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Crystal Clear Now – ESG Focus Must Be at the Top of the Corporation, for the Board Room & Executive Suite

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July 2021

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Remember those 1970s /early ‘80s ubiquitous TV commercials with the tag line, “When EF Hutton Speaks, People Listen?” The point was that when the EF Hutton financial services firm “said” something about investing possibilities, we would be wise to sit up and listen carefully to the advice.

These days we are tuning in to the Securities & Exchange Commission to discern the future directions of corporate sustainability / ESG disclosure. To us it is clear: the broadening flow of comments indicates something is about to happen regarding corporate ESG disclosure.

Prime example: the keynote address of former Acting Chair and current Board Member Commissioner Allison Herren Lee, sharing important points of view with those gathered at the Society for Corporate Governance 2021 National Conference. Herren Lee put ESG in the context of the recent proxy season for the corporate secretaries (who are on the front lines of the proxy voting).

2021 proxy season shareholder proposals included those focused-on climate change. Manufacturing giant General Electric saw 98% of shareholders voting to approve a proposal for disclosures on how the company would achieve Net Zero.

At ConocoPhillips, 58% of shareholders approved a measure to have the large fossil fuel firm achieve Scope 3 emissions reductions. At United Air Lines, 65% voted in favor of a resolution to have the transport giant provide more information about how its lobbying efforts align with the goals of the Paris Agreement.

Said the influential Commissioner (“D” members now are the agency’s board majority) about the backdrop of these types of resolutions coming from the providers of capital: “This is a broad reckoning with the need for advanced transparency on sustainability…also occurring amid ever-more powerful signals from major institutional investors of their commitment to sustainability.”

Commissioner Herren Lee talked about top-of-mind issues for board rooms and C-suites for mid-year 2021 (six months into the Biden-Harris Administration) on the “climate change crisis”: board challenges — climate, racial injustice, economic inequality, corporations and social & economic well-being of people and communities); public input on climate change disclosures; mitigating risks and maximizing ESG opportunities; enhancing board diversity; increasing board expertise; inspiring management success; public pledges on ESG issues that are actually backed by corporation action…and much more.

The Commissioner explained that the SEC itself is “listening” as well to the “thousands of comments in response to the request for public input on climate change disclosures.”

There is much more in the Commissioner’s comments to the corporate secretary universe that we bring to you in this post (including 58 footnotes). Safe to say these days – in board rooms and executive suites, when the SEC leaders speak, many in the corporate sector and capital markets are indeed listening.

Two related items are also on top for you. One is a recap from GreenBiz about this year’s “angst-filled proxy year” and another from Bloomberg Law about corporate leaders calling on their law firms to help “navigate the world of ESG governance.”

Here at G&A Institute, since the time of our founding 15 years ago, as the “ESG lockup” was coming together, we have advised that it could be “GES” – the governance (“G”) of the “E” and the “S” is a critical task up top of the organization…the details of this are neatly spelled out in abundance in the SEC Commissioner’s keynote address and in the many items that we bring you each week. If you are not already sharing these with board room and C-suite, please consider doing that!

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Attention Boards & CEOs: The Conference Board Has Important Insights to Share To Help Your Company…Survive and Succeed!

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by Hank Boerner – Chairman, G&A Institute

The Conference Board is one of the most prestigious and important (for corporate managements) of our membership business associations, as well as credible research think tank on management issues and topics. The Board has long had corporate governance in focus and has been a major factor in helping to advance effective, responsive, accountable governance in the USA.

The Conference Board was one of the early organizations serving boards, C-suite and key functional managers to expand the governance research and advisory services to include social and environmental issues & topics: ESG is on the of the agenda for many aspects of Board operations.

Members of boards and CEOs and C-suite-ers receive Director Notes on key topics and issues with practical advice needed to improve performance and better serve society.

Today’s issue of Director Notes is worthy of close reading — and re-reading — by sustainability professionals: “Navigating the Sustainability Transformation.” The introduction is bold:

“CEOs and Directors making key business decisions regarding the company’s strategy for the year ahead and beyond would be well-advised to change the current boardroom conversation. Driven by factors tied to sustainability, over the next 15 years, every company in every industry sector will need to transform itself to survive and succeed. Board members, CEOs and he executives advising them need to ask: “How should we plan for this major transformation?” (emphasis mine)

The report describes a four-stage model for companies to progress from engaging initially with sustainability to accelerating, leading, and ultimately transforming their business.”

