Shareholder Activism

July 07, 2015

Adam M. Kanzer, Esq., Managing Director

On June 26, 2015, the Supreme Court reaffirmed what many of us have long believed—the Constitution is a living, breathing document built on a foundation of equality and the pursuit of happiness.  It did not take a constitutional amendment to establish marriage equality, because those concepts are embedded in our nation’s founding documents.

The struggle for that important achievement was carried out over many years, from the streets, to the court rooms, to the board rooms.

We were pleased to join 379 employers and employer organizations in a friend of the court (amicus curiae) brief to the US Supreme Court to explain how discriminatory restrictions on the right to marry hurt business. According to the Court:

“As more than 100 amici make clear in their filings, many of the central institutions in American life—state and local governments, the military, large and small businesses, labor unions, religious organizations, law enforcement, civic groups, professional organizations, and universities—have devoted substantial attention to the question.  This has led to an enhanced understanding of the issue—an understanding reflected in the arguments now presented for resolution as a matter of constitutional law.”  Obergefell v. Hodges, Slip Op. at 23 (emphasis added). 

Some of the largest publicly traded corporations in the world signed that brief, demonstrating that this issue had already been settled in the mainstream business community.  By 2012, the vast majority of Fortune 500 companies prohibited workplace discrimination based on sexual orientation, setting a higher standard than the law required.

That didn’t happen by accident.  Much of it happened, company by company, due to the hard work of investors who believe that discrimination is bad for business.  Companies were persuaded through letters from their shareholders, face to face meetings and the submission of shareholder proposals that were put to a vote at company annual meetings across the country.  Some of these dialogues took years to achieve success.

The Domini Social Equity Fund played a small part in these efforts, convincing several companies to amend their non-discrimination policies to include “sexual orientation,” and voting for shareholder proposals submitted by others.  A small change brought about by your mutual fund can have ripple effects throughout society.

This work helped to lay the groundwork for marriage equality by changing perceptions in the investor and business communities, strengthening the notion that an employee’s sexual orientation or gender identity has nothing to do with their ability to perform on the job.  We explained that corporations would benefit by greater employee loyalty and commitment.  They would also gain the ability to recruit from the broadest possible pool of talent.

In the world of finance, the phrase “domestic equity” does not refer to marriage equality, it refers to the stock of American companies.  But the word “equity” has a double-meaning.  After all, a system that is fundamentally unfair is also not good for business in the long run.

 

April 17, 2015

In addition to using social, environmental and governance standards to select our investments, each year the Domini Social Equity Fund submits shareholder proposals to corporations in its portfolio, addressing a broad range of social and environmental issues.  Since 1994, the Fund has submitted more than 250 proposals to more than 95 major corporations.

Frequently, companies will reach out to us to see what steps they could take to convince us to withdraw our proposal and avoid a shareholder vote on the issue.  A high vote on a proposal is nice, but we always prefer to withdraw our proposal in exchange for an agreement.  Over the years, often in partnership with other investors or NGOs, we have convinced numerous companies to adopt new policies to protect factory workers and the environment, and to enhance public transparency.

In the first quarter of 2015, we withdrew four proposals in exchange for the following commitments: 

Lowe’s, the world’s second largest home improvement retailer, agreed to eliminate neonicotinoid pesticides — a leading contributor to global bee declines — from its stores by 2019.  The company will also redouble its pesticide management efforts with its plant suppliers, and will begin a variety of consumer education initiatives focused on pollinator health.  Lowe’s has also informed us that it now offers a full range of natural or organic alternatives to its synthetic pesticide offerings.  Read more about this important announcement.

Avon agreed to review and revise its palm oil purchasing policies to address impacts on deforestation and human rights.  Avon utilizes palm oil derivatives (products derived from palm oil) in a wide variety of products.  About 60% of the palm oil consumed globally is in the form of derivatives. Read more about this important announcement.

