It’s called shareholder activism.
From setting recycling goals to removing genetically engineered ingredients from foods to requiring disclosure of political donations, investors have been making their desires known through their votes, and some publicly traded companies have been listening and changing policies to reflect shareholder wishes.
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And increasingly the tool that shareholders are using to effect change in corporate policies is the proxy vote – that is, allowing third parties to vote their wishes in shareholder balloting.
Now the Rhode Island Foundation is joining that trend.
Voting its wishes by proxy makes sense for the community foundation. It already follows a socially responsible tack by directly investing in the state’s communities through grants to nonprofits that support missions such as affordable housing and job-readiness programs for the homeless; in 2005, the foundation made grants of $21 million.
But with assets that have grown to $509.9 million (including about $475 million in stocks and bonds), the foundation also has the heft to make its wishes heard at the companies in which its endowments.
So last quarter, the Rhode Island Foundation joined the ranks of about 1,700 investors – both individual and institutional – that allow a Maryland-based company called Institutional Shareholder Services to vote their proxies.
First and foremost, said Michael Jenkinson, senior vice president for finance and administration at the foundation, it is necessary for those stocks and bonds to perform well, because the foundation depends on a 10-percent return each year – and gives out 5.5 percent, mostly in grants, he said.
That means the foundation can’t afford to divest itself of a high-performing asset should that asset behave in a socially irresponsible way, he said. But through proxy voting, driven by socially responsible goals, the foundation will be able to encourage the 500 companies in which it invests to be good citizens.
“Donors had been asking for something like this,” Jenkinson said. “They were looking for an alternative.”
Donors often would ask that their funds be invested only in socially responsive companies, he said. Then, they would leave the small “socially responsive” investment pool when it produced poor returns.
“Proxy voting is the alternative,” Jenkinson said. “It allows us, as owners, as voting owners, to vote in a way we consider to be socially responsive. … This helps get socially responsive screening of our investments on [donors’] behalf.”
Jenkinson said the foundation chose ISS to provide its proxy voting services after doing research that determined the company would best suit the foundation’s needs. ISS advises the foundation when certain shareholder resolutions are before one of the companies in which the foundation holds shares, he said. Then, when so directed, ISS will exercise the foundation’s proxy vote on the issue.
“In our industry, it’s worth considering this option,” Jenkinson said. “It really was not that expensive.”
The foundation paid less than $30,000 for a 15-month contract with ISS, he said.
Despite the relative simplicity of this kind of arrangement, foundations have been a little slower than other types of investors to engage in socially responsible proxy voting, said Mark Tulay, director of Environmental, Social and Governance Solutions for ISS, founded in 1985. He estimated that only 10 percent of foundations in the United States use proxy voting as a vehicle for shareholder activism.
Jenkinson said the Rhode Island Foundation is going to try to change that, by spreading the word about proxy voting at conferences and other venues.
“As we bring more into this group of proxy voting, we become more powerful,” he said. “There is strength in numbers.”
ISS added eight foundations to its client base last quarter. Tulay attributed the growth to major investments in technology. About 18 months ago, ISS updated its automated proxy voting process, making it easier to use.
Customization also might have something to do with it. “[Foundations] can send us their mission statement and guidelines,” Tulay said. “We will develop a policy … [or] they can choose a standard socially responsible policy.”
The Rhode Island Foundation chose the standard policy, which alerts investors of resolutions focusing on environmental concerns such as greenhouse-gas emissions, and equal-opportunity issues such as discrimination based on sexual orientation, among many others.
Some people attribute major events such as the ending of apartheid in South Africa to shareholder activism.
And that doesn’t require disinvestment, Tulay said. “You can achieve change by voting on the issues you care about.”