Addressing the practical aspects of corporate sustainability (board style), the report focuses attention on a host of corporations that are embracing sustainable strategies, actions, programs, engagements.  These include “new brands” such as Airbnb, Google, Tesla, and Uber — all of which have disrupted old business models and achieved leadership – fast! — in their categories (Airbnb vs. the hotel business, Tesla vs. old line auto manufacturers, etc.).

Established companies — some dating back a century or more — are featured in the report, with explanations of how they have achieved success (and frankly, heartily survived) in a business environment (and investment mindset) where disruption is prized over proven models.  These old-line companies have succeeded by being transformation, often disrupting their own cash cows!

Examples include:  3M; General Electric (with its Eco-magination); BMW; DuPont; Dow; Unilever; Michelin; HP; SC Johnson; Nike; Kimberly Clark; McDonalds; Wal-mart Stores; Starbucks; NRG Energy; Newmont Mining; Coca-Cola Company; IKEA; Interface; Sony; BT; Tesco; Azko Nobel; Xcel Energy; and Waste Management;.

Waste Management’s transformation from a traditional waste hauler to strategy and service provider to corporate customers is one highlight of the report.

Sustainability professionals will want to read The Conference Board report’ views on the 4 stages of progression for companies. I think this could become a top-of-agenda discussion in board rooms and C-suites in the weeks ahead.

The stages are (1) engagement with sustainability; (2) accelerating progress; (3) leading (sector, industry, peers, etc); (4) transforming.  There are many companies at stages 1 and 2, a few moving on to 3, and very few to point to as stage 4 (yet).  Many companies exhibit characteristics of stages 1 and 2 — these are examples in the report.

Moving into the transformation stage is challenging, of course. Given the dramatic upheaval in so many businesses, in such a short period of time, will make looking ahead 10 or 15 years to the critical period to 2030 and beyond…daunting, for sure.

But there are practical, realistic things going on in our world that make such exercise ( closely examining where your company is in the 4 stages of sustainability) necessary.  Natural resources (“natural capital to many) grows more scarce in many parts of the world.  It looks like there will be stranded assets on many corporate balance sheets (and in investment portfolios) as we shift away from fossil fuels. (We won’t always have plentiful, easy-to-access USD$48 crude oil available!)

The Conference Board report found a few examples of what could pass for stage 4 companies: “Few companies today are solidly at 4, but a growing number of leaders have one or more stage 4 attributes.  Airbnb, Google and Uber are ‘sharing economy’ companies; DuPont, Novelis, Unilever, and Waste Management are examples of long-established enterprises…”:

The 4-Stage Model is explained in the report.  We can see this having a powerful impact, similar to Professor Michael Porter’s work with Mark Kramer: “Creating Shared Value” (Harvard Business Review, January 2011).

the Conference Board makes the report(s) available for your reading — information is at:  https://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2885

* * * * * * * *

The Director Notes are a series of publications the Board engages experts from various disciplines to contribute to, including experts in leadership, corporate governance, risk oversight, and sustainability.

The current issue was authored by Gilbert (Gib) Hedstrom, principal of Hedstrom Associates.  Content includes excerpts from his coming book, “The Sustainability Scorecard TM Handbook/”  Hedstrom is director of the Conference Board’s Sustainability Council.  He invited me to be guest presenter on corporate sustainability reporting and related topics at a recent Council meeting in Washington, D.C.

Matteo Tonello is managing director for corporate governance at The Conference Board; he is editor of the Director Notes series.

Melissa Aguilar is a researcher in the corporate leadership department of the board and is executive editor of the series.

Conference Board information is at: http://www.conference-board.org/

The Holy Land Principles for US Companies — Campaign for Fair Employment in Israel and Palestine

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by Hank Boerner – Chairman G&A Institute

Important note: We published this on 2 December…please note in third and fourth paragraphs important clarifications as of 4 December based on input from Father Sean McManus.

Investors and companies will be keeping watch on a new campaign gaining momentum that is advocating for fair employment policies and practices by US companies doing business in Israel and Palestine.

At the center of the campaign are the Holy Land Principles for companies doing business there.

Clarification:  All 546 U.S. companies doing business in Israel and/or Palestine are receiving communications from the Principles advocates.  The package sent to CEOs included a “pamphlet” with and other background on the issue along with a copy of organizer Father Sean McManus’s updated memoir, “My American Struggle for Justice in Northern Ireland…and the Holy land.”

To date, three U.S public companies — Intel, GE and Corning — have received shareholder resolutions urging the companies to sign on to the Principles on behalf of the Holy Land Principles organizers for 2015 shareholder votes.  The filers are Harrington Investors ((Intel); Cardinal Resources (General Electric); Corning (Jim Boyle).

