Pensions & Investments Op-Ed: Stronger partnership needed between shareholders, managers

Lost in many responses to the Business Roundtable statement Aug. 19 that companies have a “fundamental commitment” to all their stakeholders is a simple fact: Structurally speaking, there are two primary regions of power in a company: shareholders and managers. And both of them need to focus more attention on the social and environmental impact of corporate policies, practices and performance.

For investors, this awareness reaches back to the 1970s when they spoke up against Dow producing napalm; the 1980s when divestment movements focused on South African apartheid; and more recently with a focus on climate change and diversity. We also see this evolution in the increasing prominence in the U.S. of US SIF: The Forum for Sustainable and Responsible Investment and globally with the Principles for Responsible Investment.

For corporate managers, there is a similar history with examples of individual CEOs demonstrating concern and action on issues such as human capital or guns. But the corporate manager track record lacks the scale and momentum demonstrated by investors. Hopefully, the new stance by the Business Roundtable represents a turning point where corporate managers take up the torch of broad sustainability in the robust fashion investors have been urging.

For decades, sustainable and responsible investors have been engaging corporate boards and managers on everything from climate change and workplace diversity, to guns and pesticide use, to indigenous peoples’ rights and equal pay. Conversations among investors, managers and boards have led companies to prioritize board diversity. Shareholder proposals have helped companies protect LGBT employees and set greenhouse gas emission targets.

That activity reached new heights in the past two years as large passive investors, including BlackRock and State Street, began to engage corporate managers on these issues and vote their proxies in favor of shareholder proposals filed by smaller sustainable and responsible investors. Today, for example, more than 320 investors with more than $33 trillion in assets under management are engaging companies through Carbon Action 100 Plus, an investor initiative that targets the world’s largest corporate greenhouse gas emitters, on improving climate-change governance, curbing emissions and strengthening climate-related financial disclosures.

Now that corporate CEOs are lending their voices to these shared concerns, it is not the time to vilify investors for utilizing their shareholder rights and put all our faith in managers to take up the mantle. Instead, we must consolidate this opportunity by harnessing the insights of sustainable and responsible investors with CEOs’ ability to implement and execute on those ideas.

An excellent first step would be for the Business Roundtable to withdraw its request to the Securities and Exchange Commission to change the shareholder resolution process and instead welcome shareholders to continue to put shareholder proposals on issues like climate change and economic inequality in corporate proxy materials.

It also means holding corporate directors and managers accountable for this declaration of “fundamental commitment” to all their stakeholders. We await further information on what these commitments will look like in practice at companies and how the various stakeholders will actually benefit from these changes. We’d ask the boards of public companies to include more positive environmental and social impacts as key measures of CEO performance and pay.

We are delighted that CEO members of the Business Roundtable issued this statement. We urge them to embrace the role that sustainable and responsible investors can play in moving this agenda forward.

Lisa Woll is CEO of US SIF: The Forum for Sustainable and Responsible Investment. Jonas Kron is senior vice president of Trillium Asset Management. This content represents the views of the authors. It was submitted and edited under P&I guidelines but is not a product of P&I’s editorial team.