Storming the Corporate Castle: Does Shareholder Activism Work?

Shareholder activism has sparked major wins for progressives, but the strategy has also spurred debate.

Theo Anderson

Illustration by Rich Stevens

These are strange days indeed for share­hold­er activism. By some mea­sures it’s expe­ri­enc­ing a surge. Pro­gres­sive groups have used the strat­e­gy since the ear­ly 1970s, but the past few years have seen an increase in its fre­quen­cy, sophis­ti­ca­tion and suc­cess. In Decem­ber, for exam­ple, the defense con­trac­tor Northrop Grum­man announced that it would imme­di­ate­ly end its mem­ber­ship in the Amer­i­can Leg­isla­tive Exchange Coun­cil (ALEC), a key play­er in the push to pri­va­tize edu­ca­tion and a pur­vey­or of cli­mate-change denial. The move came in response to a share­hold­er res­o­lu­tion filed by an activist group that owned stock in the com­pa­ny. More than 100 com­pa­nies have with­drawn from ALEC over the past four years, many under share­hold­er pressure.

Sometimes companies endorse an activist resolution and send it to a vote. But the motivation is often unclear: Is it genuine reform or a marketing ploy?

Share­hold­ers have also been a crit­i­cal part of the broad coali­tion that has tak­en on Wal­mart for prac­tices rang­ing from low pay to unfair demands on preg­nant work­ers. Wal­mart adamant­ly denies that the work of activists has any influ­ence on its deci­sion-mak­ing, but in Feb­ru­ary it announced that its base pay rate would increase to $9 this spring and to $10 ear­ly next year. The com­pa­ny has also promised to accom­mo­date preg­nant workers.

Share­hold­er activism is premised on the idea that cap­i­tal­ism con­tains the seeds of its own reform. Own­ing stock gives share­hold­ers a voice in decid­ing a company’s poli­cies — and since most share­hold­ers are pas­sive, a high­ly moti­vat­ed minor­i­ty can have an out­sized influence.

Six­teen such res­o­lu­tions were aimed at Wal­mart in the past decade — out of about 350 human cap­i­tal man­age­ment” res­o­lu­tions in all, accord­ing to Reuters—and they appear to be esca­lat­ing in num­ber. Share­hold­ers have already pro­posed sev­er­al in 2015, includ­ing one from Con­necti­cut Trea­sur­er Denise Nap­pi­er ask­ing Wal­mart to tie exec­u­tive incen­tive pay (which is based on per­for­mance) to the hap­pi­ness and pro­duc­tiv­i­ty of its low-wage workers. 

Con­ser­v­a­tives have not­ed the tactic’s pow­er and poten­tial, and they are sound­ing the alarm. In a 2011 report on Activist Invest­ing in Post-Cit­i­zens Unit­ed Amer­i­ca,” the right-wing Cen­ter for Com­pet­i­tive Pol­i­tics warns that share­hold­er activists see for-prof­it cor­po­ra­tions as their polit­i­cal ene­my, and seek par­ti­san or ide­o­log­i­cal advan­tage by squelch­ing cor­po­rate polit­i­cal speech.”

In 2013, the U.S. Cham­ber of Com­merce took anoth­er tack. It released a study sug­gest­ing that union-backed share­hold­er activism pun­ish­es the mil­lions of indi­vid­u­als who rely on these invest­ments for retire­ment,” includ­ing union mem­bers, because it doesn’t increase the val­ue of a company’s stock.

But for all the reac­tion it pro­vokes among con­ser­v­a­tives, some pro­gres­sives doubt the pow­er of share­hold­er activism to deliv­er gen­uine struc­tur­al changes. After all, it relies on prag­ma­tism and con­struc­tive engage­ment” in deal­ing with cor­po­ra­tions whose core mis­sion pro­gres­sives often oppose. And there are oth­er lim­its to its appeal. It doesn’t have the vis­i­bil­i­ty of mass march­es and protests, and doesn’t usu­al­ly achieve quick results.

It is one of the more inter­est­ing ques­tions of this polit­i­cal era whether pro­gres­sives will con­tin­ue to expand a promis­ing strat­e­gy that is suc­cess­ful enough to cause con­cern among con­ser­v­a­tives, but some­times cuts against the grain of their own beliefs.