Southwestern Energy committed to publishing annual methane emission reduction targets and to include these targets in determining bonuses for management and staff. Methane is a relatively short-lived, but potent, greenhouse gas.  The company is leading a group of companies called the ONE Future Coalition, a collaborative effort to reduce methane leakage below 1%, from the well-head to your kitchen burner. Southwestern, however, has not set its own targets yet.  This is the first time the company has publicly committed to do so.

MeadWestvaco agreed to full disclosure of its political contributions.  Thanks to concerted efforts by investors, including Domini, more than 140 large corporations now disclose their political spending so that they may be held accountable by their investors and consumers. 

April 17, 2015

Domini Social Investments announced today that Avon Products (Ticker: AVP) has agreed to review and revise its palm oil purchasing policies to address impacts on deforestation and human rights, in response to a shareholder proposal filed by the Domini Social Equity Fund (Ticker: DSEFX). The proposal was co-filed by the Appleseed Fund, in collaboration with Ceres.

“We were very pleased to withdraw our proposal in response to these new commitments from Avon,” said Adam Kanzer, Managing Director and Director of Corporate Engagement at Domini. “As investors, we are seeking to invest in good companies and make them better. Our proposal has helped to spur an internal dialogue about the impact of Avon’s palm oil purchases, encouraging the company to set the bar higher.”

Over the past several years, Domini has been encouraging companies in its Fund portfolios to adopt appropriate policies and procedures to address the impact of its commodity purchases on forests and human rights, including palm oil. According to WWF, “Large areas of tropical forests and other ecosystems with high conservation values have been cleared to make room for vast monoculture oil palm plantations – destroying critical habitat for many endangered species, including rhinos, elephants and tigers. In some cases, the expansion of plantations has led to the eviction of forest-dwelling peoples.”

Avon is a member of the Roundtable on Sustainable Palm Oil (RSPO), and has previously committed to purchase GreenPalm certificates equivalent to 100% of its palm oil supply. These certificates are used to finance sustainable palm oil production, but cannot guarantee that Avon’s actual palm oil purchases are produced sustainably.

Most of Avon’s palm oil purchases are in the form of products derived from palm oil (“palm oil derivatives”), further complicating the company’s ability to trace its purchases back to their source. Avon utilizes palm oil derivatives in a wide variety of products. About 60% of the palm oil consumed globally is in the form of derivatives.

Avon Commitments

In response to Domini’s proposal, Avon has committed to take the following additional steps:

  • Avon agrees to establish a cross-functional internal team to assess the Company’s palm oil sourcing and develop a recommendation for implementing a time-bound sustainable sourcing plan.
  • Avon will revise its palm oil policy to establish a time-bound plan to purchase certified Mass Balance or segregated sustainable palm/palm kernel oil, with full traceability back to the planation for all direct purchases and the majority of its palm oil derivatives purchases. “Mass Balance” is a term established by the RSPO to denote palm oil supply that contains a mix of certified and uncertified palm oil. “Segregated” refers to 100% certified sustainable palm oil that can be traced to its source. 
  • Avon commits to provide updates on its website about the development and implementation of these new palm oil commitments.
  • Avon commits to a good faith dialogue with Domini and Appleseed on the development, implementation and public reporting of Avon’s new policy commitments, including discussion of time-bound commitments with clear goals, and the inclusion of human rights standards. 
April 17, 2015

Friends of the Earth, Domini Social Investments and Trillium Asset Management praised Lowe’s (NYSE: LOW) for making a commitment to eliminate neonicotinoid pesticides — a leading contributor to global bee declines — from its stores.

After input from suppliers, NGOs, investors and other key stakeholders, the company announced it will phase out neonicotinoids (“neonics”) as suitable alternatives become available, redouble existing integrated pest management practices for suppliers and provide additional material educating customers about pollinator health.  

