Corporate Governance

Surveys and Trends

On this page

• EIRIS Survey in UK of Ethics and Banks
• KPMG's Report on UK Corporations and Overseas Bribery
• CEOs Keep Positions Despite Global Economic Crisis - Booz & Company Survey
• EIRIS Sees Critical Issues for Business Resulting From Economic Crisis
• TI Calls on Leading Oil and Gas Companies to Increase Revenue Transparency
• Corporate Governance Structures in Australian Mid-Size Companies Declining
• Tracking Changes in Global Companies' Anti-Corruption Programs
• Problems Continue For Hispanics in US Corporate Leadership
• UK Study Links Governance to Stock Performance
• ISS 2007 Board Practices, Board Pay Report
• Reforming Asia's Proxy Voting Systems
• Latin American Banks: Ethics, Governance, CSR
• 2006 Edelman Annual Trust Barometer
• ISS on the 2006 Proxy Season: An Issue-by-Issue Review
• CalPERS Focus List on Poor Corporate Governance
• Singapore Leads in Asian Corporate Governance Study
• OECD Highlights Need for Corporate Governance Reforms in China
  
  
  

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Public want banks to lend ethically, survey finds

UK-headquartered EIRIS is a provider of independent research into the social, environmental governance and ethical performance of companies. It issued the following survey findings in the UK.

73% of the British public think that banks should have ethical lending policies in place to prevent them from investing in, or lending to, companies involved in controversial areas such as arms manufacturing, or companies with poor records on the environment and human rights, according to new research released today. The national online consumer survey, conducted by Ipsos MORI on behalf of non-profit research organisation EIRIS, explores current consumer attitudes to green and ethical finance.

The survey launched as EIRIS figures show that the amount of money invested ethically in the UK has risen 289% over the last decade. The survey identifies clear evidence of the need for change in all investment and lending practices. 66% of the survey respondents think that banks and other financial institutions have not learnt the lessons needed to prevent a future financial crisis but instead have reverted to 'business as usual'.

In the wake of the BP oil spill, many consumers recognise the impact that green and ethical issues can have on a company's bottom line. 82% of the British public think that it is important for financial product providers to pay more attention to environmental, social and governance risks when deciding which companies to invest in or lend money to, as part of ensuring a good financial return.

Survey respondents were presented with a list of ways that banks or financial institutions could offer more to their customers. Ranked most highly was the disclosure of information on how and where banks lend to or invest their money, with 77% thinking that banks or financial services providers should have this.

Other key findings When asked what might encourage them to switch to an ethical financial product or service:

§ 38% would be more likely to change if more information was available on the high street about ethical/green products

§ 43% said they would be more likely to switch to an ethical financial product if its green and ethical credentials were externally verified so that it was easier to trust the claims made

§ 41% would be more likely to change if a greater choice of ethical/green products was available

§ 37% would be more likely to change if there was more information available on how green/ethical products make a difference in the world

Mark Robertson, Head of Communications at EIRIS said "It's clear that there's a lot more that financial institutions can do to build trust and persuade us that they have switched away from short-term, unsustainable investing and lending practices. Our survey shows that there's a huge appetite for a more intelligent approach to finance which places a greater emphasis on society and environment as part of a path towards a more sustainable financial future".

Posted 11/26/2010.

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KPMG’s new Overseas Bribery and Corruption Survey 2009 shows major deficiencies in approaches to anti-corruption by UK companies.

KPMG Forensic’s Overseas Bribery and Corruption Survey 2009 examines the UK and US regulatory framework and assesses the impact of trends in enforcement action, both on legislation and on companies operating in multiple jurisdictions. The survey assesses companies’ awareness of, and reactions to, anti-bribery and corruption issues as well as comparing the responses against our original 2007 survey in this area. The findings are based on a survey of over 100 FTSE listed UK companies.

Excerpts from the report:-
 
The report notes at the outset: “Bribery and corruption is firmly on the radar of governments, regulators, law enforcement agencies and business worldwide... As the volume of enforcement action grows, both against companies and individuals, there is also increased cooperation and information sharing amongst governments. This will inevitably facilitate a greater volume of more rapid, targeted and comprehensive action from the regulators.”

The report says the enhanced legislative framework and greater enforcement activity within the UK makes it clear that it is critical for UK companies to focus their attention on anti-bribery and corruption matters. Worryingly, our survey found that 43 percent of respondents said their organisation did not have an anti-bribery and corruption compliance programme.

It asserts, “A finding from our survey was the significant lack of awareness of the fact that UK multinationals may be exposed to prosecution from US regulators. 59 percent of respondents said their company conducted business in the US, but only 31 percent of respondents thought their company was subject to the US FCPA.

Two thirds of respondents believe that there are places in the world in which it is not possible to conduct business without engaging in bribery and corruption. Accordingly:

The KPMG report highlighted eight key findings:-  

1. Despite high profile cases and increased regulatory activity, respondents still do not have detailed knowledge of the impact of UK and US bribery and corruption legislation on their business.
2. Many respondents still have a fundamental lack of understanding of the extra-territorial reach of the UK and US legislation.
3. Two thirds of respondents believe there are places in the world where they cannot do business without engaging in bribery and corruption, however, over half have not taken the decision to opt out of doing business there.
4. Nearly half of respondents stated that they did not have an anti-bribery and corruption compliance programme.
5. Those respondents that are addressing bribery and corruption risks are implementing global policies covering their entire worldwide operations.
   
6. Less than half of respondents with an anti-bribery and corruption compliance programme stated that it includes the execution of third party audits.
7. In comparison with our 2007 survey, there has been a 44 percent rise in the proportion of responding organisations that have carried out internal bribery and corruption investigations.
8. Less than 5 percent of respondents stated that they would immediately report an allegation of bribery and corruption to regulators, whilst almost a quarter stated they would conduct a full internal investigation first.

The report says that, “Our findings reveal that 52 percent of respondents with an anti-bribery and corruption compliance programme stated that they were conducting anti-bribery and corruption training and obtaining related certifications. While companies need to effectively communicate their unwavering stance against bribery and corrupt activity via relevant policies and procedures, it is also imperative that their employees are properly trained and receive an adequate understanding of what constitutes bribery and corruption in the ‘real world’.”

Anti-bribery and corruption investigations

The reports says, “Given the fact that the number of global regulatory bribery and corruption investigations has recently soared, we expected to see a similar increase in the number of internal investigations conducted by our respondents. In comparison with our 2007 Survey, there has been a 44 percent rise in the proportion of responding organisations that have carried out internal investigations of suspected bribery and corruption in the last two to three years. More specifically, 39 percent currently say that their organisations have conducted anti-bribery and corruption investigations during that time frame, in comparison to 27 percent two years ago.

"Despite the significant increase in anti-bribery and corruption internal investigations being conducted by companies, our survey indicates that only about half of the respondents with an anti-bribery and corruption compliance programme (53 percent) had developed formal procedures for conducting such investigations.”

KPMG notes in conclusion:

"Companies can no longer afford to turn a blind eye to bribery and corruption risks. Ignorance is certainly not an acceptable defence, and regulators have proven to be more than willing to levy severe fines and penalties against those who are deemed to be non-compliant.

"With increasing governmental and public scrutiny of multinational organisations, it is absolutely critical that companies are able to implement effective policies and procedures to mitigate the risk of breaches occurring. Our survey has revealed that although some limited steps have been made in recent years, many of the largest UK entities need to do a lot more to adequately equip and protect themselves in this area. With the threat of severe fines and penalties, not to mention possible imprisonment, the consequences of not doing so are likely to be extremely serious."

Posted 08/20/2009

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Chief executives in 2008 showed remarkable resistance to the economic crisis—with turnover rates actually declining in the U.S. and Europe—according to Booz & Company's annual study of CEO turnover.

New study finds key changes in trends on splitting CEO and Chairman roles in North America..other major findings provide insights into trends in promoting CEOs

Booz & Company report press release

Full report - CEOs Hold Steady in the Storm

The Booz & Company study of global CEO succession patterns examines the degree, nature and geographic spread of leadership change among the world’s 2,500 largest publicly traded companies.

The study concludes that the nature of the recession is leading boards of directors of Western companies to stick with the leaders they know. CEO departures fell 0.5 percentage points in North America and 1.9 percentage points in Europe in 2008 over 2007, while globally that figure climbed 0.6 percentage points. Conflict-related departures, where CEOs and boards parted ways over differences in strategic direction, also fell in North America and Europe, by 0.3 and 0.2 percentage points respectively.

The biggest changes in CEO positions came in the financial services and energy sectors, spurred not only by performance, but also by government interventions and volatility in commodity markets.

Critical Issue: Trends in Dividing CEO and Chairman of the Board Positions

The new study noted that when it comes to the separation of the roles of chairman and CEO, North American companies (which are predominantly U.S.-based) have historically combined the two; as recently as 2007, 73.2 percent of the chief executives leaving office in North America held both titles, and 24.4 percent had done so from the beginning of their tenure. In 2001, one of every two departing North American CEOs (50.5 percent) had also held the title of chairman since taking office.

Now, fewer than one in five CEOs in North America starts out with the combined chairman and CEO role, which represents a dramatic shift. According to our analysis of the 2008 freshman CEO class, only 18 percent were appointed to the chairman post, and the global figure was just 12 percent. This greater tendency to split the roles brings North America more in line with long-standing practice in Europe, Japan, and the rest of Asia, where four of every five CEOs leaving office in 2008 were never chairman.

A related phenomenon is the report calls the apprentice CEO, a CEO who takes office under the wing of the former CEO, who moves into the chairman role. This succession model has always been favored in Japan, where 82 percent of outgoing CEOs over the 11 years we’ve studied were apprenticed. In North America, it has been a much less prevalent practice, partly because the CEO and chairman roles were more often combined for the reasons we’ve mentioned; only 42 percent of outgoing CEOs were apprenticed over that same time period. But the analysis of the 2008 incoming class indicates that North America is moving toward the Japanese model. In planned successions, 57 percent of incoming North American CEOs are apprentices, indicating a new preference on the part of boards for seasoned hands at the helm.

Among other findings in the report:

• The reasons for CEO departures were remarkably consistent with past years. Of the 361 succession events among the companies studied, 180 were planned (retirement, illness, long-expected changes), 127 were forced (where a board removes a CEO for poor financial performance, ethical lapses or irreconcilable differences) and 54 were prompted by mergers. By comparison, in 2007, 346 CEOs left their companies; 169 departures were planned, 106 were forced, and 71 followed a merger.
  
