Stock Options

How to Use Your Shares to Change Company Environmental Behavior
Tom Garcia Illustration

If you own stock, whether it be a few shares or a large portfolio, you have the right to attend annual meetings and to try—like Judy Holiday in The Solid Gold Cadillac—to influence company policy. An increasingly popular tactic, shareholder activism is the muscle in socially responsible investing (SRI). It is the lever behind SRI's greatest successes, such as enlisting companies to adopt the socially responsible Valdez principles or divesting much of corporate America from apartheid-era South Africa.

Social investing pioneers Amy Domini and Peter Kinder have compared shareholder resolutions proposing a change in company policy to the fabled two-by-four whacked against a stubborn Ozark mule: it gets a corporation's attention. “Proxy resolutions [made as a shareholder] open the door to corporate management—reaching private-sector opinion-makers otherwise inaccessible to social activists,” say Domini and Kinder.

Despite this power, shareholder activism gets far less attention from social investors than stock screening—that is, shunning the stocks of companies whose practices, policies, or products you disapprove of and investing in those businesses making a positive contribution. In part this lower profile is due to the counterintuitive nature of shareholder activism.

Consider: You're upset with General Electric, one of the nation's top polluters. You won't buy a GE fridge, refuse to watch the latest NBC (a subsidiary) special, and tell everyone you know to boycott the corporate behemoth. Buying GE stock is the last thing you'd think of doing. But that's exactly what you need to do to take shareholder action.

Acting Like An Owner

Every stockholder in a corporation is a part owner of that business. Even if you only have 100 shares of GE—an ownership stake that might allow you to make a claim on CEO Jack Welch's water cooler—you still have a voice. Come annual shareholder-meeting time, you can let your views on GE be known to all its shareholders. There are some formal procedures to follow before they pay attention, but it is surprisingly easy to do.

To bring a change in policy before GE shareholders, the Security and Exchange Commission (SEC) requires that you own $1,000 worth of stock for at least one year prior to the resolution filing date. (The one-year waiting period is waived if you own one percent of the shares outstanding.) Specific deadlines are listed in the company's annual proxy statement. Your resolution must be less than 500 words and conform to SEC style rules. The statement is sent to the CEO or corporate secretary with proof of ownership, and viola! You'll see your suggestion on the next annual shareholder agenda.

Of course the hard part is garnering enough votes to actually change policies. Start by working with the Interfaith Center on Corporate Responsibility (ICCR). ICCR coordinates the efforts of progressive shareholder activists. It can help you phrase your resolution and then spread the word by publishing upcoming resolutions in its journal, which goes to like-minded investors.

If your resolution gets at least three percent of the shareholder vote, you can submit it again the following year. In subsequent years, you need six percent of the vote and then at least 10 percent thereafter to keep it on the ballot.

Tim Smith, director of ICCR for almost 30 years, points out, “Even if a resolution doesn't pass—as most don't—it can still have a considerable influence. In fact, it is very likely that the greater impact is not from resolutions voted on, but from resolutions withdrawn as a result of successful negotiations.” Management wants smooth annual meetings and fears the negative publicity that comes from an embarrassing public agenda. Often, a corporation will be willing to consult with activists to avoid having the resolution appear at all.

Steve Viederman, executive director of the New York-based Jessie Smith Noyes Foundation, recently used a shareholder resolution to influence New Mexico's Intel Corporation on behalf of one of the foundation's grantees, the Southwest Organizing Committee. At issue were Intel's local hiring practices, its water use and toxic emissions. Intel agreed to work on its community disclosure policy, and Noyes has at least temporarily withdrawn its resolution. “I think this is a sadly underused tactic,” Viederman says.

Even if you don't go through the effort of filing a resolution yourself, you can have an effect on the companies you own shares in. Ask for a copy of a company's environmental impact report. Pay attention to the resolutions on annual proxy statements. In addition to casting your ballot for the progressive resolutions that may appear there, write a letter to the CEO expressing your concern and explaining why you voted the way you did. If you can make it to the annual meeting and aren't shy, raise issues directly to management when it's time for shareholders to ask questions. Of course you should have a good grasp of the issue you're raising, but don't assume someone else will say something if you don't.