“We commend Lowe’s for taking a leadership position on this critical issue,” said Adam Kanzer, Managing Director and Director of Corporate Engagement at Domini Social Investments. “Sales of neonic-containing products may be exacerbating a critical systemic risk – alarming declines in honeybees and wild pollinators that support our food systems. As investors and as human beings, we all depend upon pollinators. We believe Lowe’s actions will help protect an irreplaceable resource.”

“We are pleased Lowe’s is listening to consumer concerns and to the growing body of science telling us we need to move away from bee-toxic pesticides by taking steps to be part of the solution to the bee crisis,” said Lisa Archer, Food & Technology Program Director at Friends of the Earth. “Bees are canaries in the coalmine for our food system and everyone, including the business community, must act fast to protect them.”

“Lowe’s public commitment will better position the company to meet the demands of an increasingly environmentally-conscious consumer base. And, it sends an important market signal that restricting the use of bee-harming pesticides is essential to tackling bee declines,” said Susan Baker, Vice President, Trillium Asset Management. “We applaud the company’s positive steps on this issue.”

Friends of the Earth Campaign

This announcement follows a two-year campaign led by Friends of the Earth and allies* to urge Lowe’s and other garden retailers to stop selling plants treated with neonicotinoids and remove neonic pesticides from their shelves. More than one million people signed petitions and thousands of activists delivered letters directly to Lowe’s stores in cities across the U.S. and Canada asking for this change.

A study released by Friends of the Earth and Pesticide Research Institute, Gardeners Beware 2014, showed that 51 percent of garden plants purchased at Lowe’s, Home Depot (NYSE: HD), and Walmart (NYSE: WMT) in 18 cities in the United States and Canada contained neonicotinoid pesticides at levels that could harm or even kill bees. In the past year, more than twenty nurseries, landscaping companies and retailers—including Home Depot, Whole Foods (NASDAQ: WFM) and BJ’s Wholesale Club have taken steps to eliminate bee-killing pesticides from their stores. The UK’s top garden retailers including Homebase, B&Q and Wickes, have also stopped selling neonicotinoids.

Investor Engagement on Pollinator Declines

Investors, in collaboration with the Investor Environmental Health Network, began engaging home improvement retailers and food companies in their portfolios about the environmental risks of neonics in 2013, the year Domini and Trillium opened conversations with Lowe’s about the topic. 

While Domini and Trillium had constructive dialogue with Lowe’s, the investors chose to submit a shareholder proposal in November to stress the urgency of the issue. The proposal, submitted by the Domini Social Equity Fund (Ticker: DSEFX) and by Trillium Asset Management, on behalf of  Ellen Webster, asked the company’s Board of Directors to conduct a risk assessment of its environmental protection policies and practices to determine whether continued sales of neonicotinoid-containing products are in the best interests of Lowe’s, its consumers and its shareholders.

The investors withdrew the shareholder proposal in response to new commitments which will help the company provide its customers with products that promote healthy gardens and reduce risks to pollinators and other beneficial organisms.

Lowe’s Commitments:

  • A time-bound phase out of neonicotinoid (“neonics”) containing products in shelf products and plants, to be completed by the Spring of 2019, as suitable alternatives become available. For nurseries, Lowe’s will phase-out neonics for bee-attractive plants, and plants where regulatory requirements do not require the application of neonics (certain states require the application of neonics on certain plants and nursery material). Lowe’s plans to implement this phase-out as soon as is practicable.
  • Redoubling pesticide management efforts and the addition of an application reduction plan with plant suppliers, including the collection and sharing of growers’ best practices around use of biological controls and integrated pest management (“IPM”) practices, and research into best alternatives. Nurseries will be required to disclose to Lowe’s the amount of pesticides used per acre, or a similar metric.
  •  Increased focus on consumer education initiatives including in-store distribution of EPA and Pollinator Partnership pesticide brochures and product tags which will highlight the health of bees and other pollinators.
  • Funding of pollinator gardens through the company’s philanthropic and volunteer programs.
  • Disclosure of these efforts in its 2014 Corporate Social Responsibility Report.
  • Continued dialogue with Domini, Trillium and Friends of the Earth focused on implementation and public reporting of these commitments.