  
• The average age of this year’s incoming CEO class is 52.9, nearly two years older than the average 51.0 years of age, which has held steady over the past decade.
  
• Nearly 20% of the CEOs studied have had held the top position before, almost double the 9.8% average rate for the 11 years Booz & Companied has studied (1995, 1998; 2000-2008). Importantly, 65.6% of new CEOs have run a business, with 18.9% having served as CEOs before, 27.4% serving as business unit leaders, and others who had been regional heads, presidents or chief operating officers.
  
  
• In Asia, forced removals nearly doubled from 3.8% to 6.1%; in Japan rates jumped nearly four-fold, from 0.8% to 3.1%.

Posted 05/12/2009

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EIRIS study finds world's largest corporations fail to address risks that threaten long-term profitability

UK-headquartered EIRIS is a provider of independent research into the social, environmental
governance and ethical performance of companies.

In its report - The State of Responsible Business in 2008: Implications for PRI Signatories - EIRIS claimed that 80% of the world’s largest companies listed on the FTSE All World Developed Index face significant and unmanaged environmental, social and governance risks. The organization said that the report focuses on approximately 2,300 global companies to highlight significant areas of unmanaged risks in the areas of climate change, human rights, bribery and labour standards in the supply chain - the key areas covered by the United Nations Global Compact (UNGC). The report highlights the challenges these risks present to UN PRI signatories and other investors:

• Climate change – very high impact sectors such as oil & gas account for over half of total global greenhouse gas emissions. But globally only 10% of companies in very high impact sectors have adopted a good or advanced response to climate change risk. If companies are to meaningfully address climate change they need to significantly reduce their carbon emissions.
  
  
• Human rights – around a quarter of companies face high exposure to risk in this area, but only 10% of these companies have adopted good practices to manage human rights and labour standards in their supply chains.
  
  
• Environment – Over 50% of high impact companies demonstrated a good management response. However, numerous companies face unmitigated environmental risks particularly in North America and Asia ex-Japan.
  
  
• Bribery and corruption - only 10% of high risk companies manage their bribery risks to a good standard EIRIS’ research also reveals very poor corporate disclosure on environment, social and governance (ESG) issues. It shows that ESG reporting lags behind performance on all UN Global Compact issues except climate change. Globally, ESG reporting is not good enough for investors to be clear about the risks they face, or what companies are doing to manage those risks.

There is a growing view among investment professionals that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios. The United Nations Principles for Responsible Investment (PRI) exist to promote the incorporation of ESG factors into investment risk analysis.

The State of Responsible Business in 2008: Implications for PRI signatories highlights the opportunities which exist for PRI signatories and other investors for greater collaboration on ESG issues; opportunities for integration particularly on environment; engagement priorities and best practice examples on all issues and opportunities to improve disclosure, in particular via reporting initiatives such as the Carbon Disclosure Project and Global Reporting Initiative.

“The global financial crisis underlines the crucial need for a more sophisticated understanding of risk management. A growing number of investors are recognising that ESG factors are key to protecting shareholder value and mitigating risks” said Peter Webster, EIRIS Executive Director. “Our report identifies opportunities for PRI signatories and other investors looking to fully integrate ESG issues into their investment strategies and valuation models.”

Posted 11/24/2008

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TI Calls on Leading Oil and Gas Companies to Increase Revenue Transparency

New report shows companies should provide greater accountability

A majority of leading oil and gas companies are far from transparent when it comes to the payments they make to resource-rich countries, leaving the door open to corruption and hampering efforts to fight poverty, according to a report published today by Transparency International (TI).

“The tragic paradox, that many resource-rich countries remain poor, stems from a lack of data on oil and gas revenues and how they are managed. Companies must do more to increase transparency,” said Huguette Labelle, Chair of TI.

Revenue transparency report findings

The 2008 Report on Revenue Transparency of Oil and Gas Companies evaluates 42 leading international and national oil and gas companies operating in 21 countries, based on the transparency of their reporting, particularly on payments made to governments for resource extraction rights.

The report, based on data made publicly available by companies, categorises companies into high, middle and low performers. Only a third of companies evaluated in the report are considered high performers.

To see the full table with a more detailed explanation of the criteria, download the file here.

Oil and gas transparency fights poverty

Today, sixty percent of the world’s poorest people live in resource-rich countries. Most constitutions grant citizens ultimate ownership of their country’s natural resources. Yet much of the data on what companies pay for the right to exploit these resources and how this money is spent by host governments remains unpublished and beyond public scrutiny.

When companies and governments are fully transparent, citizens, journalists, civil society, researchers and investigators can track revenue flows, holding public officials to account and discouraging corruption. With oil prices at record highs and industry revenues in OPEC countries alone expected to reach nearly US $1 trillion in 2008, the question of transparency has never been more critical.

“Oil and gas wealth, if properly managed, should support better services and infrastructure. It should lead to a better quality of life for all citizens. It is the duty of civil society to work with companies and governments to unlock this potential,” said Labelle.

A call to companies

Companies need to act quickly to introduce proactive reporting, rather than wait for legislation. In identifying high-performers, TI’s report shows that revenue reporting on a country-by-country basis, which is identified as best practice, is possible. As the companies with best results show, transparency and profitability are not mutually exclusive. To the contrary, greater transparency can enhance confidence in the financial markets and with stakeholders. “Revenue transparency is a win-win equation,” said Cobus de Swardt, Managing Director of TI. “The benefits to all, especially the world’s poorest, can be enormous.”

Companies: just one piece of the puzzle

“We hope that this report helps motivate companies to improve their revenue transparency and that they understand that civil society stands ready as a constructive partner in this process,” added de Swardt. “And when we update the report data we look forward to seeing not only improved scores, but greater company engagement in our work. This is an issue that can only be tackled collaboratively.”

Analysing company performance is just one piece of the puzzle. Although the private sector must increase revenue transparency, governments of host countries are ultimately accountable for the management of their resources. They must therefore lead the drive for a more equitable exploitation of oil and gas wealth, by enacting, promoting and enforcing regulation. Future reports by Transparency International will look at the role of resource-rich country governments as well as those governments home to major extractive companies.

Report recommendations

The 2008 Report on Revenue Transparency of Oil and Gas Companies makes four key recommendations:

• Companies should proactively report revenues paid to governments on a country-by-country basis;
  
  
• Governments, stock exchanges and regulatory agencies should urgently consider mandatory reporting for companies operating in-country and abroad;
  
  
• Governments from oil and gas producing countries should introduce legislation mandating revenue transparency by all companies operating in their territories;
  
  
• Regulatory agencies and companies should agree to publish information in a uniform and accessible format, one that facilitates both comprehension and comparability.

Posted 4/28/08

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Report Finds Serious Decline of Corporate Governance Structures in Australian Mid-Size Companies

Board independence and the existence of proper governance committees have fallen since 2006.

A second annual report on the state of corporate governance in Australian mid-sized companies has concluded “disappointing” results.  The report, “Mid-Cap Corporate Governance Report 2007,” was published by BDO Kendalls, a worldwide network of accounting firms based in Australia, and researched by the University of Newcastle.  Out of 150 mid-sized Australian listed companies, there was a decrease in both the number of five–star rated (i.e. outstanding) companies and 4.5 star rated (i.e excellent) companies since 2006, and there was an increase in both the number of one–star rated (ie. lacking in most key areas) companies and two–star rated (i.e lacking in some key areas) companies.  According to the report, on a range of criteria including audit committee existence, remuneration committee existence, nomination committee existence, and share trading policy, "mid–cap companies appear to have gone backwards."

Overall Results

Only two companies out of 150 received a five-star rating - Tasmanian Perpetual and Life Therapeutics.  These two companies met all of the outlined criteria.  In 2006, the number of five-star companies was higher; four received this rating.

In contrast, 13 companies received a one-star rating, an increase from 10 in 2006.  The corporate governance structures in these companies were considerably lacking in most criteria.

Lowest Ranked Companies

Research Model

The companies were evaluated on a number of important criteria:

Board of Directors:

Most desirable companies have:
-a board with the majority of independent directors;
-an independent chairperson; and
-met at least 6 times annually.

Least desirable companies have:
-a board with no independent directors;
-the CEO as chairperson; and
-met less than 6 times annually.

Overall, there was little change between 2006 and 2007 in the independence of the Board of Directors. Twenty-five percent of companies had mostly independent members in 2007, which is slightly lower than 28 percent in 2006.

Audit Committee:

Most desirable companies have:
-an audit committee with all the members, including the chair, independent;
-a chairperson, who is not the chair of the main board;
-at least one member with professional or educational accounting qualifications;
-at least 3 members; and
-met at least 4 times annually.

Least desirable company does not have an audit committee.

Overall, the number of companies that did not have an audit committee increased significantly.  In 2006, only five companies did not have a committee and in 2007, 15 did not have a committee.

Remuneration Committee:

Most desirable companies have:
-all the members, including the chairperson, independent;
-at least 3 members.

Least desirable company does not have a remuneration committee.

Overall, the results are mixed.  The number of companies with a committee fell from 122 in 2006 to 106 in 2007, but there was an improved level of independence on the remuneration committees.

Nomination Committee:

Most desirable companies have:
-all the members, including the chairperson, independent;
-at least 3 members.

Least desirable company does not have a nomination committee.

Overall, only 15.5 percent of the committees were constituted totally of independent members, and more than half (56.9%) did not have a majority of independent members.  Additionally, nomination committee existence appears to have deteriorated significantly since the 2006, from 50 percent to 38.7 percent.

Weightings were also placed according to companies’ external auditor independence and their codes of conduct.

Overall, with respect to non–audit fees paid to the statutory auditor the findings are slightly better than the findings in the 2006.  128 companies had a code of conduct, but it is troubling why the remaining 22 companies would deem it apparently unnecessary to have a documented code of conduct. 129 companies had reasonable policies on risk management which were identical to the number in the 2006.

For a complete explanation of the rating system and a full chart of the 150 listed companies, please read the full report here.

