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Stakeholders and Shareholders: The Rites of Spring
Joel Makower, 17 Apr 05

Joel Makower is a widely respected writer and consultant on issues of sustainable business, clean technology and green markets. His essays on environmental business and technology are a regular feature of Sustainability Sundays. Take it away, Joel:

The advent of Earth Day fills my virtual and real mailboxes with press releases, P.R. campaigns, and other efforts by companies to somehow associate themselves with things environmental.Many are meaningless to the point of absurdity. (See for yourself: Google “earth day” “press release” to view the latest batch of publicists’ handiwork.) A relative few -- for example, Starbucks announcement last week that it will purchase enough wind energy to power 5% of its North American stores’ energy needs -- strike me as actual news.

But for those of us who work in the world of corporate sustainability performance, this rite of spring is merely a sideshow to the real action: the publication of annual sustainability reports, and the shareholder activism that comes with the annual shareholder meeting season.

On the reporting front, companies continue to publish what they variously dub environmental, sustainability, corporate responsibility, or citizenship reports. What not very many years ago was a leading-edge activity has now become part of the landscape. The number of reporting companies has grown -- hundreds of multinationals now publish them -- but so has the quality. (Visit the International Corporate Environmental Reporting Site for access to hundreds of reports.) What began as essentially glossy brochures extolling companies’ environmental concerns and initiatives have become far more robust documents, providing specific metrics and milestones on companies’ performance.

Some of these make news. Late last month, Ford announced it will issue a report on climate change by the end of the year, examining the business implications of its greenhouse gas emissions. Nike’s corporate responsibility report, released last week, received high marks in the mainstream media for its candid assessment of its factories’ human rights practices.

There’s even an annual award for the best sustainability reports -- at least among North American companies. The winners, announced earlier this month, named Hewlett-Packard and Gap as among four companies with the best reports. The award is given by Ceres and the Association of Chartered Certified Accountants.

But reports, for all the attention they seem to be getting, are merely lagging indicators of what companies are doing. A good leading indicator are the shareholder resolutions introduced each spring at companies’ annual meetings. The 2005 proxy season has seen about 270 resolutions at companies in the U.S., U.K., and Canada, according to Institutional Shareholder Services -- about the same as last year -- but they are becoming more sophisticated, and companies are addressing them more seriously, according to a presentation by ISS’s Nahla Durrani at the Ceres annual conference last week in Boston.

As in past years, climate change has led the pack, with about 30 resolutions, up from 25 last year. Much of the efforts are focused on ExxonMobil. Investor groups are making the oil giant a prime target, with three resolutions expected to be on the company’s proxy statement at its May 25 annual shareholder meeting. One resolution asks the company to publish scientific data on climate change, another asks Exxon to report on how it will meet the greenhouse gas reduction targets in countries in which it operates that have adopted the Kyoto Protocol. A third seeks independent members for Exxon’s board of directors who have expertise in the oil and gas industry.

The actual votes on these resolutions aren’t necessarily as important as the dialogues they engender between activists and companies. Shareholders rarely expect the resolutions to pass; it’s a major victory to garner even 10% of the vote. But the mere introduction of these creates an opportunity for activists to sit down with companies and negotiate changes in corporate practices that sometimes allows the activists to withdraw the proposals in exchange for company commitments. (That’s what led to Ford’s agreement to disclose its climate performance.) ISS’s Durrani described several such “dialogue successes” involving climate (ChevronTexaco, Unocal, among others), board diversity (Danaher, Semtech Corp.), and animal testing (Johnson & Johnson).

And there’s more to come. The Interfaith Center on Corporate Responsibility -- an association of 275 faith-based institutional investors, including religious communities, pension funds, endowments, economic development funds, and others -- is among several groups working to broaden the scope of issues addressed in the resolution process. The focus: corporate governance (for example, separation, whenever possible, of the roles of Chair and Chief Executive Officer); reporting by pharmaceuticals on their responses to the HIV/AIDS crisis; and public reporting of corporate political contributions, including state and local contributions, soft money, and contributions to so-called '527' organizations.

That last issue could become a potent weapon for change. Environmentalists have long railed against the dissonance between some companies’ leading-edge environmental practices and their lobbyists’ efforts to undermine environmental laws. Requiring companies to be more transparent about their lobbying efforts could go a long way to ending such hypocrisy.

And so it goes -- another spring season. Increased and improved reporting . . . shareholder activist dialogues leading to changes in corporate practices . . . even the occasional Earth Day press release. They all stem from the same principle of transparency as an agent of corporate change:

When it comes to cleaning up corporations, a little sunlight is often the best disinfectant.

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Comments

You can find Toyota's 2004 North-America Environmental report here. Some interesting stuff; they seem to be doing a lot of good things on the production side.


Posted by: Mikhail Capone on 17 Apr 05

FYI -- Joel's essay is linked on the Thorn Tree board


Posted by: Ron Mader on 19 Apr 05



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