 “Along with our allies, we will continue to work with Lowe’s and other retailers to move neonicotinoid pesticides off their shelves and out of garden plants as soon as possible to ensure bees can find save havens in our backyards and communities,” said Archer. “With a new spring planting season upon us, it’s important for gardeners to be aware that many plants in stores today still contain neonicotinoids. We look forward to the day shoppers can buy home garden plants without worrying about harming pollinators.”

Lowe’s announcement comes eight months after a meta-analysis of 1,121 peer-reviewed studies by the Task Force on Systemic Pesticides concluded neonicotinoids are a leading factor of bee declines and are harming birds, earthworms, butterflies and other wildlife. The Task Force called for immediate regulatory action.

In October, 2014, the Council on Environmental Quality issued guidance for federal facilities and federal lands which included acquiring seeds and plants from nurseries that do not treat these items with systemic insecticides.

On April 2, the EPA announced a moratorium on new or expanded uses of neonicotinoids while it evaluates the risks posed to pollinators. Last month, more than four million Americans signed petitions calling on the Obama administration to put forth strong protections for bees and other pollinators. The Pollinator Health Task Force, established by the White House this past June, is charged with improving pollinator health, and assessing the impacts of pesticides, including neonicotinoids, on pollinators.

February 23, 2015

Adam M. Kanzer, Esq., Managing Director

In 1970, Milton Friedman wrote a famous essay for the New York Times Magazine, arguing that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

For many years, the Friedman point of view prevailed: the job of a corporation is to serve its shareholders. A portion of Friedman’s argument rested on a bit of rhetorical sleight of hand—the notion that a “free market” also means “freedom.” Here is how Friedman put it: “In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”

Perhaps that is how an “ideal” free market would function. Forty-five years after Friedman’s essay, however, we still remain very far from that ideal state. Consider these unsettling facts:

  • Although illegal, slavery and forced labor persists in many forms around the world. Researchers estimate there may be as many as 36 million people in slavery today—more than at any other time in history.
  • According to a two-year study conducted by Verite, forced labor in Malaysian electronics factories is widespread, impacting one in three migrant workers.
  • Last spring, the Guardian reported that “large numbers of men bought and sold like animals and held against their will on fishing boats off Thailand” are integral to the production of shrimp sold in leading supermarkets around the world.
  • Every year the government of Uzbekistan, one of the world’s largest exporters of cotton, forcibly mobilizes children as young as ten years old to harvest their crops.

Many corporations are now well aware of these facts, and enforce codes of conduct at factories and fields around the world through regular monitoring. Some collaborate with labor unions and human rights groups, and actively seek to find the root causes of these abuses. They are changing the definition of “good business.” But these changes did not come about through the influence of a magical invisible hand of the market. These transformations are largely the result of concerted engagement by investors and civil society organizations repeatedly raising concerns with corporations for decades.

Milton Friedman allowed for profitable socially responsible activities—this is just good business after all, not “social responsibility.” He failed to see, however, how far away we are from his ideal free market, and the critical need to convince companies to act more responsibly, even when it is in their long-term best interests to do so.

Learn More:

In 2010, Domini convinced Nucor to adopt strong policies to address forced labor and slavery in Brazil. Read the case study.

Learn more about Domini's approach to Human Rights

February 10, 2015

Adam M. Kanzer, Managing Director

Several years ago, at a Goldman Sachs annual meeting, time was set aside for shareholders to ask questions of the CEO. A man approached the microphone and announced that he was a guest, not a shareholder, and wondered if he could ask a question. “No,” he was politely informed, “only shareholders can ask questions.”

It was a telling moment that spoke a significant truth about the corporate system – only shareholders count. For many, a responsible company is defined as a company that takes care of its shareholders. A nod will be given to other “stakeholders,” such as employees and community members affected by corporate activity, but only to the extent that these good relationships help create wealth for shareholders. Shareholders? That’s us. Most of us don’t know much about picking stocks, so we trust a financial advisor or a mutual fund manager to do this for us. Nearly 100 million Americans invest in mutual funds. 