Posted 11/30/07

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Tracking Changes in Global Companies’ Anti-Corruption Programs

The U.S. Conference Board recently released a report based on a 2006 survey of international companies, with significant global operations but mostly headquartered in the US, asking similar questions which were posed in a 2000 survey. Notable changes are visible in the areas of Management Commitment, Company Implementation of Policy Statements, Training and Discussion, Whistleblowing and Helplines, and Follow-Up. The report also highlights what companies see as their key challenges and best practices in creating highly-effective anti-corruption programs.

Overall, the author of the report, Ronald Berenbeim, principle researcher and director of the The Conference Board's Working Group on Global Business Conduct, found that companies are becoming more comfortable with implementing anti-corruption programs and more efficient at implementing them. He characterized the last six years as a convergence of methods between the compliance and principle-based systems, which is a shift from a heavier focus on compliance. In addition, more countries are signing onto international conventions and adopting their standards. The challenges lie in tailoring these larger principles to individual company programs.

Management Commitment

• Companies with formal programs were more likely to have senior executives from auditing, contract and procurement, legal, public affairs, security, and social responsibility/citizenship at both the corporate and local levels, rather than just the corporate office.
  
  
• Fifty-eight percent of the company respondents had legal or compliance functions. Legal obligation was one of the largest factors in the creation of anti-corruption programs.
  
  
• Eleven respondents were chief ethics officers and 42 others had the word “ethics” in their title, which indicates many programs are going beyond just compliance measures.
  
  
• Public affairs and social responsibility specialists were more likely to assist legal personnel, which suggests a stronger commitment to corporate citizenship responsibility.
  
  
• Seventy-six percent of respondents report to a C-suite executive, board member and/or committee. Anti-corruption programs are being subject to very high levels of review.
  
  
• The chief legal officer was much more likely to be involved in all phases of the program - development involvement rose from 47 percent in 2000 to 76 percent in 2006, implementation was up from 55 to 66 percent and monitoring and oversight increased from 42 to 64 percent.
  
  
• The number one motivation for creating effective anti-corruption programs is senior management leadership and personal convictions (33%) and second, bribe payments are illegal under home country laws (27%).
  
  

Implementation of Policy Statements

• Of the companies with formal anti-corruption programs, 90 percent had a written anti-corruption statement, while only 50 percent of the non-program group had one.
  
  
• An ideal statement would have a zero-tolerance for bribery, and the offender would be terminated. The region most likely to have such a statement is Europe (60% of European respondents), while 46 percent of U.S. companies had them, and Asia Pacific companies were the least likely to have them (27% of Asia Pacific respondents).
  
  
• In 2006, 68 percent of respondents had their company statement posted on the Internet; while in 2000 only 29 percent had theirs posted.
  
  
• In 2006, 97 percent of those companies that had a statement used the same one worldwide; while in 2000, only 79 percent used the same rhetoric in all locations.
  
  
• Respondents in 2006 were somewhat more likely to have policies on facilitation payments than in 2000.
  
  
• Thirty percent of the respondents said in the last three years, company policies on facilitation payments to outside contractors or specialist advisors have become more restrictive.
  
  

Training and Discussion

• Compared to 2000, respondents in 2006 were more likely to be engaged in training and discussion; however, eight percent of respondent companies still do not use them at all. Overall, companies are more expected to establish a culture of compliance than was the case in 2000.
  
  
• Substantially more than half of the 2006 respondents believe face-to-face case study interchange can be useful. More than one-fifth of the participants do not even have these kinds of sessions.
  
  

Whistleblowing and Helplines

• Thirty-nine percent of the 2006 respondents said these program elements were either “effective” or “highly effective,” while only 18 percent of the 2000 respondents said the same.
  
  
• Whistleblowing elements, compared with other measures in a program, are rated the lowest in terms of effectiveness, with most of the opposition coming from government agencies.
  
  

Follow-Up

• After the need for a detailed policy statement, investigative follow-up is considered the most important measure for an anti-corruption program.
  
  
• Reporting and disclosure activities are viewed as least important. Fourty-one percent of the 2006 respondents believed that an annual requirement that country managers must report questionable practices could be effective or highly effective, which is a 21 percent increase from 2000.
  
  
• Only 17 percent of the respondents said social audit disclosure of questionable practices was important.
  
  
• There has been a significant rise in sustainability reports, but only 18 percent have policies for bribery/corruption or thoroughly describe anti-corruption practices.
  
  

Challenges and Lessons

The main challenges faced by respondent companies were mainly cultural. Seventy-four percent said adherence to core business principles in diverse cultural environments was a challenge, while the next most frequently cited problem was obtaining contractor compliance with anti-corruption policies. On the other hands, many companies have worked hard on their policy statements, which have become more detailed and precise. Sixty-four percent of respondents rate policy statements as effective or highly effective. Most companies believe their own company practices are the most effective at curbing corruption and have little interest in cooperating or networking with the government, NGOs or other companies.

To view the report in full, click here for the .pdf version.

Posted 8/7/07

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Problems Continue For Hispanics in US Corporate Leadership

Despite the fact that the Hispanic population in the United States is continually on the rise, it is still severely underrepresented in corporate leadership positions. This study, released by the Hispanic Association on Corporate Responsibility on June 20, 2007, analyzes the current trends.

Hispanics currently represent 14% of the US population and hold a purchasing power of $863 billion. This study shows that most Fortune 500 companies are grossly underutilizing the potential of this sector of the population. 

Key Findings

• Although there has been a 26% increase, from 2003 to 2006, in the number of Fortune 500 board seats held by Hispanics, it still only represents 3.1% of the total number of seats available. 
  
  
• The number of Hispanics holding executive officer positions is only 1%. 
  
  
• Forty-eight of the Fortune 500 companies have had a constant Hispanic presence for over 10 years; but 71% have no representation at all.
  
  

Worse For Women

• The number of Fortune 500 directorships held by Hispanic women is less than 1%.  Only one foreign-born Hispanic woman holds a director position.
  
  
• From 2003-2006, only 10 Hispanic women have joined Fortune 500 boards. 
  
  

At this current growth rate, it would take more than 100 years to achieve true Hispanic parity, the survey reported.

Challenges to Hispanic Representation on Corporate Boards

• There is a narrow pipeline for Hispanic executives
• Hispanic educational attainment is comparatively low
• Negative stereotypes and preconceptions still exist for Latinos
  
  

Opportunities Still Exist

• Hispanics can build stronger alliances within their communities.  Although Hispanics are underrepresented, Latinos serve on companies with higher average revenues, which makes them more significant in the business world.
• Nomination committees and search firms need to expand their net.
  
  

The Hispanic Association on Corporate Responsibility fights to gain greater representation in Corporate America. It does this by focusing on four areas of corporate responsibility and market reciprocity – employment, procurement, philanthropy, and governance.

Posted 7/2/07

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UK Study Shows Link Between Corporate Governance,
Board Composition, and Stock Performance

A UK study by the Association of British Insurers (ABI) has found a strong link between governance standards and stock performance. The study tracked the share price performance and board composition of the 14 companies in the FTSE All-Share Index that had been issued two or more “red tops,” (the most serious corporate governance breaches in the UK) over the last three years. Of these 14, 11 had underperformed in their sector, nine had no independent non-executive directors and three had only one.

According to ABI director of investment affairs Peter Montagnon, "Our study points to a strong link between governance standards and share price performance. It shows that a persistent imbalance in board composition tends to go hand-in-hand with a reduced ability to create value," he added.

Key findings
In the last three years (2004-2006), fourteen FTSE All Share companies have received two or more red-tops related to serious breaches of the UK’s Combined Code on Corporate Governance (the British Financial Services Authoritie's regulations on corporate governance).

Comparative performance across their FTSE sector over the three year period shows:

• Eleven out of these fourteen companies under-performed their sector in share price performance.  Four underperformed by more than 50 per cent.  The worst performer lagged its peers by 62 per cent.
  
  

Comparative performance across the FTSE All Share index over the three year period shows:

• Nine out of these fourteen companies under-performed the FTSE All Share.  Four underperformed by more than 50 per cent.  The highest level of under-performance was 70 per cent. 
  
  

Board composition of companies incurring two or more red tops
The overall balance between executives, independent, and non-independent non-executive directors is important.  The Combined Code recommends that for FTSE 350 companies, half of the Board (excluding the Chairman) should comprise independent non-executives.  Outside the FTSE 350, companies are expected to have at least two independent Non-Executive Directors. 

The fourteen companies receiving two or more red tops showed a preponderance of executives on the board.  Most of them are smaller companies outside the FTSE350 and therefore not subject to the Code requirement that half the board be made up of independent directors.  However, of these fourteen companies:

• 12 companies did not meet the requirement for smaller companies that they should have at least two independent directors.
  
  
• Nine had no independent non-executive directors and three had only one.

Posted 12/16/07

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Institutional Shareholder Services Releases 2007 Board Practices, Board Pay Study

Key Findings Show Increases in Director Pay and Dramatic Decreases in the Number of Classified Boards

On January 30, 2007 Institutional Shareholder Services (ISS), a U.S.- based corporate governance and proxy voting services provider, released its 2007 Board Practices, Board Pay Study, a yearly report that examines the board structure and compensation of boards of directors at S&P 1500 companies based on 2006 disclosures. Among its key findings:

Decrease in Classified Boards
According to the survey, the proportion of S&P 500 companies with classified boards dropped a dramatic 8 percentage points. This finding has implications for democratic governance practices, as it means that for the first time, a majority of companies surveyed will hold annual elections for all their directors.

Rising Director Pay
Another key development was rising director pay, which was up 12 percent to an average of $160,493. According to the survey this can be attributed to: 1. A rise in cash pay levels; and 2. An increase in stock prices fueling the value of equity awards.

Extra Pay for Independent Chairmen Lower than for Company Affiliated Chairmen
The survey found a disparity in fees paid to non-executive chairs classified as independent directors, versus those affiliated with the companies they serve: extra pay for independents averaged $79,183, while that for affiliated chairmen averaged $189,852.

Less Stock Options, More Restricted and Deferred Share Awards
The survey reported a continuing decline in the use of stock options for director compensation. This was balanced by an increase in the use of restricted and deferred share awards (stocks of a company that are not fully transferable until certain conditions have been met): In 2006 only 54 percent of companies reported granting stock options to directors, compared to 58 percent in 2005 and 66 percent in 2004. Meanwhile the prevalence of restricted and/or deferred share awards jumped from 44 percent in 2005 to 51 percent in 2006. 