It’s all about the image 

The res­o­lu­tion that moti­vat­ed Northrup Grum­man to with­draw from ALEC in Decem­ber was pro­posed by a polit­i­cal­ly pro­gres­sive con­gre­ga­tion of Catholic sis­ters in Fond du Lac, Wis­con­sin. If the res­o­lu­tion had actu­al­ly gone to a vote by share­hold­ers, it prob­a­bly would have failed. Only 21 per­cent of share­hold­ers vote in favor of res­o­lu­tions, on average.

But the point is not to win a major­i­ty. That thresh­old has lit­tle mean­ing, since res­o­lu­tions are non-bind­ing. The point is to win enough votes to get the atten­tion of the company’s lead­ers and move them to make reforms. The tip­ping point varies wide­ly from case to case. Some­times it’s 10 per­cent. Some­times a major­i­ty isn’t enough.

The pow­er we have is the rep­u­ta­tion­al risk,” says Lau­ra Berry, exec­u­tive direc­tor of the Inter­faith Cen­ter on Cor­po­rate Respon­si­bil­i­ty (ICCR), which engages with cor­po­ra­tions to pro­mote more sus­tain­able and just prac­tices. ICCR’s near­ly 300 mem­ber orga­ni­za­tions have both a moral and finan­cial stake in cor­po­rate behav­ior. They con­sist main­ly of reli­gious insti­tu­tions (such as the Fond du Lac nuns), but also include pen­sion funds, social­ly respon­si­ble invest­ment firms, unions and aca­d­e­m­ic institutions.

Com­pa­nies don’t like these issues being brought to the atten­tion of all insti­tu­tion­al share­hold­ers,” Berry says. They will often agree to make change so that we will with­draw our pro­pos­al and it will not appear on the bal­lot. And that’s where you see the pow­er of share­hold­er activism.”

In 2011, for exam­ple, the Oak­land-based share­hold­er activist orga­ni­za­tion As You Sow filed a res­o­lu­tion ask­ing McDonald’s to replace its foam bev­er­age cups with more eco-friend­ly paper cups. The res­o­lu­tion went to a share­hold­er vote and got near­ly 30 per­cent approval. In 2012, As You Sow filed the same res­o­lu­tion — but with­drew it when the com­pa­ny took steps toward adopt­ing the pol­i­cy. A year lat­er, McDonald’s announced that it would begin using paper cups in its 14,000 U.S. stores.

When pro­pos­als do go to a vote, pro­po­nents can make a pre­sen­ta­tion at the company’s annu­al share­hold­er meet­ing, which can some­time be an uncom­fort­able moment for the com­pa­ny,” Berry says.

Peo­ple for the Eth­i­cal Treat­ment of Ani­mals (PETA) employs this strat­e­gy aggres­sive­ly. It holds stock in more than 80 com­pa­nies and makes graph­ic pre­sen­ta­tions at share­hold­er meet­ings about the abuse of ani­mals. When Sea­World made an ini­tial pub­lic offer­ing in 2013, PETA bought shares, promis­ing to edu­cate stock­hold­ers about how marine parks tear orcas and dol­phins away from their homes and fam­i­lies and imprison them in minus­cule con­crete tanks.” Last year, it filed a res­o­lu­tion propos­ing that Sea­World retire its ani­mals to sanc­tu­ar­ies in the ocean.

Some­times, rather than either resist­ing a res­o­lu­tion or con­ced­ing qui­et­ly to avoid a share­hold­er vote, com­pa­nies endorse it and send it to a vote. But the moti­va­tion is often unclear: Is it gen­uine reform or a mar­ket­ing ploy?

This year, for exam­ple, both Roy­al Dutch Shell and British Petro­le­um (BP) endorsed res­o­lu­tions that require the com­pa­nies to reduce green­house gas emis­sions, invest in renew­able ener­gy and stress test” their busi­ness mod­els against the goal of lim­it­ing glob­al warm­ing to 2 degrees Cel­sius. Achiev­ing that goal will mean that much of the oil com­pa­nies’ assets untapped, or strand­ed” — with pro­found con­se­quences for their long-term busi­ness models.