When you invest in a mutual fund, your money becomes part of a common pool of assets that the fund manager uses to invest in stocks or bonds or other financial instruments. It’s their job to look out for your best interests. A mutual fund is a profit-seeking vehicle, but it can also become a vehicle for the common good. Your small investment can be leveraged to help produce significant change.

Shareholders have not done a particularly good job monitoring the behavior of the companies they own. In fact, they are often a significant part of the problem. Corporations are some of the largest economic entities in the world, and they are managed with the steady drumbeat of "make me money" in the background. It should come as no surprise when companies cut corners on safety, oppose environmental regulations and outsource production where wages and worker protections are weakest. They do this to satisfy their shareholders. A year before the explosion in the Gulf of Mexico, Tony Hayward, BP’s former CEO, quipped that he pays his shareholders an annual dividend “to keep his job.”

Moral and financial concerns are not independent but interdependent. Corporate success depends on a delicate web of relationships with employees, customers, communities, governments, suppliers, investors, and ecosystems. Companies that treat these stakeholders with dignity and respect can prosper in the long run by avoiding problems and winning the loyalty of their employees and consumers. They can also create tremendous value for society. When oil companies like BP pay insufficient attention to worker health and safety, however, shareholders also suffer. And CEOs, like Mr. Hayward, lose their jobs.

So what does it mean to be a shareholder? A shareholder is a person of influence. Together, we have an opportunity to seek profits and wield that influence for the common good.

 

Read why Domini chose not to invest in BP, years before the Gulf of Mexico disaster. .

 

December 04, 2014

The complexity of our food production systems is astounding, as are its staggering impacts on climate change and human rights. Any given meal or afternoon snack can touch on issues as far-ranging as the survival of the orangutan or a land rights dispute in Africa. Climate change, water scarcity, nutritional content, marketing to children, animal welfare and labor rights are all on the table.

Behind each familiar brand lies a complex set of relationships stretching across the globe. We view these relationships as opportunities for positive impact. As investors, we can create the incentives for companies to simultaneously be more transparent and to dig deeper to ensure their businesses are operating responsibly. Through your investment in the Domini Funds, your money is working to help catalyze this process of transformation.

For example, deforestation is an important driver of climate change, accounting for an estimated 10 percent of greenhouse gas emissions. The Consumer Goods Forum, an industry association, has acknowledged that “the consumer goods industry, through its growing use of soya, palm oil, beef, paper and board, creates many of the economic incentives which drive deforestation.” All 400 members of the Forum, representing all the world’s major consumer goods manufacturers, retailers and service providers, have committed to zero net deforestation by 2020.

Who will hold these companies accountable for these commitments? What do they mean in practice?

The shareholder proposal is an effective tool for encouraging corporate management to come to the table to discuss our concerns. We developed a proposal that we have submitted to several of the largest food companies, asking for public reports assessing each company’s impact on deforestation and its plans to mitigate these risks. We’ve asked these companies to report on their impact by commodity, as each carries its own set of risks and possible solutions. Among these commodities, palm oil has received the most attention because its production is responsible for large-scale forest conversion in the tropics and extensive carbon emissions.

At Domini Social Investments, the research we conduct to understand the dynamics of our food systems is core to the investment process. Whether it is expressed in the avoidance of many manufacturers of agricultural chemicals, in the search for systems that provide safer food for all, or in the proxy votes we cast or the hard questions we ask of corporate managers, we view our social and environmental standards as key to the process of helping both the public and corporations understand what is at stake.

Download our new Annual Report (PDF) to learn more about the ways the Domini Funds are helping to promote better food production around the globe, including our approach to local and organic sourcing, genetically modified organisms, pesticide use and deforestation.