This campaign is reminiscent of two prior successful investor and advocate campaigns:  the struggle to eliminate South Africa’s official Apartheid policies and  structured discrimination practices, and the campaign to end anti-Catholic worker discrimination practices in Northern Ireland.  Both campaigns involved corporate fair employment issues in those countries.

This new campaign may touch some nerves of people on hearing the news because it may appear to be political — but the organizers stress that only one issue is involved:  fair employment by US companies.  Global or domestic politics aside, the campaign organizers say that this is the most basic, proper thing for American investors to be concerned about.

And, they stress, this is an American campaign, not a Palestinian or Israel campaign. and is restricted to employment conditions in the Holy Land — universally called that because it is home to three of the world’s major faiths — Judaism, Christianity and Islam.

The Principles campaign is centered on inviting American companies operating in the Holy Land to sign on to the Holy Land Principles — it is essential to note up front that the Principles do not call for quotas, reverse discrimination, dis-investment, divestment, or boycotts.

There are important precedents for this type of issue advocacy campaign.  US companies operating in South Africa and later, Northern Ireland were pressured over years in focused campaigns by investors, issue advocates and a number of US governmental jurisdictions to embrace fair employment practices in those countries.

In focusing on the policies of US companies doing business in Israel and Palestine, of course there may be sensitive issues raised (political, statecraft, religious, ethnic, etc. ).  This is understandable; we offer some background may help to put the campaign in context.

Background to help in understanding the Holy Land Principles:

The Holy Land is spiritual home to three of the world’s great monotheistic religious: in order of evolvement, Judaism, Christianity, Islam.

It is ironic to think that for hundreds of years, yea, for millennia, this relatively tiny land at the eastern edge of the larger Middle East region [that] is considered to be holy, fervently revered by literally billions of people (the faithful) …has been a battleground for various faiths, tribes, outside empires (Roman, Ottoman, British), and more recently, between regional states / nations and nascent states in formation.

Leaders of powerful nations watch or involved in the ongoing efforts to bring peace to the Holy Land and to settle the conflict that has haunted the Holy Land for the past 60+ years. The Palestinian population seeks to create their own state, and the US and other nations have encouraged a “two-state” solution (the State of Israel and a new State of Palestine).

Of course, this is a complicated corner of the world.  The State of Israel is the thriving democracy in the midst of numerous failed states in the region, or states now or previously ruled by monarchies or despots.  And the State of Israel for all of its years since founding the United States and Israel have been allies.

In the case of the MacBride Principles campaign for fair employment in Northern Ireland’s 6 countries (considered part of the United Kingdom), the UK was also a long-time American ally — but in no way did the MacBride Principles campaign vitiate the integrity of the Principles or the reasonableness of the request, the organizers point out.  The campaign never addressed the partition of Ireland, Irish independence, and other thorny political issues.

Similarly, the Holy Land Principles organizers take no position on the issues of one state, two states, refugees, settlements, United Nations resolutions, or issues beyond fair employment practices of US companies doing business in Israel and Palestine.  These are for other parties to address.

The 2014 Campaign Addresses Elements of Holy Land Social Justice Issues – With the MacBride Principles as Model

The campaign organizers point out there were discrimination issues in the six counties of Northern Ireland where the Roman Catholic minority was not being treated fairly by the Protestant majority.   The recent “Troubles” began in the late 1960s and civil unrest and strife continued on to the “Good Friday Agreement” brokered by the US in 1998.

Investors and social justice advocates in the USA created the MacBride Principles, a corporate code of conduct for US companies doing business in Northern Ireland and the standards for actions by the US Congress.

The “Easter” agreement ended the civil war between the United Kingdom’s security forces and Irish political loyalists and armed paramilitary forces (more than 3,500 people died during the conflict).

After years of campaigning, American companies signed on to the MacBride Principles for their Northern Ireland operations.

In a December 1997 post on the Human Rights Library of the University of Minnesota, Father Sean McManus, President of the Irish National Caucus, explained:  “…there are 80 publicly-traded US companies in Northern Ireland and many, because of the systematic practice and endemic nature of anti-Catholic discrimination [the companies] are subsidizing discrimination…”

At that writing 44 US companies agreed to “make all lawful efforts to implement the fair employment practices embodied in the MacBride Principles for their Northern Ireland operations.”  The list of those companies and more information is at: http://www1.umn.edu/humanrts/links/macbride.html

A total of 116 companies have to date signed on to the MacBride Principles — the reference materials can be found on the web site: www.HolyLandPrinciples.org.