More Disclosure of Non-Employee Stock Ownership
In 2006, more companies disclosed stock ownership guidelines for non-employee board members. The proportion of study companies doing so rose to 37 percent, from 28 percent as of 2005, and is up to 56 percent at S&P 500 companies.

According Carol Bowie, Vice President of ISS’ Governance Research Service, “This landmark report demonstrates that companies are responding to shareholder concerns regarding board structure, independent leadership, and stock compensation. At the same time, directors’ pay continued to rise at about the same rate as executive compensation generally.”

For the full ISS 2007 Board Practices, Board Pay Study visit: http://www.issproxy.com/bookstore/index.jsp.

Posted 1/31/07

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Reforming Asia's Proxy Voting Systems

To dowload as .pdf

Proxy voting systems are not only a crucial aspect of a company's corporate governance structure but also often a significant determinant of how transparent and accountable a company is to its shareholders. All systems however are not made equal and despite increasing international investment, globalization, and economic inter-dependence between countries proxy voting systems vary drastically across regions and cultures. In their inaugural report on proxy voting in Asia, “Voting for Change: Bringing Proxy Voting Systems in Asia into the 21st Century," the Asian Corporate Governance Association, a non-profit research, advocacy, and education organization, analyses the proxy voting systems of 11 Asian markets comparing them to those in the US, UK and Australia, identifies ten major areas of weakness in these systems, and makes recommendations for reform. Below is the executive summary of the report and its key findings, reproduced with permission.

“Voting for Change: Bringing Proxy Voting Systems in Asia into the 21st Century"

Executive Summary

This is the inaugural report by the Asian Corporate Governance Association (ACGA) on the subject of impediments to proxy voting in Asia. It covers 11 Asian markets and three benchmark markets—Australia, UK and US. The material in this report is based on original research by ACGA and a survey of major institutional investors actively voting their shares in the region. The respondents to this survey manage in excess of US$3 trillion globally.

Key findings—By market

• Hong Kong emerges as the clear leader in Asia, several percentage points ahead of Singapore. Yet Hong Kong still scores well below Australia, UK and US.

• Japan and Taiwan are rated as having the weakest voting systems, with Korea not
far behind.

• Most South-east Asian markets fall in the middle of the regional ranking tables.

• Due to the limited accessibility of China’s A-share markets in Shanghai and Shenzhen, hence limited voting experiences among respondents, we chose not to include the China score in the main regional ranking but to put it below the other markets for reference purposes only.

Key findings—By Issue

• Proxy voting systems in Asia are, by and large, seriously antiquated and in need of
improvement. Investors are being disenfranchised.

• The top-five areas of concern included: Lack of independent audit of vote results; lack of publication of vote results; insufficient information on which to vote; no confirmation
that vote has been received; and the prevalence of voting by show of hands rather than by ballot/poll.

• Removing the many impediments to proxy voting would, we believe, contribute to
stronger and more efficient capital-market development in Asia.

Recommendations/Action Points

This report contains a series of recommendations on which listed companies, investors,
regulators and intermediaries (custodian banks, share registrars) can act to help bring about significant improvements in proxy voting systems in Asia.

Most of the problems in voting systems around the region could be resolved quickly if the key players chose to act. And many of the solutions would not have to be regulatory driven. There is an opportunity for market players, primarily listed companies and investors, to resolve these issues efficiently and cost-effectively.

Something that will take longer to put in place is a national electronic voting platform. We
strongly urge governments and stock exchanges to examine this issue as soon as possible.

For the full survey follow this link.

Posted 9/20/06

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Measuring Ethics And Governance in Banking: A Survey of Latin America's Largest Banks

A new survey released by Latin Finance Magazine and Management & Excellence SA, a research and rating company in the areas of ethics, sustainability, corporate governance, transparency and corporate social responsibility (CSR), ranks the leading Latin American banks on their ethics, governance and CSR practices. The survey examines Latin America's 24 largest banks, ranking each on five broad areas: ethics, corporate governance, corporate social responsibility, sustainability and transparency.

The report includes a useful list of 280 standards which relate to these areas and are accepted in the banking business or mandated by regulators or stock exchanges. The study shows which banks comply with which criteria, granting each bank a final compliance/performance score in each of the five categories and ranking them in each of these areas. The standards include:
 
• 8 types of financial data banks should have to be transparent
• 12 areas of productivity measurement systems on HR performance, customer satisfaction, product quality, and others
• 20 points a bank’s code of ethics/conduct should include
• 3 pillars needed to fulfill Basel requirements
• 8 criteria of good crisis management
• 14 topics a website should have such as a corporate governance policy or executives´ data

According to Latin Finance, aside from the obvious reputational benefits of corporate adherence to ethical standards, there is an "added and often unspoken reason" why banks in particular should adhere to these “soft” management standards: banks tend to be unpopular with customers and thus easier political targets, particularly as regulators, politicians, the media and investors increase their focus on corporate ethics and sustainability in general and consider more rigorous supervision and regulation. Moreover, the increasing cost associated with non-compliance and the rise of socially responsible investing has made ethics, CSR, and governance performance a higher priority for investors.

Latin Finance and Management & Excellence SA's Ranking of Latin American Banks
(overall ranking, management indices according to ethics, corporate governance, corporate social responsibility sustainability and transparency)

Source: M&E and Latin Finance

For the full report, see Latin Finance's website

Posted 9/19/06

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2006 Annual Edelman Trust Barometer

(The following is a summary of an extensive report by Edelman. For more information please see their website)
 
In its far-reaching 2006 Annual Trust Barometer, Edelman, a leading international public relations firm, reports on the “state of trust” in key institutions around the world, including business, government, media and NGOs. Edelman’s public opinion surveys, known as its Trust Barometer, track trends and break down the results according to industry, region, and other factors such as the credibility of spokespeople. Using interviews with Edelman staff, the report attempts to analyze and explain its findings in terms of political, social and economic developments as well as lay out the implications the results hold for institutions.

The Barometer, which was fielded in October 2005 by WorldOne Research, consisted of a 25-minute telephone survey of opinion leaders (screened to be 35-64, have an annual income of over $75,000 or equivalent; college graduates; report being engaged in media, business, and public policy issues). 400 interviews were conducted in the US; 200 in China; and 150 each in the UK, Germany, France, Brazil, Japan, Canada, Italy, Spain, and South Korea.

Overall Trust in Institutions by Region

According to Micheal Deaver, Edelman’s Vice Chairman, the highest trust levels were found in Asia and in Brazil and the lowest in Europe. In the US, trust has been fairly consistent over the past five years, although trust in government and the media is at an all time low.

Trust in Institutions By Region

How much do you trust each institution to do what is right?

Nationality of Respondents

*Europe=France, Germany, Italy, Spain     **Asia= Japan, China, and South Korea

US Trust in Institutions: A Five Year Trend

How much do you trust each institution to do what is right?

European* Trust in Institutions: A Five Year Trend

How much do you trust each institution to do what is right?

*France, Germany, UK

The Costs of Mistrust to Companies

The Barometer reports that, “trust is more than a bonus, it is a tangible asset that must be created, sustained and built upon….just as trust benefits companies, mistrust or lost trust has costs.”

The following survey attempts to measure these costs:

Tell me if you have ever done this in relation to a company you do not trust:

Refused to buy their products or services
US: 84%
Europe: 81%
Asia: 72%
Canada: 76%
Brazil: 81%

Refused to invest in them:
US: 74%
Europe: 72%
Asia: 64%
Canada: 64%
Brazil: 57%

Trust in Companies By Industry

Recognizing that a company’s ability to gain the trust of its stakeholder is heavily influenced by perceptions of the industry to which it belongs, the Barometer seeks to breakdown levels of trust in companies by industry and area. It finds that while technology, retail and consumer products are the overall most trusted sectors globally, and Media/Entertainment and Energy the least, culture, recent history, and political circumstances have created striking variation in regions’ propensity to trust certain industries, as evidenced by the following survey:

How much do you trust each industry to do what is right?

Low Rank

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ISS Report on the 2006 Proxy Season: An Issue-by-Issue Review

The 2006 Proxy Season has come to an end leaving those who follow environmental, social and governance (ESG) issues with many questions: What has changed? Did the campaigns and media coverage surrounding such issues as climate change and executive pay have a real impact on corporate practices? What, if any trends, emerged? And, which companies performed better on ESG issues?

In its June/July 2006 issue of the Corporate Social Issues Reporter, of the Social Issues Service of Institutional Shareholders Services, a leading provider of proxy voting and corporate governance services and research, summarizes the 2006 Proxy Season. The following are excerpts from its report*.

* The report breaks its findings down by issue. The following issues have been omitted: animal welfare, equal employment, health issues, military issues, Northern Ireland, tobacco, violent videos, flat tax. To read about these issues as well as a checklist of key 2006 shareholder resolutions and two articles on Wal-Mart’s annual shareholder meeting and Sudan resolutions at pension funds see the full report.

Support Levels Increase for Key Social Issues Proposals

By Carolyn Mathiasen & Meg Voorhes

Investors are looking with in-creasing favor on proposals asking companies to disclose and monitor their political contributions, to expand or report on their fair employment policies, and to issue broad-based reports on sustainability.  These types of proposals have averaged more than 19 percent support so far this season, according to the results now available for votes at U.S. corporate annual meetings through June 30.  Investors also gave strong support to selected proposals on human rights and environmental issues.  In fact, 22 percent of the social issues proposals that came to votes through June 30 have been supported by more than 15 percent of the shares voted; only 15 percent of the social issues proposals that came to votes in 2004 and 2005 surpassed this level of support. 

In contrast, investors overwhelmingly dismissed proposals asking companies to drop equal treatment protections for gay employees, to review or improve animal welfare, and—in the case of tobacco companies—to restrict their marketing or to support smoking bans.  Proposals along these lines averaged less than 6 percent. 

The 177 social issues proposals that have come to votes through June represent only about half the number that shareholder advocates originally filed for this period.  Shareholder proponents withdrew many of their proposals before they came to votes, often after fruitful discussions with the corporate managements in question.  In other cases, companies were able to win the go-ahead from the staff of the Securities and Exchange Commission to omit certain proposals from their proxy statements.  (See Table 1.)

