Pay Governance: Shareholders Gain Ground On Corporate Social Responsibility Proposals

A new report from executive compensation consulting firm Pay Governance finds that shareholder proposals seeking to influence corporate policies on environmental or social issues at U.S. public companies have increased significantly in the past five years. While proposals advocating for additional reporting or policy changes on social issues are 20 percent more common than they were five years ago, proposals seeking additional reporting or changes to environmental practices are twice as common as they were in 2009.

Some of these proposals received average support in excess of 20 percent of voting shareholders, including proposals to adopt sexual orientation anti-bias policies or adopt policies and report on board diversity, conduct a human rights risk assessment or report on topics including political contributions, lobbying payments and policies, sustainability, risks and opportunities of hydraulic fracturing, community/environmental impact, greenhouse gas emissions or climate change impact.

“While not sufficient to win majority support, these levels of support suggest that a significant minority of company shareholders are interested in these issues,” said Pay Governance consultant Soren Meischeid.

The study reports that proxy advisory firm Institutional Shareholder Services (ISS) supported more than 70 percent of environmental and social shareholder proposals in 2014. However, data presented in the study suggest that ISS tends to support proposals that request additional reporting on environmental and social issues and not those proposals that would place operational limitations on companies.

“For example, ISS has not supported any proposals in the past five years that seek to implement social or environmental metrics in executive compensation plans. ISS and shareholders may want more transparency, but they tend not to support proposals that may limit the ability of a company to create economic value for shareholders,” said Blaine Martin, a consultant and member of the Pay Governance research team.

The findings of the study present a potential view of the future for public company corporate governance as it relates to environmental and social policies.

“The current data suggest that voluntary reporting on social and environmental issues will become more common in the coming years,” said Jon Weinstein, a managing partner of Pay Governance and the principal investigator of the study. “Our findings lead us to believe that companies that take a proactive position of transparency through voluntary reporting on these issues will be less likely to receive activist shareholder proposals.”

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