Father Sean McManus — the same man who launched the MacBride Principles on November 4, 1984 –is also President of the Holy Land Principles (based in Washington, DC) and is still President of the Irish National Caucus.  He is calling on US SRI investors to support the “just, moderate and eminently reasonable Holy Land Principles.”

The Principles, he points out, do not call for quotas, reverse discrimination, dis-investment, or boycotts.  (All of these strategies are hugely unpopular among certain stakeholders.)  They do call for fair employment by American companies.  He describes the Principles as pro-Jewish, pro-Palestinian, pro-company.

Father McManus points out that the Holy Land Principles are based on the success of the MacBride Principles — “now universally regarded as having played a most effective role in promoting equality, justice and peace in Northern Ireland.”

To date, Father McManus reports that one US company has signed on to the Holy Land Principles:  Oxygen Biotherapeutics. OXBT is a specialty pharmaceutical company focused on developing and commercializing a portfolio of products for the critical care market.  In September the Company received shareholder approval to change the Company name to Tenax Therapeutics, Inc.

Is Father McManus discouraged by slow progress?  No – he explains that it took five years for the first US company to sign the McBride Principles.  He adds: “Holy Land Principles is in it for the long haul.  We know the companies will be persuaded sooner or later to sign the Principles. We just urge them to do it sooner rather than later and be on the right side of history, which dictates that American principles should follow American investment.”

By Father McManus’s count, there are 546 American companies operating in the Holy Land; a complete list he assembled is available at:  HolyLandPrinciples.org

The MacBride Principles has had positive, long-term effect.  In November, New York State Comptroller Thomas DiNapoli visited Northern Ireland and spoke with Irish News. The newspaper reported that the recently re-elected comptroller (who is sole trustee of the US$180 billion state pension fund) pointed out that the NYS Common Fund had investment capital set aside for Northern Ireland. It is important for the political institutions of Northern Ireland to remain stable to ensure the north is attractive to investors.”

MacBride Luminaries:  During the campaign to have companies adopt the MacBride Principles, individuals and jurisdictions voicing support included President Bill Clinton; US Senator Bob Dole; NYC Mayor Rudy Giuliani; NYS Governor Mario Cuomo; Boston Mayor Raymond Flynn (later, ambassador to the Vatican); and 16 states passing MacBride legislation (including New York).

Quo Vadis, Holy Land Principles?

Going forward into the 2015 proxy season we will see where and how the Holy Land Principles may make an impact in the American corporate sector, and in the capital markets.  This is a new campaign seeking to gain traction,  characterized as a “moral appeal” by the Father McManus and the campaign managers.

Intel is in focus and the organizers have created a 29-page pamphlet: “Why Intel Should Sign the Holy Land Principles.” Similar reports have been prepared about GE and Corning.  Activist investor Harrington Investors has filed a resolution with Intel for the 2015 annual meeting of shareholders; similar resolutions are filed at GE and Corning.  The campaign organizers are inviting voting support by other investors.

Intel, says Father McManus, has 10,000 employees and billions of dollars invested in the Holy Land.

On a positive note, Father McManus points out that the “Intel and the 546 US companies have certain fair employment guidelines already in place…but with the MacBride Principles [experience] it was not until the companies sign on that real progress was made in discrimination…:

It’s interesting to speculate:  Will US companies agreeing to the Holy Land Principles help to make a difference in debate about the future peace efforts in the region? Time will tell; what is immediately  important to the US companies as they consider the invitation to sign on to the Principles:  What happens if they (a) sign on or (b) ignore or brush off the request to agree to this new code of conduct?

American CEOs and boards of at least 546 companies no doubt will be watching the progress of the Holy Land Principles every closely.  As will the investment community, and issue advocates, keeping in mind the American social justice campaigns in South Africa and Northern Ireland that changed the course of history.

The Corporate Proxy Season is Underway – ESG Issues Are in Focus

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by Hank Boerner, Chairman, G&A Institute

It’s a new year and the 2014 corporate proxy season is really underway, and the topics in focus are reflective of asset owners’ and managers’ concerns about key societal issues. Managements taking no action on the issues, deciding the wrong actions, or boards and managers ignoring the facts regarding key topics of concern to the asset owners could lead to greater risk, lost opportunities, and dramatic hits on corporate reputation — and share price valuations.

And all of that that could affect the value of the investors’ holdings. Since many of the shareowners are fiduciaries (think of SRI mutual funds, public employee pension funds, state trust funds), the growing consensus is that as fiduciaries, asset owners have a duty to be vocal, to actively engage with corporate management, and to take strong stands on key ESG issues. And, in some cases, to bring those issues to the electoral process at proxy time so all shareholders can have their say. Of course, there is usually negative press resulting for some companies.