Proxy Season at the SEC
The SEC staff’s intentions concerning a new policy on business risk and social policy resolutions, applied occasionally and somewhat mystifyingly in spring 2005, became clearer in 2006.  In June 2005, the staff had issued a bulletin (14C) explaining that resolutions can be excluded as “ordinary business” issues not appropriate for shareholder scrutiny if they involve “an internal assessment of the risks or liabilities that the company faces as a result of its operations that may adversely affect the environment or the public’s health.”  In the spring 2006 proxy season it began issuing decisions referring back to the bulletin. 

From early calls, it looked as if the policy might decimate the 2006 slate of resolutions on health and the environment.  The staff cited it to allow three drug companies to omit proposals on their drug pricing and distribution policies that had received high support in 2005.  It also cited the bulletin in allowing the omission of three resolutions from a long-standing campaign asking companies to review the economic effects of AIDS and other pandemics on their operations, and of four proposals related to environmental issues.

In later decisions, though, the SEC staff refused to invoke the policy, disagreeing that it applied to two of the proposals in a new shareholder campaign on toxic chemicals, or that it could be used to exclude environmental proposals on Dow Chemical’s Union Carbide subsidiary in India or Chevron’s toxic waste legacy in Ecuador.  A look at the various decisions left some observers puzzled; the staff has long complained that the shareholder proposal rule puts it in the position of having to make too many judgment calls, but the necessity of deciding what involves an internal assessment of risks and what does not could be seen as taking it farther into the territory of subjectivity.

In other 2006 decisions of note at the SEC, the staff required Ford and General Motors to print proposals from conservatives who appear skeptical of global warming, which asked for information on the companies’ climate change science.  In 2004 and 2005 the staff had allowed both firms to omit very similar versions of those resolutions.  Otherwise, SEC staff decisions of the 2006 proxy season marched with precedent.  Among other things, several companies were allowed to omit proposals asking for sustainability reports on grounds that existing reporting made them moot, but this argument did not always work.  All told, the staff has allowed companies with meetings through June to omit 51 resolutions, down a little from the 57 for the corresponding period last year, as shown in Table 1.

Withdrawal Trends in 2006
Environmental issues stand out among the withdrawal agreements achieved so far this year.  Among them was the settlement of the long-running request for information from General Electric on expenses incurred in opposing cleanup of PCB-contaminated waterways in New York. Both resolutions on bottle recycling were withdrawn after solid agreements, as were a number of proposals on climate change.

In other areas, corporate America continued to separate itself from social conservatives on the gay rights issue, responding quickly to requests for amendment of EEO policies to include nondiscrimination on the grounds of sexual orientation.  Eighteen resolutions on the issue were withdrawn, leaving only five to come to votes.  Another high-profile withdrawal in the EEO category occurred after Wal-Mart posted its EEO-1 forms and comparative data on its website.

Sustainability reporting and board diversity continued to be areas often productive of withdrawal agreements.  Companies also were more likely to work out agreements on political contributions resolutions than in the past—though many more came to votes than were withdrawn.  The total of withdrawal agreements for 2006 now stands at 98, making it unlikely that the number will reach the all-time high of 113 recorded for 2005.

Summary of the 2006 Proxy Season By Issue:

Vote Calculation
What follows is a summary, by category, of the 2006 spring proxy season, including the most interesting votes, withdrawals and decisions at the SEC on whether resolutions could be omitted.  Companies at which proposals did well enough to qualify for resubmission next year are highlighted in bold face.  All vote support levels are calculated according to the formula the SEC uses to determine resubmission eligibility: the percentage of shares voted “for” out of the total voted “for” and “against,” excluding abstentions.  First-year proposals must win at least 3 percent support under the formula to qualify for resubmission an additional year, second-year proposals must get at least 6 percent, and proposals in their third year or more must score at least 10 percent.  (If the proposal fails to clear the pertinent threshold, it may not be resubmitted at the company for another three years.)

Board Diversity
Church-affiliated investors and the Calvert Group continued to search their portfolios for companies with all-male boards and to question them about changing their board selection criteria.  Fourteen resolutions were filed, but withdrawal negotiations were so successful that only three came to votes.  There were no challenges on this well-tested issue at the SEC.

Votes
A board diversity proposal from Christus Health received 10.2 percent support at Torchmark; vote results are not yet available for similar proposals at Bed Bath and Beyond and Monster Worldwide, which were voted on in June. 

Withdrawals
Calvert Group withdrew at six companies that agreed to amend their criteria for board selection to include diversity—Astoria Financial, Cheesecake Factory, Commerce Bancorp, Danaher, Panera Bread and TD Ameritrade.  (It also withdrew at Renal Care, which was sold.)  Church groups reached agreements at American Greetings, Overseas Shipholdings and Viacom and withdrew at CBS when they found they had the wrong stock.

Charitable Contributions
For 2006, two types of proposals asking for general disclosure of charitable contributions came to votes, at a total of six companies.  While both types asked corporations to disclose all charitable contributions, the supporting statements made clear that the proponents are particularly opposed to contributions to particular organizations, in one case Human Life International with Planned Parenthood and in the other case the National Legal and Policy Center with Jesse Jackson’s Rainbow/PUSH Coalition.  The fact that the SEC staff allowed these resolutions to go for ward cements a policy change signaled two and a half years ago, when the staff began to allow contributions proposals that were “facially neutral” but in which the motivations of the proponents were apparent.

Votes
The opponents of Planned Parenthood won support of about 6 percent for their resolutions asking Johnson & Johnson and Northern Trust to disclose their charitable contributions.  Of the four proposals that the National Legal and Policy Center filed, vote results are in at Boeing (10.4 percent), Citigroup (8.7 percent) and PepsiCo (5.8 percent); the Social Issues Service is still awaiting the vote result at Coca-Cola. 

Two resolutions from other proponents came to votes on charitable contributions.  A proposal protesting a donation by Kraft Foods in support of the Gay Games in Chicago this summer received 0.1 percent, the lowest vote of the season; however, Altria controls 98 percent of the voting equity in Kraft.  The Social Issues Service is still awaiting results for Trillium’s proposal asking Avon Products to report in more detail on its fundraising for breast cancer research and public awareness. 
          
Action at the SEC, Withdrawals
PepsiCo was the one company to challenge the resolution from the National Legal and Policy Center asking it to report on its charitable contributions.  The center, a Virginia-based conservative group, tried to propose resolutions in 2005 specifically questioning contributions to Rainbow/PUSH, but fell afoul of an SEC staff precedent disallowing resolutions on targeted contributions. To avoid that fate this year, it approached the issue by picking up the template of the resolutions on political contributions developed by the Center for Political Accountability (discussed under “Political Contributions,” below) and modifying it for charitable contributions.  PepsiCo argued, without success, that it should be able to omit the proposal because the proponent was actually concerned about a specific issue, rather than interested in broad disclosure, but the SEC staff disagreed.
          
Environment
The big environment category originally involved the filing of 77 proposals, 46 of which came to votes.  Activity spanned the new anti-toxics campaign from the Investor Environmental Health Network to a continued focus on climate change.  The category included some of the most significant withdrawals and omissions of the year, as well as seven of the proposals that won support of 15 percent or more of the shares voted.  (See Table 2.)

Votes:  Ten proposals relating to greenhouse gas emissions, energy efficiency or climate change came to votes from a broad array of proponents; results are in for nine, all but one of which may be resubmitted in 2007, if the proponents so choose. 

Five of these proposals were filed by proponents who believe that climate change is a major problem and that companies need to reduce their greenhouse gas emissions.  The Nathan Cummings Foundation, Sierra Club and New England Friends filed proposals asking four companies for reports on energy efficiency plans in light of growing public pressure on the issue.  Investors supported the proposal by a whopping 39 percent at Standard Pacific, according to preliminary results, a new record for support on the climate change issue.  The proposal got more modest support—of 6 to 9 percent—at D.R. Horton and Whole Foods Market; the latter had announced just before its January meeting a landmark purchase of renewable energy credits from wind farms that it said would offset 100 percent of its energy use, making it the only Fortune 500 firm to achieve this goal.  (The Social Issues Service is still awaiting results for the same proposal at Bed Bath & Beyond’s late June meeting.)  After Standard Pacific, the next highest vote for a climate-related proposal was the 22.6 percent achieved by Trillium’s resolution asking Dominion Resources to report on and reduce its greenhouse gas emissions.  Green Century’s second-year proposal asking Ford Motor to report on its lobbying activities againsttighter fuel economy was supported by 7.3 percent of the shares voted, according to a preliminary report. 

The filers of the remaining four proposals, in contrast, are dubious that climate change is happening or that companies need to take particular action about it.  Carl Olson’s and Mark Seidenberg’s proposals asking for an annual “scientific report on global warming/cooling” received 4 percent support at Ford Motor and 7 percent at Occidental Petroleum, but only 2 percent at General Motors.  A proposal along similar lines from Action Fund Management at General Electric received 6.9 percent support. 

Preliminary or final vote results are in for the six proposals on genetically engineered organisms, and all but one cleared their resubmission levels.  The highest vote—at 17.6 percent support—came at Wendy’s International, where a second-year proposal asked it to identify on its menus where it uses genetically modified ingredients.  Similar proposals received sufficient support for resubmission, albeit in the single digits, at McDonald’s and Safeway, but fell short at Yum Brands.  Proposals asking Dow Chemical and DuPont to report on the potential adverse impact associated with their development of genetically engineered plants each received about 7 percent support. 

The year 2006 was notable for several largely new shareholder campaigns on environmental issues.  One focused on protecting old forests.  International Paper and Kimberly-Clark, which source much of their fiber from Canada’s Boreal forest, the largest remaining intact forest in North America, were asked in first-year proposals from Green Century and Domini to consider phasing out the use of fiber not certified by the Forest Stewardship Council.  The proposals achieved single-digit sup port.  A related proposal from Calvert asking Weyerhaeuser to assess the feasibility of obtaining FSC certification received 5 percent support, according to a preliminary report.  The Social Issues Service is still awaiting vote results for a related proposal asking Lowes to adopt a forest protection policy in sourcing its lumber and other forestry products.

Another group of proposals focused on companies’ potentially or historically harmful impact on local communities because of toxic emissions.  The highest scoring resolution this year in this category appears to be Mercy Investment’s first-year proposal asking Synagro, whose sewage-to-fertilizer operations in the Bronx have prompted complaints, to review and reduce its toxic emissions; it received 31 percent support, according to a preliminary tally.  A first-year proposal asking Honeywell to report on how it is warning local communities around Onondaga Lake in upstate New York about health hazards resulting from pollution from its predecessor companies received 7 percent support.  The Social Issues Service is still awaiting vote results for Martha Hamblin’s second-year proposal asking Stericycle to phase out waste incineration. 
          
