This past Friday, October 20, National Association of Corporate Directors (NACD) staff packed up and readied itself for a big move. After five years on Pennsylvania Ave., NACD’s national office relocated across the Potomac River to Arlington, Virginia. NACD staff turned what could have been a stressful moving day into an opportunity to give back to the community that it works in through its first Day of Service.
Packaging food for delivery
Serving hot meals from a mobile food kitchen
President and CEO Peter Gleason championed NACD’s Day of Service as a way to involve staff in volunteer activity and to demonstrate that the organization is dedicated to supporting the lives of others. NACD spent time with several local nonprofit organizations, including:
Martha’s Table, an organization that seeks to provide healthy meal and food programs for children and their families. For over 37 years, Martha’s Table has worked to support children, families, and neighbors by making healthy food and quality learning more accessible.
DC Central Kitchen, whose mission is to use food as a tool to strengthen bodies, empower minds, and build communities. This organization provides culinary training for jobless adults and then hires them to prepare 3 million meals annually for homeless shelters, schools, and nonprofits.
Capital Area Food Bank, an organization working to solver hunger, chronic malnourishment, heart disease, and obesity. It provides 540,000 people in and around the nation’s Capital access to healthy food annually.
Food & Friends, whose vision is to provide meal delivery to people with HIV/AIDS, cancer, and other serious illnesses who have limited ability to provide nourishment for themselves. Their simple premise is that anyone can get sick and everyone can help.
Organizing food for a “market day” at an elementary school
One group of NACD volunteers reported back from Martha’s Table with this experience:
“Our crew of four baked about 230 muffins in one afternoon for our Day of Service assignment. Martha’s Table is a charity that has various aims, including introducing healthy eating to those who might not have access to traditional resources, such as those experiencing homelessness. Their mobile soup kitchen, McKenna’s Wagon, provides meals daily at various locations. The muffins we baked and packaged were destined to go on the truck Friday night as dessert for those that McKenna’s Wagon served. We had a lot of fun baking at Martha’s Table. We had a recipe for apple spice muffins and an aggressive timeline to meet! Everyone pitched in, bonded, and encouraged each other. It was a rewarding experience.”
Baking for a mobile soup kitchen
Do you know a deserving organization in the metropolitan Washington, DC area that could use volunteers in the future? Make your suggestion by leaving us a comment.
Learning how to implement sustainable business practices can be challenging for companies in any industry, and boards may wonder how to integrate sustainability issues into discussions with management. NACD has compiled a set of resources offering practical information to help boards discuss climate-related risks, as well as opportunities associated with environmentally- and socially-sustainable business practices.
The first step is to assess why sustainability and social responsibility are such hot topics for the boardroom. Two important factors to consider are the political environment and shareholder expectations.
Signals From the Current Administration
President Donald J. Trump in June announced that the United States would be withdrawing from the Paris climate agreement, an international deal in which 191 countries have pledged to work toward goals to restrict the increase in temperatures globally to less than 2.0°C and reduce the amount of greenhouse gases being created.
The president in April also signed an executive order aimed at “promoting energy independence and economic growth,” curtailing federal environmental regulations. The order instructs the Department of the Interior to lift former President Obama’s ban on coal leasing activities on federal land.
Watchdog group Environmental Integrity Project recently reported that this year, the Trump administration, when compared to the prior three presidential administrations in the same period, has collected approximately 60 percent less in fines from companies’ violations of pollution-control regulations.
Opposing Pressure From Shareholders
Despite strong signals from the current administration that enforcement of environmental-related regulations will decrease over time, shareholders are applying an opposing pressure on corporations.
More than half (56%) of shareholder proposals introduced this year on proxy ballots related to social, environmental, or policy issues, and Proxy Monitor reports that this proportion is the highest it has seen since it began tracking such data in 2006.