As You Sow was part of the coali­tion that filed the res­o­lu­tions. Its CEO, Andrew Behar, said, This is the begin­ning of the super­ma­jors’ — the biggest oil com­pa­nies in the world — real­iz­ing that they need to be part of the future. We’ll see what they actu­al­ly do. But if they just remove them­selves from block­ing polit­i­cal change, that’s huge.”

Shell and BP reaped a wind­fall of pos­i­tive media cov­er­age for their deci­sion to proac­tive­ly embrace the pro­pos­al. But there is good rea­son for skep­ti­cism about the depth of their com­mit­ment. BP in par­tic­u­lar has a his­to­ry of cast­ing itself as ecofriend­ly while pur­su­ing dis­tinct­ly anti-envi­ron­men­tal­ist poli­cies. And con­ced­ing to a res­o­lu­tion often requires lit­tle from com­pa­nies in terms of enact­ing actu­al reforms.

Con­sid­er the case of the oil com­pa­ny Cono­coPhillips. It has been tar­get­ed by share­hold­er activists since the ear­ly 2000s, and it has con­sis­tent­ly indi­cat­ed its com­mit­ment to address­ing cli­mate change by reduc­ing its green­house gas emis­sions. Set­ting actu­al tar­gets toward that goal, how­ev­er, has been anoth­er sto­ry. In 2014, As You Sow filed a res­o­lu­tion not­ing that no tar­gets for reduc­tions have been estab­lished after all this time, and there appears to be no time­line for set­ting one.”

The com­pa­ny told us in 2003 that it intend­ed to set tar­gets to reduce green­house gas emis­sions, but to this day they have not set a com­pa­ny-wide tar­get, and in fact, now open­ly dis­avow that approach,” says Shel­ley Alpern, direc­tor of social research and share­hold­er advo­ca­cy with the invest­ment advis­ing firm Clean Yield Asset Man­age­ment. Alpern helped file res­o­lu­tions that tar­get­ed Cono­coPhillips in the ear­ly 2000s.

Engage­ment suc­ceeds when we can make a per­sua­sive case that change will enhance share­hold­er val­ue [or] reduce busi­ness or rep­u­ta­tion risk,” she recent­ly wrote, reflect­ing on her expe­ri­ence with oil com­pa­nies. But as engage­ment with tobac­co com­pa­nies demon­strat­ed, it … will not work when the goal is to change the core busi­ness mod­el of a company.”

Tak­ing on pol­luters and dirty money

The use of share­hold­er res­o­lu­tions by pro­gres­sive groups dates to the ear­ly 1970s, when a fed­er­al court rul­ing prompt­ed the Secu­ri­ties and Exchange Com­mis­sion (SEC) to begin allow­ing social­ly and polit­i­cal­ly ori­ent­ed share­hold­er res­o­lu­tions, which it had pre­vi­ous­ly reject­ed. Found­ed in 1971, ICCR was a pio­neer of the prac­tice, which it used as a tool against apartheid in South Africa. Calvert Invest­ments was the first mutu­al fund to use the strat­e­gy, fil­ing a res­o­lu­tion relat­ing to a labor dis­pute in 1986.

Pro­gres­sive share­hold­er activism has evolved rapid­ly in the past decade, and the num­ber of res­o­lu­tions has grown steadi­ly. There were a record 454 social­ly and envi­ron­men­tal­ly focused res­o­lu­tions filed in 2014 — about 50 more than in 2013, accord­ing to the non­prof­it Sus­tain­able Invest­ments Insti­tute.

More than half of the res­o­lu­tions filed last year tar­get­ed invest­ment groups and pen­sion funds. Envi­ron­men­tal issues and get­ting cor­po­rate mon­ey out of pol­i­tics were the high­est pri­or­i­ties by far. Last year, near­ly 40 per­cent of the res­o­lu­tions relat­ed to cli­mate change, sus­tain­able gov­er­nance, renew­able ener­gy and oth­er envi­ron­men­tal issues, while 30 per­cent had to do with cor­po­rate polit­i­cal activity.

These issues some­times inter­sect. Investors asked 24 com­pa­nies to dis­close their ties to ALEC, for exam­ple, and some res­o­lu­tions—like one tar­get­ing Google—argued that ALEC’s cli­mate-change denial con­tra­dict­ed the company’s sup­port for renew­able energy.