The Episcopal Church filed new resolutions asking ConocoPhillips and ExxonMobil to report on their environmental impacts on the communities where they operate, with particular attention to poor communities.  According to a preliminary tally, the proposal won 20 percent support at ConocoPhillips, one of the highest votes in the environmental arena this season, and 10 percent at Exxon.  Proposals from Green Century asking Du Pont and Dow Chemical to report on how they might reduce the threat of potential catastrophic chemical releases from their facilities each received about 7 percent support.  

Two proposals looked at the damage to communities outside the United States.  A  second-year New York City proposal focused on the 1984 toxic disaster in Bhopal, India, asking Dow, which subsequently acquired the company whose factory caused the disaster, to report on “ any new initiatives instituted by management to address specific health, environmental and social concerns” of the Bhopal survivors.  It received just over 6 percent support, according to preliminary results.  At Chevron, a Trillium proposal asking the company to report on its legal and public relations expenses connected to past pollution caused by Texaco drilling sites in Ecuador received 8.4 percent. 

A shareholder focus on toxic chemicals was also evident in several proposals that asked companies to consider reformulating their products or services to avoid or reduce the use of toxic chemicals, or in the case of retailers, to reduce the number of products they stock with toxic ingredients.  The highest-scoring proposal in this category was at Du Pont, where LongView won 28.9 percent support for its request that the company report on “the feasibility of an expeditious phase-out of the use of PFOA in the production of all DuPont products.”  Perfluorooctanoic acid, a chemical essential in the production of fluoropolymers used in Teflon and a host of other products, is biopersistent and is found in the blood of nearly all Americans; in January, a scientific advisory board to the EPA found that PFOA is a “likely carcinogen.”  According to preliminary results, Green Century achieved 9 percent support for its first-year proposal asking Servicemaster to report on the feasibility of phasing out synthetic pesticides in its TruGreen ChemLawn lawn care business.  Domini won just under 9 percent support for its proposal asking Becton Dickinson to review the use of brominated flame retardants in its medical supplies and devices.  Proposals from Boston Common Asset Management at CVS, and from Green Century at Whole Foods, each won about 10 percent support.  A vote result is not available yet for Domini’s proposal at Avon Products.
 
As You Sow’s proposal asking Apple Computer to report on ways to improve its computer recycling program was also motivated by concern over toxics, since computers contain significant levels of lead, mercury, cadmium, and hexavalent chromium; the first-year proposal won 9.3 percent support.

Five proposals came to votes that focused on conserving natural resources—such as water—and natural habitats.  The top-scorer may be Green Century’s first-year proposal asking ConocoPhillips to report on “the potential environmental damage that would result from drilling for oil and gas in the areas inside the National Petroleum Reserve – Alaska”; preliminary results indicate it won 26 percent support.  Green Century also asked both Chevron and Exxon for a second time to report on the potential environmental damage that would result from the company drilling for oil and gas in protected areas such as IUCN Management Categories I-IV and Marine Management Categories l-V, national parks, monuments, and wildlife refuges (such as the Arctic National Wildlife Refuge), and World Heritage Sites.  Both proposals received less spectacular support of around 8 percent, but enough to clear the resubmission threshold of 6 percent.  Harrington Investments won 6.9 percent support for its proposal that Coca-Cola report on “the potential environmental and public health damage of each of its plants, affiliates and proposed ven tures extracting water from areas of water scarcity in India.”  No vote result has been reported yet for the Sierra Club’s proposal on water use at Peabody Energy. 

On the question of nuclear power plant safety, religious investors got 8 percent support for their proposal asking Ameren to report on the pros and cons of getting a 20-year extension of its operating license at the Callaway nuclear plant.  No tally is available yet for the AFL-CIO’s proposal at Progress Energy asking for improvements in plant security.

Withdrawals on climate change
Proponents continued to have good success negotiating withdrawals on climate change issues at energy companies.  The standard proposal asking for a report on greenhouse gas emissions was withdrawn at Anadarko Petroleum, Devon Energy, Peabody Energy and four Midwestern utilities when the companies promised to do the report.  The withdrawals at the utilities  Alliant, Great Plains, MGE and WPS came after they agreed to disclose how they are preparing for regulatory controls on greenhouse gas emissions, including potential impacts on existing and proposed power plants.  Also withdrawn in the climate change area were three proposals at ExxonMobil.  The company argued that its publication of a February 2006 report on greenhouse gas emissions and energy use trends, called Tomorrow’s Energy, meant that it had substantially implemented all three proposals, and the proponents decided to withdraw. 
          
The Sisters of St. Dominic, an early leader in the climate change shareholder campaign, withdrew a resolution asking General Motors to reduce greenhouse emissions.  The company has significantly increased its reporting on climate change in the last year.

In the related campaign on energy efficiency in buildings, proponents were able to achieve four withdrawals when the companies agreed to provide significant amount of information on energy usage and energy efficiency measures and goals.  The withdrawals came at Home Depot, Liberty Property, Lowe’s and Simon Property.

Other environmental withdrawals
A number of other important withdrawals were registered in the environment category.  Early in the year, church shareholders ended a decade-long campaign to get General Electric to disclose information about the costs of an effort to delay cleanup of PCBs, especially in the Hudson River.  The company published extensive information on PCB costs in a letter to the SEC arguing that its long-running shareholder resolution on the issue was now moot, and the church proponents agreed.

Only one proposal in the new campaign on toxic substances was withdrawn—a proposal to Johnson & Johnson asking for a report on reformulating cosmetics to meet European Union standards.  The withdrawal came after the company agreed to continue meeting with the proponent, Citizens Funds, to ensure greater transparency and safer products.
          
Walden Asset Management was able to withdraw both of this year’s proposals on bottle recycling—at PepsiCo and Coca-Cola, with the latter withdrawal coming at the last minute after the company had published the proxy statement.  Both companies agreed to seek quantitative and national goals and a timeline for increased recycling, through a multi-stakeholder process. 

Domini Social Investments withdrew one of its resolutions asking companies to report on “the feasibility of phasing out our company’s use of non-FSC [Forest Stewardship Council] certified fiber within 10 years.” The withdrawal came at the Limited, where the proponents had been concerned that 95 percent of the 400 million Victoria’s Secret catalogs it prints each year use virgin fiber paper with little or no recycled content. Domini told the Social Issues Service the withdrawal took place after the company agreed to “conduct a feasibility study and implementation plan for increasing the use of recycled content and FSC-certified fiber in” its paper.

Action at the SEC
As discussed in the overview of SEC activity above, most of the omissions of environmental resolutions involved application of a policy spelled out June 25, 2005, in SEC staff bulletin 14C, which said companies should be able to exclude resolutions that involved evaluation of the business risk of operations that adversely affect the environment. 
          
Environmental omissions that cited bulletin 14C involved a New York City proposal to Newmont Mining on the environmental effects of operations in Indonesia, resolutions from the Service Employees International Union Master Trust asking Wachovia and Wells Fargo to report on the effect of the challenges created by global climate change on business strategy, and a resolution from the Nathan Cummings Foundation asking Ryland Group to “assess its response to rising regulatory, competitive and public pressure to increase energy efficiency.”  (All told, eight companies had received the energy efficiency proposal for spring meetings, but only Ryland had challenged.) Although CVS and DuPont were not allowed to exclude resolutions in the new toxics campaign as ordinary business under the risk assessment policy, Wal-Mart was successful in getting its new toxics resolution excluded on ordinary business grounds for a different reason.  The resolution asked for a report “evaluating company policies and procedures for systematically minimizing customers’ exposure to toxic substances in products….”  The staff agreed with the company’s argument that the roposal constituted ordinary business because it “seeks to micro-manage the company’s retail business practices and inventory of products.”  The resolution at CVS asked about the feasibility of reformulating private label cosmetics products—raising the question of whether it might have been excludable if the company had made Wal-Mart’s simpler argument instead of getting into risk assessment.

Equal Employment
Proposals in the EEO category were largely familiar, including a handful of the resolutions asking for disclosure of EEO-1 information that have been around since social policy resolutions first appeared in the 1970s and the now much larger New York City-led campaign to get companies to amend their EEO policies to bar discrimination against gay employees.  There were also a handful of resolutions from conservatives asking companies to drop sexual orientation from their EEO policies.

Votes
Five proposals came to votes concerning non-discrimination on the basis of sexual orientation or sexual identity.  Results are only in for two, but they suggest that investors continue to show strong support for these proposals.  According to preliminary results, the resolution asking Exxon to amend its company non-discrimination policy to include sexual orientation received just under 35 percent support.  If confirmed, this represents the highest vote ever for this proposal at the company.  The proposal was first filed in 1999, receiving 6 percent support, and has gained support with each consecutive year.  A similar first-year proposal at Leggett & Platt also did well, winning 24.7 percent. 
          
Investors also showed strong support, as they have in past years, for proposals asking companies to report on their EEO policies with regard to women and racial minorities.  At Home Depot, a second-year proposal along these lines, prompted by the company’s reversal of a 2001 decision to provide statistical data to shareholders on its work force by race and sex, won 35.9 percent, up nearly six percentage points from 2005.  At Lockheed Martin, a similar proposal from religious investors won 25.1 percent the first time out.  In 2004, the Equal Employment Opportunity Commission determined the company allowed a racially hostile work environment for black employees “to grow in intensity” at its plant in Meridian, Miss., where a white employee in 2003 fatally shot six other employees, five of whom were black.  The EEOC also filed suit against the company in 2005 alleging race discrimination at other facilities.  An EEO proposal at Yum Brands, however, appears to have lost ground; it received 9.2 percent, down from 13 percent in 2005. 

In contrast to the above proposals, resolutions from social conservatives asking companies to drop protections for gays and lesbians from their EEO policies fared poorly.  Of the four that came to votes, only Rob ert Hurley’s proposal at Ford Motor did well enough, at 4.8 percent support, to be eligible for resubmission.  Proposals at American Express, Bank of America and JPMorgan Chase received support of 2 percent or less. 