August 06, 2014

One of the most important areas of corporate social responsibility has gone largely ignored, until now. The headlines are filled with stories of aggressive strategies by corporations to minimize or eliminate their tax payments, primarily through the use of offshore tax havens. Countries around the world are losing billions in tax revenues, all in the name of shareholder value.

Tax avoidance weakens societies and threatens long-term wealth creation. That is why Domini is taking a lead role in asking corporations to adopt more responsible and transparent tax strategies.

Tax is an investment in society. What is our return on investment? Corporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection and national defense. These indispensable services can only be funded by tax revenues.

Economist Joseph Stiglitz warns that corporate tax avoidance threatens the wellspring of “future innovation and growth.” Companies like Google and Apple have benefited from taxpayer-funded scientific research.

Investors need to speak up, and end this global race to the bottom. At Domini, we are asking companies to adopt ethical principles to guide their tax strategies, considering their impact on society and brand value, just as they have with bribery, child labor and climate change.

Quick Facts on Corporate Tax Avoidance
Corporate profits are booked in places like Bermuda to avoid paying taxes where those profits were actually earned. How do we know? In 2010, the amount that American companies told the IRS they actually earned in Bermuda was 1,643% of that country’s entire yearly economic output.*
At least 362 companies (72% of the Fortune 500), operate subsidiaries in tax haven jurisdictions as of 2013.*
When corporations don’t pay their taxes, somebody else needs to pick up the tab. In 1952, 32% of U.S. federal tax revenues came from corporate income tax. By 2012, this portion had shrunk to only 8.9%. (Source: Congressional Research Service)

*Source: Offshore Shell Games 2014 (U.S. PIRG Education Fund and Citizens for Tax Justice)

Investors may only just be waking up to this critical issue. Our first of its kind proposal, asking Google to adopt a set of ethical principles to guide its tax strategies, went to a vote at the company’s annual meeting in May. Although we received a very low vote, nearly 20% of investors abstained, telling us that many investors are undecided. In the meantime, our proposal helped to raise awareness, and led to our first conversation with Google about its tax strategies, a dialogue that we hope will continue.

May 05, 2014

Chipotle Mexican Grill recently made headlines with a divisive online animated short depicting a lone scarecrow in a dystopian fantasy world trying to provide an alternative to unsustainable factory-processed food. This video is part of a bold marketing strategy that is contributing to an important conversation about our food system, as Chipotle attempts to make a name for itself as a more environmentally friendly fast-food restaurant “dedicated to creating a sustainable, healthful and equitable food future.”

Domini applauds Chipotle for these efforts and for its high-profile challenges to industrial factory-farming techniques. However, we do not take the company’s claims at face value— we would like to see substantiating data. That is why we chose to join another investor in submitting a shareholder proposal seeking a sustainability report. During the quarter, we spoke with Chipotle executives about the proposal and about the company’s sustainability efforts. The company is committed to improving its level of transparency but was unwilling to produce the report we have requested. Our proposal will go to a vote at the company’s annual meeting on May 15, and our dialogue will continue.

May 05, 2014

In November, Domini wrote a letter to Jeff Bezos, Founder and CEO of Amazon.com, raising concerns about the company’s participation in the militarization of the civilian firearms market, after we discovered semi-automatic weapon accessories being sold on Amazon that could help gun owners increase the firepower of their weapons. We highlighted, for example, a trigger kit that allows the shooter to “shoot as quickly as desired” and devices designed to increase accuracy and reduce shooter fatigue. Our letter, which received coverage from Reuters, was signed by 33 institutional investors managing $490 billion, including New York State and the Church of Sweden.

In a recent conversation with Amazon executives we learned that our letter was taken quite seriously. Most of the products we identified have been removed from Amazon.com and added to the company’s list of prohibited items. The third-party sellers have been notified that they may no longer offer these items for sale on Amazon. We will continue to engage Amazon to ensure that they are doing everything they can to avoid becoming a marketplace for assault weapons.

Pages