Google opposed the res­o­lu­tion, which received only 8.6 per­cent of share­hold­er sup­port. But last Sep­tem­ber, Google Chair­man Eric Schmidt said on NPR’s Diane Rehm Show that ALEC was lit­er­al­ly lying” about cli­mate change and mak­ing the world a much worse place … so we should not be aligned with such peo­ple.” Schmidt did not say whether the res­o­lu­tion fac­tored into Google’s deci­sion to with­draw from ALEC.

About 40 per­cent of filed res­o­lu­tions are with­drawn — main­ly because the tar­get con­cedes or agrees to nego­ti­ate. But, by and large, cor­po­ra­tions are more like­ly to give way on envi­ron­men­tal issues than on chal­lenges to their polit­i­cal activ­i­ty. About 43 per­cent of envi­ron­ment-relat­ed res­o­lu­tions were with­drawn between 2011 and 2013. Only 25 per­cent of those focused on cor­po­rate pol­i­tick­ing were withdrawn.

Slow and steady 

Ease of entry is one rea­son for the ris­ing tide of share­hold­er activism. An indi­vid­ual or orga­ni­za­tion needs to own just $2,000 worth of a corporation’s stock for a year to file a res­o­lu­tion. Com­pa­nies can appeal to the SEC for a rul­ing on whether the res­o­lu­tion is rel­e­vant to its busi­ness, but the major­i­ty are ulti­mate­ly approved.

Share­hold­er activism is also gain­ing momen­tum because it does actu­al­ly cre­ate reforms — though, as with the oil com­pa­nies, the process can be slow and vul­ner­a­ble to co-optation.

Anec­do­tal evi­dence of its pow­er has been sup­ple­ment­ed by an emerg­ing body of schol­ar­ly work on the ways that activism changes cor­po­rate behav­ior. For exam­ple, recent research by busi­ness pro­fes­sors at North­west­ern, Stan­ford and George­town uni­ver­si­ties drew on ICCR’s archive of share­hold­er res­o­lu­tions, as well as a data­base of boy­cotts. They found that cor­po­rate reform is a flu­id, long-term process, in which pres­sure on com­pa­nies grad­u­al­ly opens up new oppor­tu­ni­ties for activists to exploit.

It does so by moti­vat­ing com­pa­nies to cre­ate tools to respond to the activists’ demands. These tools often include, for exam­ple, a com­mit­tee on social respon­si­bil­i­ty and a report on the company’s com­mit­ment to sus­tain­abil­i­ty, which slow­ly bring the per­spec­tives and pres­ence of activists into the cul­ture — and trans­form the company.

Nike is the clas­sic exam­ple. Activists tar­get­ed it for rely­ing on sweat­shop labor through much of the 1990s. The com­pa­ny fierce­ly resist­ed, but high-pro­file protests on col­lege cam­pus­es in the late 1990s moti­vat­ed it to ini­ti­ate reforms, includ­ing a code of con­duct and fac­to­ry inspec­tions to ensure com­pli­ance. In 2001, Nike estab­lished a cor­po­rate respon­si­bil­i­ty com­mit­tee and began issu­ing reports review­ing its own labor and envi­ron­men­tal prac­tices. Open­ness to share­hold­er activism and pur­suit of a sus­tain­able busi­ness mod­el grad­u­al­ly became key ele­ments of the company’s iden­ti­ty. Eth­i­cal Con­sumer, a British watch­dog orga­ni­za­tion, recent­ly gave Nike its high­est rat­ing in the cat­e­go­ry of sup­ply chain man­age­ment, though it not­ed that vio­la­tions of work­ers’ rights were still com­mon in some of its factories.

The same sort of long game is now going on at Wells Far­go — and there, share­hold­er activists are play­ing a high-pro­file role. The bank made head­lines in 2012 for block­ing cer­tain share­hold­ers from enter­ing its annu­al meet­ing in San Fran­cis­co, cit­ing space con­cerns. The activists, many of whom were part of the Occu­py move­ment, had tar­get­ed the bank for its lend­ing and fore­clo­sure poli­cies, among oth­er con­cerns. Some were arrested.

