From: Julie N.W. Goodridge
Mr. Christopher Cox
Dear Commissioner Cox:
NorthStar Asset Management, Inc. is a portfolio management company. Working with individual clients, we actively integrate environmental, social and governance issues into our investment decisions.
We are concerned about the alarming ideas raised at the recent SEC roundtable meetings regarding shareholder resolutions, and the suggestion that the right of shareowners to sponsor advisory shareholder resolutions either be eliminated or further restricted.
For nearly two decades, we have been deeply involved in the process of shareholder advocacy through dialogue with companies, sponsorship of shareholder resolutions and by voting our clients’ proxies. This process has been a central means for formalizing communication between concerned investors and management on social, environmental and governance issues.
We urge the SEC to drop this concept before it gets to the proposal stage. The idea that advisory resolutions would be disallowed or further restricted while binding resolutions, like bylaw amendments, would be permitted, negates the historical significance non-binding resolutions have played in shaping corporate behavior and, with the example of the anti-apartheid movement in South Africa, global politics.
Through the shareholder resolution process, NorthStar, with many of its allies in the social investment movement, has been instrumental in creating more just and fair workplaces for thousands of gay and lesbian workers at companies like Berkshire Hathaway, Caterpillar, Emerson Electric, Fifth Third Bancorp, and FedEx. While new, creative methods to improve investor – management communications would be welcome, eliminating our right as investors to petition the Board and management and to garner support of other shareowners through resolutions would be a disastrous step backward.
It is important to note that many resolutions filed by small individual investors requesting corporate governance reforms have resulted in votes of 50-85% this past year. Social and environmental resolutions filed by small shareowners are also garnering substantial support. Obviously the size of one’s investment does not relate to the quality of one’s ideas or the support given by shareowners in a company. It is the genius of the SEC’s proxy system that shareholders of every size can participate in the marketplace of ideas by filing resolutions, and that the principal test of those ideas is their ability to garner support of fellow share owners. Creating steeper thresholds for filing of resolutions would be inconsistent with this system.
We view this process as part of a civil discourse with shareowners, resulting in positive changes in company policies and practices.
There are thousands of articles and many books describing the impact of the shareholder engagement process. In addition, investors who do not sponsor resolutions and simply vote their proxies can attest to the importance of this process as fiduciaries since the SEC has noted that the proxy is an asset and needs to be treated accordingly.
There is considerable research and documentation regarding the importance and efficiency of this process. Looking back over the last 50 years there are literally thousands and thousands of examples of occasions when a precatory proposal:
These changes occurred both in instances of small shows of shareholder support (e.g. 5%) and when large-scale support was reflected in shareowner votes. Even more frequently, resolutions are withdrawn by proponents when dialogue about the resolution leads to agreement between management and its shareowners, a further testimony to the importance of the process.
In summary, there are hundreds of examples of major changes in governance and social and environmental issues that have resulted through shareholder engagement and resolutions. And when the SEC required mutual funds to disclose their proxy voting records annually, it was done with the understanding that the proxy is an asset and that voting proxies conscientiously is therefore a fiduciary duty. We believe it is our fiduciary duty as an investor to proactively intervene if a company’s governance or social record is putting shareholder value in jeopardy. And clearly the sponsorship of an advisory resolution is one meaningful way to bring such an issue to the forefront.
It would be inappropriate for the SEC, having long established the 14a- system for allowing shareowners to place precatory resolutions on the proxy, to now, as some roundtable participants suggested, “devolve” these rights to the states or corporations to set their own rules regarding how much shareowner democracy will be permissible. The system of advisory resolutions that the SEC has established is too important and central to the American system of corporate governance to allow corporations or states to “opt out” of these vital mechanisms.
We are more than willing to contribute to a constructive discussion of how to improve communications between investors and management. We would welcome commitments by companies to seriously engage their owners in discussions about environmental, social and governance issues. In fact, good communications and engaged dialogue with investors often make resolutions unnecessary as numerous companies can testify. Unfortunately, there are too often cases when management ignores repeated letters or calls but is prompted to act when they receive a resolution.
However, the right of investors to file resolutions and seek investor support when necessary should not be diminished in any way. We strongly oppose any move to take away shareholder rights to file advisory resolutions.