Withdrawals
Once again, resolutions asking companies to add sexual orientation anti-bias policies to their EEO statements found favor in the corporate world.  Proponents were able to withdraw 14 of 18 of those proposals because companies agreed to amend their EEO policies or demonstrated that they had already had gay rights policies in place.  The withdrawals were registered at Baldor Electric, C.R. Bard, CenturyTel, Computer Sciences, Convergys, Cooper Tire & Rubber, Emerson Electric, Fortune Brands, General Dynamics, Halliburton, Paccar, Strayer Education, Goodyear Tire & Rubber and Sherwin-Williams.  On top of that, proponents withdrew four of five proposals asking companies to implement the more extensive Equality Principles on Sexual Orientation after reaching agreements.  Those withdrawals came at Aquila, DTE Energy, Oneok and Wendy’s.

Proponents also reached two withdrawal agreements in the long-running campaign to get companies to release their equal employment data.  One of those agreements culminated in the withdrawal of a highly publicized shareholder resolution to Wal-Mart.  The withdrawal came after the company posted its entire EEO-1 form along with comparative data on its website.  A large coalition of SRI funds and church groups had been proposing a resolution since 2002 asking the company to release its EEO-1 data.  Against the backdrop of the largest workplace bias lawsuit in U.S. history, votes for the proposal had increased steadily, from 11.3 percent the first year to 18.8 percent in 2005.

Walden Asset Management also withdrew a resolution asking for EEO reporting after receiving information from Donaldson.

Activity at the SEC
There were no SEC decisions involving the now well-tested proposals on EEO reporting and adding sexual orientation nondiscrimination statements.  Companies made unsuccessful stabs at getting the SEC staff to let them omit the new proposals for dropping sexual orientation protections from their EEO policies, although they were allowed to delete some of the inflammatory supporting statement as false and misleading. 

Executive Pay and Social Issues
The number of resolutions on linking executive pay to social performance measures dropped to nine from 19 in 2005 and 17 the year before that.  Many of the proposals were requests that companies take general social performance into their calculations rather than tie pay to specific social questions.
          
Votes
Proposals asking that executive compensation be linked to improvements in the company’s social or economic performance came to votes at Amgen, AT&T, Du Pont, Exxon and Ford Motor.  The highest of the votes, albeit preliminary, came at ExxonMobil, where Northstar appears to have won about 13 percent support for its proposal asking for a report comparing total pay in 1995 and 2005 for the CEO to that of its lowest-paid workers and considering whether executive pay is excessive or should be moderated in times of employee layoffs.  A similar proposal at AT&T, filed by Harrington Investments, won 11.9 percent support.  A second proposal at Exxon, from the School Sisters of Notre Dame, asked that executive compensation goals include meeting explicit environmental and social performance criteria as well as financial criteria; it received 9 percent, according to a preliminary estimate.  At Ford Motor, a first-year proposal from an individual shareholder asking that the board consider “linking a significant portion of senior executive compensation to progress in reducing lifetime product greenhouse gas emissions from the company’s new passenger vehicles” got 4.8 percent, according to a preliminary tally.  The DuPont Workers have struck out with their third-year proposal at DuPont, however; it fell somewhat short of the 10 percent resubmission threshold it needed to clear.  No vote result is available yet at Amgen. 
          
In addition to the proposals on how executive pay is formulated, a third-year proposal from Northstar asking for a report on the distribution of stock options by race and sex at Wal-Mart received 10.2 percent support, down a few percentage points from the previous two years. 
          
Activity at the SEC
In an interesting call at the SEC, the staff told Corrections Corporation of America that it could omit a resolution from Mercy Investment Program asking that “the board’s compensation committee, when setting executive compensation, include social responsibility as well as corporate governance financial criteria in the evaluation.”  The supporting statement “recommended” that the criteria include protection of prisoners’ human rights; consistent standards for health care; “compliance with fair labor standards so that employees and their supervisors are trained appropriately and compensated justly for the management of immigration facilities, prisons and prisoners”; and fairly priced services such as phone calls. Corrections Corp. argued successfully that the resolution should be omitted on ordinary business grounds because fundamentally it dealt with general compensation more than executive compensation.

Corrections was the only company to challenge a 2006 proposal asking for a link between executive pay and performance on social issues. Those resolutions have traditionally made it past SEC staff scrutiny, but in 2005 media companies were allowed to omit resolutions on the effects of the depiction of smoking on teen smoking rates, when the companies argued successfully that the proponents were trying to camouflage the ordinary business issue under the guise of executive pay. It’s not clear whether these 2005 and 2006 decisions spell real trouble for the executive pay route for getting resolutions on specific social issues in proxies.

Global Labor Standards
The number of resolutions on global labor issues increased marginally in spring 2006—to 26—and the number of withdrawals increased as well.

Votes
Vote results are in for nine of the 13 proposals that came to votes asking companies to report, improve or monitor the labor standards in their global operations and supply chains.  Of these, the top vote-getter by far is the New York City pension funds’ request that C.R. Bard develop, implement and monitor a code of conduct for its operations and suppliers based on the eight core conventions of the International Labor Organizations and the UN Norms for Transnational Corporations.  It won 32.9 percent support; a factor in the high vote may have been the company’s admission that it did not have a labor code for its suppliers. 
          
The other vote results so far are in the single digits.  Of New York City’s remaining proposals on instituting global monitoring of the core ILO conventions, the ones at Altria, Cooper Industries and Kimberly-Clark cleared their resubmission levels, but a fourth-year proposal at Hasbro fell short, as did another New York City proposal focusing on Disney’s operations in China. 
          
As for other proponents in this area, Michael Saville won nearly 8 percent for his second-year proposal at IBM asking for a report on the risk to the company’s image from its globalization strategy.  Global Exchange had an unusually low support level of under 2 percent at Hershey for its proposal concerning child labor on cocoa plantations, but 78 percent of the voting power in the company is held by a single shareholder:  the Hershey Trust Co. 
          
Withdrawals
Proponents withdrew 10 of the global labor proposals.  Seven of the withdrawals were negotiated by the New York City pension funds, the leading proponent of proposals on international labor standards, but also one that usually insists on substantial concessions from companies before agreeing to withdraw.  This year it withdrew at Avon Products, Chico’s, Ford Motor, Limited Brands, Mattel and Timberland after reaching agreements.  The seventh withdrawal came at DuPont, when it realized that a recent proposal had failed to receive enough support for resubmission.
          
The other global labor withdrawals were negotiated by Domini at Apple, where the company unveiled a comprehensive code, and by LongView at Colgate-Palmolive, where the company agreed to produce a report for shareholders later this year on what risks it sees that globalization presents to its operations.  The Missionary Oblates withdrew at GE when the company agreed to continue discussions on global standards.
          
Activity at the SEC
The IUE-CWA Employees Pension Fund proposed a resolution asking GE to issue a report evaluating “the risk of damage to GE’s brand name” from outsourcing.  The company argued that the resolution should be omitted under the new risk management policy, even though it didn’t deal with health or the environment, and the SEC staff, without comment, agreed.  The same proposal had survived an SEC challenge in 2004.
          
Also omitted on ordinary business grounds was a proposal from As You Sow asking Wal-Mart’s board to amend the company’s EEO policy to “bar intimidation of company employees exercising their right to freedom of association.”

Human Rights
As usual the human rights category in 2006 was all over the map, ranging from requests for general human rights policies to resolutions dealing with very company-specific issues such as Freeport McMoRan’s payments to the military in Indonesia.
          
Votes
Investors gave strong support this year to proposals that asked companies to adopt comprehensive human rights policies or to report on how they implement such policies.  While such proposals earned 11 percent on average in 2004 and 15 percent in 2005 at the two to three companies each year where they came to votes, the three such proposals this year—at Boeing, Chevron and Halliburton—earned support ranging from 23 to 25 percent; religious investors were the filers in each case.  Proponents have fared somewhat less well with proposals that focus on companies’ operations in particular countries.  Harrington Investments’ proposals asking 3M, Illinois Tool Works and IBM to adopt a set of principles for their operations in China earned only single-digit support, but still managed to clear their resubmission thresholds.  New York City lost out, though, with its second-year proposal questioning Freeport McMoran about its payments to the Indonesian military and to Coca-Cola about its operations in Colombia, where a worker at a Coca-Cola bottling plant was killed in anti-union violence 10 years ago. 
          
Withdrawals
The New York City pension funds withdrew their resolution on ExxonMobil’s security relationships with the Indonesian government, which received 7.6 percent support last year.  Fund representatives had received presentations from ExxonMobil on its work in Indonesia on rolling out compliance with the U.S. State Department’s Voluntary Principles on Security and Human Rights, and the company agreed to undertake the requested review. 
          
Boston Common Asset Management and a Swedish proponent, GES, withdrew their new resolution asking Marriott to adopt a human rights policy prohibiting the sexual exploitation of children on Marriott premises.  The proponents were particularly concerned about reports of sexual exploitation of minors in several hotels in Costa Rica, including a Marriott.  A representative of Boston Common Asset Management explained that Marriott agreed to a substantive dialogue on the issue and had already established an internal task force made of up senior management to review how Marriott can address the issue.
          
The Brethren Benefit Trust withdrew a proposal to Burlington Resources on a matter of long-running concern for the group—treatment of indigenous peoples in areas slated for mineral development in the Amazon.  The proposal was withdrawn when Burlington was taken over by ConocoPhillips. 
          
Religious groups withdrew resolutions asking for general human rights policies after satisfactory discussions with Monsanto and Visteon.  A China principles proposal was also withdrawn, at Cummins Engine, after the company promised a report on implementation of its supplier code.
          
Action at the SEC
The SEC staff allowed Cooper Industries to omit a resolution asking for a report on its human rights policy on grounds that it was too similar to a proposal on the company’s global labor standards, which was filed first.

Political Contributions
The broad-based shareholder campaign to get companies to provide information on political contributions continued into a third year, at about the same level (36 were proposed for spring 2006) but with higher votes and a few more withdrawals.  As in the past, the proponents, following a template developed by the Center for Political Accountabilty, a Washington think tank, asked for a listing of contributions made with corporate funds, the companies’ policy on contributions and the name of the decisionmakers.  Some of the proposals, for the first time, also asked for a reporting of dues paid to trade associations.  In addition, Evelyn Y. Davis continued her long-time campaign to get companies to disclose political contributions in newspapers or to affirm political nonpartisanship.
          