Wells Far­go moved its 2013 meet­ing to Salt Lake City in the wake of that pub­lic-rela­tions dis­as­ter. The same year, ICCR mem­bers filed a res­o­lu­tion ask­ing for a report about the impact of the bank’s Direct Deposit Advance” — a prod­uct sim­i­lar to a pay­day loan — on cus­tomers. Wells Far­go chal­lenged the pro­pos­al, and the SEC ruled in its favor. But in Novem­ber 2013, ICCR mem­bers sub­mit­ted an amend­ed pro­pos­al, ask­ing Wells Far­go to pre­vent preda­to­ry lend­ing by chang­ing its poli­cies. In Jan­u­ary 2014, the bank agreed to dis­con­tin­ue Direct Deposit Advance. The ICCR mem­bers with­drew their resolution.

The vic­to­ry was typ­i­cal of share­hold­er activism. It took years to bear fruit, it helped moti­vate a major cor­po­ra­tion to make a con­crete reform, and its larg­er import is open to debate. Per­haps it amounts to lit­tle more than one com­pa­ny end­ing one pol­i­cy. On the oth­er hand, per­haps it sig­nals momen­tum toward broad reform with­in a major cor­po­ra­tion, with wide-rang­ing impli­ca­tions that are still unknown.

To invest or divest?

Right-wing orga­ni­za­tions are not the only voic­es of protest against the grow­ing use of share­hold­er activism by pro­gres­sive groups. In a speech last spring, SEC Com­mis­sion­er Daniel Gal­lagher, lament­ed that the share­hold­er pro­pos­al process had been hijacked” by peo­ple with idio­syn­crat­ic and often polit­i­cal agen­das.” He quipped that per­haps the thresh­old for sub­mit­ting a pro­pos­al should increase from $2,000 worth of stock to $2 mil­lion to solve the problem.

And some pro­gres­sives have reser­va­tions about share­hold­er activism’s incre­men­tal method, because it doesn’t have the same impact as out­right divestment.

It’s big news when com­pa­nies divest,” says Howie Hawkins, an activist based in Syra­cuse, New York, who was the Green Par­ty can­di­date for gov­er­nor in 2014. When there’s a share­hold­er res­o­lu­tion, you don’t see that in the news, so it doesn’t have the same polit­i­cal impact.”

Alpern, of Clean Yield, believes that the urgency of address­ing cli­mate change means that the time for polite con­ver­sa­tion [with the oil com­pa­nies] is over.”

We need them to turn on a dime,” she says. And all of their pro­nounce­ments are based on their premise that world demand for their prod­ucts will con­tin­ue increas­ing for sev­er­al decades. And none of them rec­og­nize that they will need to delay or not pro­duce the major­i­ty of their reserves.

I rarely advo­cate for divest­ment, because it’s often pos­si­ble to suc­ceed in encour­ag­ing incre­men­tal but mean­ing­ful improve­ments. But incre­men­tal change on this issue is no longer good enough.”

For those who still believe in the pow­er of engag­ing with oil com­pa­nies, Alpern advo­cates near-divest­ment— own­ing just enough stock to file res­o­lu­tions and attend annu­al meetings.

That strat­e­gy like­ly will not score the vic­to­ries equal to the task of address­ing cli­mate change, and it is a fair ques­tion whether total divest­ment packs the most pow­er­ful punch. But advo­cates for share­hold­er activism see lit­tle ten­sion between the two cours­es. They ask: Giv­en the scale of the chal­lenges, why not use every option available?

We’re not the kind of activists who are just here to make noise,” says ICCR’s Berry. And those activists are very impor­tant, let me say. But we are folks who do our home­work and just plug away and plug away. … It’s not for every­body, but we think it’s an impor­tant tool in a mul­ti­lat­er­al approach to chang­ing some of the world’s most intractable problems.

Theo Ander­son is an In These Times con­tribut­ing writer. He has a Ph.D. in mod­ern U.S. his­to­ry from Yale and writes on the intel­lec­tu­al and reli­gious his­to­ry of con­ser­vatism and pro­gres­sivism in the Unit­ed States. Fol­low him on Twit­ter @Theoanderson7.
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