other non-profits with company money. Forty-seven proposals are on lobbying, 27 are about election spending and few more raise related issues.
Critical question at the SEC—Most significant this year, on this topic, is whether companies will succeed in using the new legal bulletin to redefine the “significantly related” portion of the shareholder proposal rule. Citibank, Eli Lilly, Goldman Sachs and Travelers all are arguing their political expenditures are insignificant, with some also saying that investors are just not interested in the disclosure sought by proponents. If the SEC agrees, it will mark a sea change in policy that could significantly reduce the number of resolutions. Company challenges have noted that their boards met and agreed with management conclusions about the insignificance of political activity. The bulletin sought more information about boards’ reasoning for rejecting resolutions, but so far appears largely to have elicited accounts of boards rubber stamping management conclusions.
Conservative copy-cats—New this year are proposals from the free market activist group the National Center for Public Policy Research (NCPPR) that use precisely the same resolved clause as the disclosure advocates on lobbying. In two instances so far these resolutions have pre-empted mainstream proposals filed later, on lobbying at Duke Energy and about election spending at General Electric, where the question turned on third-party spending groups.
The #MeToo movement and its demand for equal treatment—and, implicitly, equal pay—underscores a continued surge of resolutions about gender pay equity. There are three dozen proposals, about half of them resubmissions, many at financial sector companies where women are particularly scarce in higher paying positions. Arjuna Capital is a key player and has negotiated agreements with four of the nation’s five biggest banks—Bank of America, Bank of New York Mellon, Citigroup and Wells Fargo—to work on closing the pay gap between men and women. Other important proponents are Pax World Funds and the New York City pension funds which also address this issue through its numerous proxy access proposals. Gender pay often resolutions focus on women, but also raise differential pay rates for people of color. Unlike for many other subjects, there have been few SEC challenges.
Family leave—Zevin Asset Management filed new resolutions on family leave. The first had been slated for a vote at Starbucks on March 21, highlighting the lack of leave for fathers, adoptive and LGBTQ parents, but proponents withdrew it at the last minute, after the proxy statement was issued. A challenge from Yum! Brands invokes the new staff legal bulletin in its pending challenge to a proposal that highlight differences in benefits, which the company defends, for management and retail restaurant workers. The proposal is also before CVS Health.
Diversity in the workplace:
Thirty-four resolutions seek disclosure of workplace diversity, with 26 looking for data about current workforce breakdowns and/or what companies are doing to provide for more equal representation by women and minorities. As with the pay disparity resolutions, most of these are at companies in the financial sector; half are resubmissions from last year. Proponents so far have reached agreements with four companies—Dollar General, Discover Financial Services, SunTrust Bank and Morningstar.
Brand-new this year are resolutions that seek to hold companies to account for the opioid crisis ravaging the country. Mercy Investments and the UAW Retirees’ Medical Benefit Trust launched a new campaign, Investors for Opioid Accountability (IOA), in October. It brings together faith-based investors, state treasurers and other institutional investors including trade unions—who together manage $2.2 trillion in assets—and is asking for information at drug makers, distributors and treatment manufacturers. Resolutions use a corporate governance lens regarding board oversight and pay clawback questions, but also questions of potentially undue political influence; they have survived several challenges at the SEC. The first vote at distributor AmerisourceBergen on March 1 was 41.2 percent and another is slated for an additional company not yet disclosed.
Other health proposals seek reports on drug pricing and tobacco harm reduction. New proposals ask about the financial discriminatory impact of small airline seats on overweight and tall travelers, although the two airlines have challenged them. A proposal to Dr Pepper Snapple about risks related to sugary drinks and obesity risks also has been filed.
In a big change from last year, there are hardly any conflict zone proposals since the three-year Holy Land Principles campaign regarding fair employment for Palestinians and Israelis appears to have been suspended after low votes.
Supply chain labor—Other evergreen concerns remain, though, and account for a total of 31 proposals. These raise concerns such as ethical recruitment at about half a dozen companies and goods from domestic prison labor at Costco Wholesale, a new issue that received 4.8 percent in January. That resolution is also at TJX but the company has changed its policy and argues it is moot. Continuing the theme of anti-exploitation, five proposals about human trafficking at trucking companies and airlines have produced three withdrawals so far, while a Monster Beverage proposal asking for a report on forced labor and slavery in its supply chain is heading for a vote.
Risk assessment—NYSCRF has filed a proposal new to Tesla Motors seeking a human rights risk assessment because of problems in the company’s workplace alleging discrimination and harassment.
Indigenous rights—Proposals about indigenous peoples’ rights at two banks and Marathon Petroleum have returned but have been withdrawn after an agreement at Citigroup and a challenge at Bank of America. A proposal by Proxy Impact and As You Sow at Wells Fargo asks for a policy that includes the free, prior and informed consent of indigenous communities. The proposals come in a changed policy landscape, in which the Dakota Access Pipeline cancelled by Obama has been approved by Trump, and as new pressure comes to bear on Native Americans facing expanding resource extraction threats to their lands.
