Faith-based investors say proposed rule could gut rights

WASHINGTON – In the 10 years since John Wilson joined Christian Brothers Investment Services, the number of shareholder resolutions filed by the socially responsible investment firm has decreased and the number of resolutions withdrawn after being introduced has increased.

That might not sound like progress, but for Wilson and others in the corporate responsibility movement it means that the boards of large corporations are now willing to dialogue with shareholders about climate change, compensation for top executives, human rights and other social justice issues. With dialogue, the shareholder resolutions are no longer needed to push a company toward doing the right thing.

“More companies are seeing the value of dialogue with the shareholders,” said Wilson, now director of socially responsible investing for Christian Brothers Investment Services in New York and a board member of the Interfaith Center for Corporate Responsibility, which brings together like-minded faith-based investors.

A decade ago, “most of the time we filed the resolution and that was the last we heard of the company for a year,” he said. “There was very little dialogue. Now they are more engaged and involved.”

But the progress could come to a screeching halt if a rule proposed by the Securities and Exchange Commission is adopted, according to Wilson and others.

The proposal, which would revise SEC Rule 14a-8, could limit the right of shareholders to sponsor advisory resolutions by requiring the prior approval of shareholders who together hold at least 5 percent of all company stock.

Although advisory resolutions are not binding on corporate boards, they play a major role in raising important issues. Stockholders exercise their ownership rights in a corporation by proxy – designating another person or entity to represent them in a vote – or in person at the annual meeting.

A recent report on the 2007 proxy season by, a personal finance Web site devoted to socially responsible investing, showed that a record number of socially responsible proposals – 1,150 – were made to corporate boards and a record number – 270 – were withdrawn.

Most dealt with climate change and executive pay, although other hot topics in the corporate responsibility movement include drug pricing, board diversity, land mines, international lending, violence in the media, pornography and predatory lending.

“More than 95 percent of the shareholder resolutions filed in the last 35 years have been ‘advisory,’ yet they have had a profound and identifiable impact on business thinking and decision-making in corporate board rooms,” said Meg Voorhes, social issues services director for Institutional Shareholder Services, at a late July news conference in Washington.

“While new, creative methods to improve investor-management communications would be welcome, eliminating the right of investors to petition the board and management and to garner support of other shareholders through resolutions would be a significant step backward,” she added.

At the same news conference, Lisa Woll, CEO of the Social Investment Forum, said it is important to remember that proposals from small individual investors garnered support from up to 85 percent of all shareholders in some cases this year.

“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,” she added. “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 the support of fellow shareowners.”

An action alert on the Web site of Christian Brothers Investment Services urges all faith-based institutional investors to contact the SEC and its chairman, Christopher Cox, to express their opposition to any changes that would weaken shareholder rights.

“Engaged investors across the country are prepared to publicly defend their ownership rights should those be threatened by proposed rulemaking,” says a sample letter to Cox on the Web site. “We hope that instead of issuing controversial proposals that are harmful to shareholder interests, the SEC will consider how to enhance the dialogue between corporations and their owners on matters of strategic importance.”

The SEC is accepting public comment on the proposed rules – which also involve new disclosure requirements for filers of shareholder resolutions, changes that would allow the use of new technology in shareholder meetings, such as the electronic gathering of proxies, and other matters – until Oct. 2.

It won’t be the first time that faith-based investors have joined with others to oppose an SEC action that could restrict shareholders’ rights.

In 1997 and 1998, a coalition of more than 300 socially responsible investment, religious, labor and other groups united against a plan advanced by SEC staff members that would have increased the threshold for reconsideration of unsuccessful resolutions in subsequent years.

Many of the same groups stood with the SEC, however, when financial industry leaders strongly opposed a commission rule on disclosure of proxy voting by mutual funds and investment advisers.

Catholic Review

The Catholic Review is the official publication of the Archdiocese of Baltimore.