Votes
Thirty proposals came to votes from January through June that generally followed the Center for Political Accountability template, although the primary filers included labor unions, religious investors and SRI funds.  Preliminary or final results are now available for 26 of these proposals; with only three exceptions, all received support of 10 percent or more, and all but one earned support for resubmission.  Although these proposals have averaged double-digit support from investors from their inception, they got a further boost this year when ISS’ benchmark voting policy began to support them on a case-by-case basis.  The top scorer—at 67.1 percent—was Green Century’s proposal at Amgen, where management recommended a vote in favor.  Other notably high—but not passing—votes came at American Financial Group (20 percent support), Caremark (27.2 percent), Clear Channel Communications (20.5 percent), General Dynamics (22.4 percent), Home Depot (34 percent), JPMorgan Chase (28.9 percent), Charles Schwab (27.0 percent), St. Paul Travelers (28.7 percent), Union Pacific (27.2 percent), Verizon Communications (33 percent), Washington Mutual (24.1 percent) and Wyeth (28.9 percent).  Proposals also won enough support to be eligible for resubmission at Abbott Laboratories, AT&T, Bellsouth, Chevron, ExxonMobil, IBM, Monsanto, Pfizer, Target, Chubb, Wachovia and Wal-Mart.  Perhaps the one loser in this group is the Teamsters’ third-year proposal at Citigroup; it received 9.9 support, just shy of the 10 percent threshold it needed to clear. 
          
The growing investor support for improved disclosure of corporate political contributions may have helped to boost the results for at least one of Evelyn Y. Davis’s perennial proposals asking companies to take out ads in major national newspapers to disclose their political contributions; she received 24.6 percent support this proposal at Lucent Technologies.  Another explanation, though, is that Lucent shareholders, frustrated by the company’s low share price, used the Davis proposal as a vehicle to express their frustration with management.  (Indeed, Davis won only 3.3 percent support for the same proposal at PepsiCo and 5.0 percent at Bank of America.)  Her proposal asking Home Depot to take various steps to ensure that employees are not coerced into supporting political causes favored by management got 12 percent support; results are not yet available for the same proposal at Continental Airlines. 
          
Action Fund Management's request that JP Morgan Chase report on its procedures for “identifying and prioritizing legislative and regulatory public policy advocacy activities” received 27.2 percent support.
          
Withdrawals
Proponents were able to withdraw resolutions at Bristol-Myers Squibb, Coca-Cola, Eli Lilly, McDonald’s, Southern and Staples when the companies provided all the requested information.  The FL-CIO also withdrew at SunTrust when the company promised not to donate funds for campaigns in favor of Social Security privatization.
          
Action at the SEC

Pfizer, which received the expanded proposal, now releases all of the information requested by the original resolution, but not its trade union dues.  It went to the SEC to argue that it could omit the proposal because it was substantially implemented.  The SEC disagreed, requiring Pfizer to bring it to a vote.  The vote, though, dropped three points from the previous year.

Sustainability Reporting
Investors continue to evince relatively strong support for requests to companies to issue broad-based sustainability reports, and hundreds of multinational companies now prepare such reports according to the format developed by the Global Reporting Initiative, an offshoot of a joint project by the Ceres environmental group and the United Nations Environmental Program.  The number of resolutions proposed on the subject this year continued to fall back a bit, hitting 18 for the spring proxy season, and proponents worked out agreements on about half of these.  The supporting statement of most of this year’s resolutions recommended that the companies use the Global Reporting Initiative guidelines.  Earlier attempts to incorporate GRI in the resolved clause of sustainability proposals had been knocked out at the SEC, but the staff went along with the approach of using it in the supporting statement. 
          
Votes
Of the nine proposals that came to votes through June, the highest vote so far took place at Terex for a proposal sponsored by the New York City funds.  It won 48.4 percent.  Notably high votes also came in at Wendy’s (38.2 percent), Dean Foods and Safeway (34 and 27 percent, respectively, according to preliminary results) and General Dynamics (21.2 percent).  The 10.5 percent “for” vote at Wal-Mart was down substantially from the 16 percent recorded last year, a reflection, perhaps, of investors’ response to new environmental initiatives the company has announced and to management’s promise to issue a report on various corporate responsibility issues by spring 2007.  (See related story on Wal-Mart annual meeting, p. 15.)  The lowest vote—6.4 percent—came at Kellogg, despite the fact that the company does not issue a stand-alone environmental report, now a common corporate practice, nor offer much in the way of hard data on its corporate responsibility performance.  (No vote results are available yet from Kroger’s June 22 meeting.)
          
Withdrawals
Proponents withdrew sustainability report requests at American International, AT&T, Black & Decker, Caterpillar, Chesapeake Energy, Chubb, Illinois Tool and Marsh & McLennan after companies either agreed to produce reports or to assess the costs and benefits of developing such reports.
          
Action at the SEC
The SEC staff agreed that Honeywell and Raytheon could omit sustainability report requests as moot because the reporting they were doing was the equivalent.  Wendy’s, though, failed to make the case that it had substantially implemented the proposal.
          
Banking Issues 
A new proposal from NorthStar Asset Management asked Wells Fargo to prepare a report that provides explanations of racial and ethnic disparities in the cost of loans it provides.  It got 7.3 percent support.        

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CalPERS’s 2006 Focus List Highlights Poor Corporate Governance Performers

Institutional investors are increasingly paying attention to the degree to which corporations are fully transparent in their reporting to shareholders and the extent to which top management and the Board of Directors operate to ensure that they are seen to be accountable to shareholders. When CalPERS speaks, then the impact on the investment community is profound. CalPERS, has over $208 billion of investment funds under its management. The organization represents than 1.4 million public workers and their families, and more than 2,500 public employers.

The 2006 Focus List, published on April 19, 2006, singled out Brocade Communications, Cardinal Health, Clear Channel Communications, Mellon Financial, OfficeMax, and Sovereign Bancorp. According to CalPERS Board President Rob Feckner, “The stock performance and governance of these companies is unacceptable to us and other shareowners. We are urging them to make such improvements as requiring majority voting for directors, removing excessive takeover defenses that prevent shareowners from amending company bylaws, and accounting for their performance."

Methodology:  CalPERS screens more than 1,800 U.S. corporations in its research that leads to the Focus List. It narrows the list of candidates to 15 to 20 companies based on their long-term stock performance, corporate governance practices, and an economic value-added (EVA ®) evaluation. CalPERS explains that it, “uses EVA ® and stock performance to identify companies where poor market performance is due to underlying company specific operating performance problems as opposed to industry or extraneous factors alone. EVA ® measures a company’s net operating profit after tax, minus its cost of capital.”

Model: The value of this kind of report rests in its details. The issues that CalPERS highlights reflect topics of concern to a rising number of institutional investors. The pressure from CalPERS comes at a time when investors are increasingly pressing the management of mutual funds to become more active and critical in this area and to use their formidable investment power to call for governance reforms in a manner similar to that displayed by CalPERS.

Results: The following comments on the companies on the Focus List comes from the CalPERS press release (detailed analysis on each company is to be found at www.CalPERS.org) :

Brocade Communications has a 67 percent supermajority requirement for amending key portions of the company’s charter and bylaws that is the target of a CalPERS shareowner proposal. Brocade lost 68 percent of its stock value in the past five years.

Cardinal Health, which provides products and services to health care providers and manufacturers, has excessive severance benefits and a 75 percent supermajority requirement to change bylaws. It has significantly underperformed its peers over the past five years, gaining only 17 percent in value compared with 109 percent for the industry.

Clear Channel Communications, a diversified media company that owns hundreds of radio stations, has excessive executive compensation and severance agreements, and lost 42 percent in stock value over the past five years compared with a 26 percent decline for industry peers.

Mellon Financial, which operates as the holding company primarily for the Mellon Bank, is the target of a CalPERS shareowner proposal to remove the company’s requirement of a 75 percent majority vote to amend company bylaws. It was placed on the Focus List after its stock fell by 2 percent compared with a 58 percent gain for industry peers over the five-year period that ended on March 31, 2006.

OfficeMax, a U.S. provider of office supplies, technology products and solutions, and furniture, has takeover defenses that are excessive – including an 80 percent supermajority requirement to amend bylaws. It performed well below its peer group for the past five years.

Sovereign Bancorp, a holding company for Sovereign Bank serving commercial clients, has excessive takeover defenses, including 80 percent supermajority requirements to amend specific charter and bylaw provisions, limited shareowner rights, and the rare provision of severance agreements for directors. Sovereign underperformed industry peers in the past year.

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Singapore Leads In Asian Corporate Governance

Singapore remains the top ranking country among 10 Asian economies in the area of corporate governance standards, according to a report by Asian Corporate Governance Association (ACGA) and CLSA Asia-Pacific Markets.  Accounting Education reported on December 27, 2005, that the report, CG Watch 2005: The Holy Grail, assessed the quality of corporate governance in 10 Asian markets with data from 496 listed companies. Hong Kong was one percentage point behind Singapore at 69%; India and Malaysia retained third and fourth place, respectively, at 61% and 56%; next was Taiwan at 52%; Korea slipped below Taiwan and shared the next place with Thailand with both at 50%;  then Philippines 46%, China 44% and Indonesia 37%.

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OECD Highlights Need for Corporate Governance Reforms in China

• reform relations across levels of government, so as to ensure that local authorities act in accordance with national objectives in relation to issues such as the rural/urban balance, redistribution of wealth, the environment and central control versus local autonomy.
• ensure greater consistency among laws affecting a particular area and see that laws mandating broad principles are accompanied by more specific regulations for implementation.
• consolidate the framework for the market economy by giving market participants a level playing-field in terms of laws and regulations.
• establish a sound competition policy approach as a means to reduce market segmentation and local protectionism, consolidate the intellectual property rights regime and further restructure state banks and industries. 
  
  

In another report on China, the OECD’s first economic survey of the country,  the OECD stated that, “China could overtake the US and Germany to become the largest exporter in the world in the next five years. By then, Chinese goods and services could represent as much as 10% of global trade compared with 6% at present.”

OECD said the current pace of economic growth – averaging more than 9% annually over the past two decades – shows no sign of slowing. But although economic dynamism has helped reduce the number of Chinese living in absolute poverty, income levels are still low and inequality is on the rise, not only between the cities and rural regions – average incomes in the countryside are only one third of those in the cities – but also within the more prosperous coastal provinces.

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