Weapons— A new resolution at Chubb expresses concern about the insurer’s underwriting of CarryGuard policies for gun owners worried about liability costs incurred from shooting people in self-defense has been omitted on technical grounds, but Chubb announced in February it was ending its underwriting for the product. ICCR members also are looking for reports from two weapons makers (at American Outdoor Brands, the former Smith & Wesson, and Sturm, Ruger) and retailer Dick’s Sporting Goods about gun safety and harm mitigation. All these proposals carry special piquancy given the bloody start to the year with many school shootings and the massacre in Parkland, Florida on Valentine’s Day. Indeed, Mercy Investments withdrew its proposal at Dick's once the company said it would end assault weapons sales following the shootings; nuns had met with company executives even before the Parkland tragedy.
Conflict zones—Chevron is arguing a proposal to report on its anti-genocide policy is too vague since investors would not be able to determine where genocide occurs. The resolution notes the plight of the Rohingya people and the company’s business in Burma. Another detailed conflict proposal is at First Solar, seeking information about doing business in “situations of belligerent occupation.”
Media and cybersecurity:
Illustrating once again that proxy season reflects dominant issues of public policy contention, investors suggest that “fake news,” Russian meddling in U.S. elections and violent online postings present risks to social media platform companies. The concept of shareholder involvement in this area earned praise from British Prime Minister Theresa May at the Davos summit in January. Proposals are at Alphabet, Facebook and Twitter, from NYSCRF, Arjuna Capital and co-filers and seek better content management to mitigate risks. Facebook faces special attention given the Federal Bureau of Investigation’s findings that its platform was key to spreading dissonance throughout the United States.
The UAW Retirees’ Medical Benefits Trust wants information on cybersecurity from hacked credit reporting company Equifax, while NYSCRF wants a similar risk mitigation report from prescription manager Express Scripts—and faces a pending SEC challenge.
Almost all the 30-plus companies with board diversity resolutions have never received a proposal before; the identity of many of the companies had yet to be disclosed at the time of this writing. Resolutions, as in the past, seek either adoption of policies that would ensure women and minorities are in the pool of board nominees or ask for diversity policy disclosure. A resubmission at Cognex earned 62.7 percent in 2017.
New is a resolution to ExxonMobil and NRG Energy from the New York City pension funds, which they also filed at an as-yet undisclosed additional number of companies. It wants companies to report the race, gender and ethnicity of board directors and nominees, as well as other strategically relevant attributes, in a matrix. ExxonMobil says it is too vague and concerns ordinary business; the SEC has yet to respond to its challenge. (A conservative copy of the proposal with the same resolved clause that says racial, ethnic and gender diversity is immaterial has been filed at Facebook, as noted below.)
Ten proposals ask for specific types of board oversight and three more request particular types of board member expertise—reprising familiar concerns from past proxy seasons. JPMorgan Chase is fighting one of these, which asks for a board committee on indigenous rights, invoking the staff legal bulletin and saying among other arguments that it would constrain potential business opportunities.
Sustainability oversight and disclosure:
The number of proposals seeking sustainability reports is rising again after falling for several years and there are two dozen resolutions, almost all to new recipients. Ten of them include GHG goals as part of the disclosure request; one of these scored a near-majority at Acuity Brands early in the year, with 49.8 percent support.
This year there are some new, specific reporting resolutions, as well. One pending at Amazon.com wants a report on ESG impact risk management, noting the wide-ranging impact the company is having on American society, although it faces a SEC challenge. Also pending is a first-ever proposal to Tesla Motors asking it to use ESG metrics in its financial reporting.
ESG pay links—In a big shift, this year there are 18 resolutions seeking reports on links between a variety of issues and executive compensation, reflecting many of the issues raised in this report—drug pricing, executive diversity, sustainability in general, cybersecurity and data privacy, fossil fuel reserves accounting and risky financial practices. Most are at new targets, and companies have pending challenges at the SEC.
Proxy voting—Two repeat proposals ask for reports about proxy voting at mutual funds companies; a new recipient is Cohen & Steers. BlackRock’s expanded plans to address social and environmental concerns in proxy voting forms the backdrop for these resolutions, which suggests a new norm that could significantly shift the balance of power in shareholder resolution voting as occurred in 2017.
Three proposals raise old issues about consumer fraud and compensation for risky banking practices at Wells Fargo, student loans at Navient and tax fairness at Nike. A vote looks likely at Wells Fargo but is uncertain at the other two companies.
Continuing their efforts to persuade investors of the merits of a free market approach, conservatives have filed a range of proposals—mostly on social issues. The effort to get companies to report on their free speech policies has struck out at the SEC, omitted on ordinary business grounds, but resolutions lauding corporate support for the American Legislative Exchange Council at Duke Energy and General Electric, mentioned above, will be on proxy statements. Otherwise, proposals that ask media companies to “tell the truth” seem likely to be omitted, as have similar resolutions in the past.
As noted above, the copy-cat technique in play for lobbying is being used by one proponent in a request for a board diversity report that emulates the New York City “matrix” reporting resolution.