Shareholder proposals relating to environmental and social issues 10 years ago sought fairly basic changes such as increased clarity into companies’ environmental policies. The proposals now seek, for example, enhanced disclosures around what the company is doing to manage climate risks and how executive pay links to sustainability initiatives, the Wall Street Journal reports.
Proposals about environmental issues received a record breaking average of 27 percent support this year, according to Proxy Monitor. That percentage was 21 percent last year and fell in the teens before that.
Meanwhile, State Street Corp., a global financial services and investment management firm with $2.47 trillion in assets under management, published a report earlier this year in which they found that traditional obstacles (like the lack of quality data about ESG) to investing more heavily in companies that prioritize ESG initiative are diminishing.
“Over the long-term, environmental, social and corporate governance issues can have a material impact on a company’s ability to generate returns,” Ron O’Hanley, president and CEO of State Street Global Advisors, said in a press release.
Resource centers are repositories for NACD content, services, and events related to top-of-mind issues for directors. In these resource centers, individuals can find practical guidance, tools, and analyses on subjects varying from board diversity to cyber-risk oversight. Below we have highlighted a sample of helpful materials from our new resource center on sustainability and social responsibility.
The handbook, produced in conjunction with EY, centers around four key recommendations:
Directors should understand the company’s definition of sustainability in the context of the company’s strategy and specific circumstances.
The board and management should align on the sustainability message and information the company chooses to report publicly.
Boards should clarify roles for oversight responsibility for sustainability activities, including external reporting.
Directors need to establish parameters for sustainability reporting to the board regarding the information required to support robust discussions with management.
A number of items included in the resource center provide expert commentary on myriad issues related to sustainability and social responsibility. A favorite of mine is “Living in a Material World,” an article written by Veena Ramani, program director of the Capital Markets Systems, at sustainability-focused nonprofit Ceres.
Ramani discusses the corporate director’s critical role in engaging with management over which sustainability issues are material for the enterprise. She offers four suggestions for board members who want to address the materiality of certain sustainability risks.
Boardroom Tools & Templates
The resource center houses several tools and templates to assist directors as they oversee sustainability-related risks and opportunities. One such tool is the “Self-Assessment: Is Your Board Sustainability-Ready?” evaluation. Directors can answer a set of questions to gauge their board’s level of engagement—or lack thereof—in sustainability oversight.
Videos and Webinars
The NACD BoardVision—Sustainability Oversight video in the resource center features a candid discussion by EY subject matter experts Brendan LeBlanc and Kellie Huennekens on how investors are engaging with boards around sustainability and social responsibility issues. (A transcript of the video is also available here.)
Our hope is that you find this resource center useful and visit it often. We will continue to update it regularly with new and interesting content. If you would like help finding resources on a specific subject matter, please let us know. We welcome the opportunity to engage with directors on pressing needs and concerns.
With an expected regulatory downshift under the incoming Trump Administration, standard-setting for business conduct may move from the government to the corporate sector, with shareholders and socially conscious directors driving the trend in myriad areas, from industry-specific concerns such as animal welfare to broader issues such as climate change. To be sure, we will continue to see proxy resolutions in the dozen general categories that have become hallmarks for activists, but the rise in attention to social issues by activists seems inevitable (See Figure 1).
Corporate leaders and major shareholders alike are recognizing the role that social issues can play in corporate value. In 2016, corporate leaders and prominent investors issued “Commonsense Principles of Corporate Governance,” a collaborative document containing a key message: “Our future depends on…companies being managed effectively for long-term prosperity, which is why the governance of American companies is so important to every American.” Among their recommendations was the suggestion that boards pay attention to “material corporate responsibility matters” and “shareholder proposals and key shareholder concerns.”
As revealed in the NACD Resource Center on Board-Shareholder Engagement, proxy resolutions can play a role in raising board awareness of key issues. Although shareholder resolutions rarely win by a majority, and even then are only “precatory” (non-mandatory), they do raise boards’ awareness of issues and can spark change over time. Many of today’s governance practices began as failing proxy resolutions but ended up as majority practices, with or without proxy votes.
