by Robert Kropp
The Corporate Library publishes guide to help shareowners decide how to vote on proposals addressing the relationship between labor standards and investment risk.
SocialFunds.com -- The season of corporate Annual General Meetings is underway, and shareowners are evaluating the many resolutions addressing environmental, social, and governance (ESG) issues that have been submitted this year. The magnitude of the shareowner’s responsibility was captured in a famous quote from US Supreme Court Justice Louis Brandeis, who said, “There is no such thing to my mind as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with public welfare.”
The concept of shareowner responsibility is important enough to have been included among the United Nations Principles for Responsible Investment (PRI). The second of the Principles states, “We will be active owners and incorporate ESG issues into our ownership policies and practices.”
According to a recently published proxy voting guide from The Corporate Library, “The ESG issues currently addressed by shareholder and management proposals are varied, complex and growing more so.” A signatory to the PRI, The Corporate Library developed its proxy voting guide to help shareowners understand the relationship between labor standards and investment risk, and to decide whether they should support proposals addressing labor standards at their portfolio companies.
Noting that shareowner resolutions addressing labor standards have often won significant support in the past two proxy seasons, the guide makes the investment case for serious consideration of such proposals by pointing out the potential risks to companies of poor labor standards. By impairing productivity and increasing costs, corporate mistreatment of workers can present financial risks. The reputational risk to companies that fail to protect workers can have serious financial implications as well.
Typically, proposals relating to labor issues ask companies to adopt a policy that addresses labor standards in their business operations, including supply chains. Proposals also often request that companies report on how they address labor issues and monitor compliance to their policy.
To determine if a proposal relating to labor standards is applicable to their portfolio companies, the guide recommends that shareowners evaluate such considerations as percentage of revenue affected, the impact of the issue on business operations, strategic impact, and reputational risk.
In order to determine if their portfolio companies are addressing the issue adequately, shareowners should look for the presence of international norms as the framework for corporate policy, transparency in addressing controversies, engagement with multiple key stakeholders, and the use of independent auditors to determine compliance.
If investors decide that an issue is important and the board of directors is giving insufficient attention to it, they are likely to support a resolution addressing it. Some investors, the guide concludes, “may…choose to abstain on the resolution, in order to signal support for investor attention to the issue in general, even if it does not seem pressing at this particular company at this time.”