“Proxy season” used to be those times of year when certain gadflies showed up to (in the view of management and board) ” harass” the assembled corporate leadership. (Such pioneer proxy luminaries as the Gilbert Brothers and Evelyn Davis come to mind.)

Today, the proxy  season is actually a year-round engagement, with advocates such as the Interfaith Center on Corporate Responsibility (ICCR) institutional members active in dialogue with corporate managements and board members on various E-S-G issues. One sea change of a decade ago or more was the linking of traditional corporate governance concerns with environmental and social or societal issue concerns, and working through the barriers to getting their resolution to the proxy statement and to vote.

Linking “good governance” practices with progress (or lack of) on supply chain issues, or product stewardship, marketing practices, protection of natural resources, or lobbying and political spending, now helps advocates avoid the “no action” letter from the SEC that allowed corporate managements to ignore the shareholder’s resolution. (In the past, the usual practice of SEC staff was to advise the company protesting the draft resolution that “no action” would be recommended to the commissioners if the company ignored the draft.)

So what is in store for 2014 corporate proxy voting — what are the issues in focus? Sustainable & responsible investing (SRI) advocates are raising issues with companies about public policy and climate. (As we write this, every US state is in the grip of a cold wave, that is being linked to climate change by experts.)  For two decades now, investors have engaged company managements about climate change.

Now, coalitions of shareholders are involved in a larger collective effort — “Raising the Bar” — in response, they say, to the expanding and alarming scientific evidence of our changing climate. And, as long-term advocates like Tim Smith of Walden Asset Management point out, the resulting significant environmental and economic impacts on the corporate enterprise. Investor interests are very concerned about climate change.

A number of companies — AEP, Chevron, Conoco, ExxonMobil — have received draft resolutions by coalition shareowners urging boards and managements to re-examine their opposition to regulation and legislation intended to address climate change. That includes their lobbying on climate change issues and disclosing more about those actions to their owners.

It’s not just direct company actions in focus — the shareowners include the corporation-funded efforts of the US Chamber of Commerce , the oil lobby (American Petroleum Institute) and the National Association of Manufacturers in the lobbying and advocacy on issues…

Beyond climate change, other proxy resolutions call for companies to re examine their state-level lobbying, especially through such groups as ALEC (the American Legislative Exchange Council), which operates primarily with corporate contributions and promotes conservative public policy issues with :”model” legislation which often moves from state-to-state. (An example is the “Stand Your Ground” laws adopted by a number of states.)

The companies in focus include Microsoft, Pfizer, Time Warner Cable, and UPS. Among the prime movers in this initiative: State of Connecticut Retirement Plans, Zevin Asset Management, Sisters of Charity of the Incarnate Word, and Walden Asset Management clients.

Some companies are responding to shareowner concerns — Coca-Cola, John Deere, Dell, P&G, GE, GM, Unilever, and Wal-Mart have reduced their involvement or quit ALEC,according to information provided by Walden Asset Management.

Other concerns: ICCR’s David Schilling advises that an issue now in focus is the garment industry’s pricing policies, following the Rana Plaza tragic fire in Bangladesh (killing 1,000+ people). The “Accord for Fire and Building Safety” addresses pricing practices and the almost 300 institutional members of ICCR and other shareholder advocates are focused on current pricing models, outsourcing, and prevailing wages in developing countries.

And, from Green Century Capital Management we hear that more than 40 institutional investors representing US$270 billion in AUM are urging the other invesotrs, major palm oil products, consumers, and major shareholders in such companies as food marketers Kellogg and financiers HSBC to support an effort to not contribute to further deforestation or support human rights violations. “Fueling deforestation is bad business for any company seeking to position itself as a responsible, sophisticated global player,” says Lucia von Reusner, Green Century’s shareholder advocate.

Ceres helps to mobilize business and investor leadership on climate change. Rob Berridge, director of shareholder engagement, says investors Ceres works with are asking corporate managements to actively address forced labor, deforestation, habitat destruction, and accelerating GhG emission, and to develop and operate palm plantations more responsibly.

Consumer-facing brand companies — Uniliver, Kellogg, Dunkin Donuts, HSBC — are facing high-profile consumer campaigns on palm oil issues. Some companies are saying in response that they will purchase of finance palm oil that has been certified by the Roundtable on Sustainable Palm Oil (RSPO).

There is much more action to come in the days ahead as the peak of proxy voting nears — we’ll bring you news and commentary and insight on trends in this space.  Stay Tuned to the 2014 ESG-focused proxy campaigns.