Take for example proxy bylaw amendments, which have only been fair game for proxy votes since spring 2012 (thanks to a new rule that removed director nominations from the list of topics disallowed for shareholder resolutions). That season saw only three proxy access resolutions at the largest 250 companies, and only one got a majority vote. Fast forward to spring 2016 when 28 companies had such votes, and nearly half succeeded in getting a majority vote. By December 2016, proxy access had been adopted by a majority of Fortune 500 companies, as Sidley Austin reports. Those early proxy access resolutions lost their early battles, but in the end, they won the larger war. The same could happen over time to social resolutions over the next four years.
Directors Want More Dialogue on Social Issues
Interestingly, directors seem to be intuiting that they will need to step up on social issues this year.The 2016-2017 NACD Public Company Governance Survey, which features responses from 631 directors surveyed in 2016, reveals a significant finding in this regard. When asked to judge the ideal amount of time to be spent on various boardroom topics, directors ranked five topics as highest in terms of needing more discussion time:
director succession; and
corporate social responsibility.
One in three respondents said they would like more time devoted to discussing the “social responsibility” topic. For all issues other than these five, fewer than a third of respondents said that the topics merited more board attention. While this is a relatively new question, NACD has asked similar questions in the past, and this is the first time our respondents have ever ranked social issues so highly as a “need to know” topic.
A Gravitational Pull to Social Issues With a Strategic Slant
So what lies ahead for the next proxy season in the social domain? Aristotle is attributed with coining the phrase “nature abhors a vacuum,” a theorem in physics aptly applied to the likely vacuum in new corporate rule-making in 2017. USA-first trade rules aside, we believe that shareholder activists may try to fill the break in Dodd-Frank rule making with their own social agendas.
As we go to press, attorney Scott Pruitt is slated to head his institutional nemesis, the Environmental Protection Agency, while Governor Rick Perry, former leader of oil-rich Texas, is in line to direct the Department of Energy. Neither man is likely to crack down on carbon-based fuels, so if shareholders want carbon reduction, they will need to redouble their own efforts—and indeed that seems to be the plan.
According to the environmental group Ceres, quoted in an overview by Alliance Advisors, LLC, U.S. public companies will face some 200 resolutions on climate change in 2017, up from a total 174 such resolutions during 2016. This prediction may be conservative. According to Proxy Monitor, in 2016 the 250 largest companies alone saw 58 environmental proposals—meaning that nearly one out of every four large companies faced one.
In other developments, As You Sow, a community of socially engaged investors, has already announced 46 of its own proxy resolutions, including three on executive pay. All the rest are on social issues, including climate change (11), coal (10), consumer packaging (5), and smaller numbers of resolutions in a variety of other social issues, including antibiotics and factory farms, genetically modified organisms, greenhouse gas, hydraulic fracturing, methane, nanomaterials, and pharmaceutical waste. The gist of many of these resolutions is to ask for more disclosure, including more information on the impact of current trends on the company’s strategy and reputation. For example, the “climate change” resolution in the Exxon Mobile proxy statement asks Exxon to issue a report “summarizing strategic options or scenarios for aligning its business operations with a low carbon economy.”
Similarly, the Interfaith Center on Corporate Responsibility has already announced the filing of five shareholder resolutions for the 2017 proxy of its longtime target Tyson Foods on a variety of issues, including one on the strategic implications of plant-based eating. Sponsored by Green Century Capital Management, the resolution seeks to learn what steps the company will take to address “risks to the business” from the “increased prevalence of plant-based eating.”
In the same vein, at Post Holdings, which holds its shareholder meeting January 28, a shareholder resolution from Calvert Investment Management asks for disclosure of “major potential risks and impacts, including those regarding brand reputation, customer relations, infrastructure and equipment, animal well-being, and regulatory compliance.” Note that animal welfare is only one factor here; Calvert is making a business case for the social change.