Tag Archives: business judgment

3 Big Reasons Why Boards (Say They) Don’t Back Human Rights Proposals

Last week the Manhattan Institute launched ProxyMonitor, a site tracking shareholder proposals submitted to publicly traded companies via the annual proxy process. Right now, the site is limited to proposals made to Fortune 100 companies. Data goes back three years, to 2008. The site already offers some great features, including links to SEC filings around each proposal as well as the ability to filter and sort search results and export them to Excel.

People who have read my blog posts about business and society won’t be surprised that I went immediately to the “Social Policy” filter, which turns up 266 results.

Of these, thirty are human rights proposals made to the boards of twenty-one corporations: Abbot Laboratories, Archer Daniels Midland, Bank of America, Boeing, Caterpillar, Chevron, Cisco, Citigroup, Coca-Cola, E. I. du Pont de Nemours, Google, Honeywell International, IBM, JPMorgan Chase, Microsoft, Morgan Stanley, Motorola, News Corp, Philip Morris, United Technologies and Wells Fargo.

I’ve been sorting through those 30 proxy proposals, to see what they say about the way shareholder proponents and Boards of Directors deal with proposals around human rights.

It’s a fairly narrow range of investors putting forward these resolutions, and I wonder if this limits their chances of success. Proponents include churches and religious orders — the Sisters of Charity of St. Elizabeth, the Domestic and Foreign Mission of the Episcopal Church, the Province of St. Joseph of the Capuchin Order and the Presbyterian Church — as well as socially responsible investment funds: Christian Brothers Investment Services (who invest for Catholic institutions) and New Covenant (dedicated to advancing the Presbyterian mission through investment) along with independent, socially conscious investment firm Trillium Asset Management. Among the thirty proposals is one from Amnesty International; a handful of individual investors submit their own proposals. So far, no big surprises. The only standout entry in the list of human rights proponents is the New York City Comptroller’s Office, shareholders in Archer Daniels Midland.

It’s no surprise, either, that shareholder support for these proposals is usually weak, ranging from around 3-8 percent. There are a few notable exceptions. The NYC Comptroller’s Office proposal to ADM — requesting “that the company commit itself to the implementation of a code of conduct based on…ILO human rights standards and United Nations’ Norms…by its international suppliers and in its own international production facilities” — garnered 20 percent and 25 percent of the vote in 2008 and 2009 respectively. A 2010 proposal would have required Caterpillar to “review and amend, where applicable, Caterpillar’s policies related to human rights” and to post “a summary of this review…on Caterpillar’s website by October 2010”; that gained 20 percent support. And a proposal put forward by Chevron shareholders — that the Board “adopt a comprehensive, transparent, verifiable human rights policy and report to shareholders on the plan for implementation by October 2008” – won almost 28 percent support.

Why these proposals fared so much better than others is a question for another day. Why they didn’t ultimately succeed merits discussion as well. Despite impressive levels of support, they met with the same objections as all the other human rights resolutions in the ProxyMonitor database.

Why do Boards of Directors oppose these resolutions and recommend that shareholders vote against them? Or, at least, why do they say they can’t get behind human rights resolutions? What reasons do they offer?

Board opposition falls roughly into three categories.

First, the proposals are opposed because they are restrictive. The argument here is that the proposal would limit the company’s autonomy and blanket policies will hamper the company’s ability to operate. As JPMorgan Chase notes in its response to a 2008 human rights proposal, these matters are “complex” and “fact-specific,” so they need to be taken on a case-by-case basis. Good judgment deals in particulars, without having to check each call against abstract measures; and since “opportunities for engagement” on these issues “vary greatly,” blanket policies might prevent the company from responding to a particular case in an appropriate way; and they might also hinder the company from pursuing “objectives and policies” they are charged with.

Second, they are opposed because they are burdensome. Putting human rights proposals into practice can be expensive, and it can place other burdens on company resources. Some companies make it sound as if they would simply be overwhelmed. This argument is taken to an absurd extreme by Wells Fargo in a 2008 filing.

Proponents were moved by the example of Sudan to put forward a resolution to “authorize and prepare a report to shareowners which discusses how our investment policies address or could address human rights issues.” The report was to specify “appropriate policies and procedures to apply when a company in which we are invested, or its subsidiaries or affiliates, is identified as contributing to human rights violations through their businesses or operations in a country with a clear pattern of mass atrocities or genocide.” Wells Fargo took refuge in its position as “a diversified financial services company”:

we invest on behalf of clients and customers in thousands of domestic and foreign companies, many with complex and far-reaching global operations. The effort required to screen thousands of individual companies, as the Proponents would seem to advocate, would be a task of tremendous scope requiring in-depth research and detailed evaluations of the nature and extent of each company’s global operations. We simply do not have appropriate resources or access to adequate and accurate information to make informed judgments on these complex issues.

So the argument that won the day came down to this: Wells Fargo can’t really track its own investments. The world is just too complex. Unable to do the research required to clarify its positions in “thousands of individual companies” and to make “informed judgments,” Wells Fargo simply can’t account for all the places it puts its clients’ money. This is not exactly reassuring. Still, the argument seems to have served its intended purpose. The proposal only received 6.81 percent support.

The third and by far the most common objection to human rights proposals is simply that the resolution is unnecessary or redundant. We see this argument made again and again in the SEC filings: the company already has a human rights framework or a code of conduct in place; the proposal, as one Chevron filing says, would “merely duplicate…current efforts” – an “unnecessary and inefficient use” of company resources.

Chevron has The Chevron Way. Caterpillar has its Worldwide Code of Conduct. ADM “believes that our company’s Business Code of Conduct and Ethics and our existing business practices address the substantive areas covered by the proposal.” Coke and Motorola say that when it comes to human rights, they already have it covered. Microsoft “continues to take steps we believe are appropriate” in the area of human rights and requires no additional prodding or cajoling. Citigroup has “implemented best practices regarding human rights,” so “a report concerning the company’s investment policies with respect to human rights issues would provide no meaningful benefit” to shareholders.

So much for scrutiny. In nearly every response to human rights resolutions, we are asked to believe that the company’s good faith, code of conduct and current efforts will be sufficient. Over and over again, companies assert against human rights proponents that they are perfectly capable of monitoring themselves and governing their own behavior. They have already incorporated existing human rights frameworks, such as the non-binding UN/Ruggie framework, into their deliberations, or developed their own codes of conduct with reference to those frameworks. Additional human rights reporting would be meaningless and probably just interfere with business operations. What could a report possibly turn up, these companies ask, that we ourselves have not already seen?

Call it arrogance, but these Fortune 100 companies are now confidently asserting their own human rights competence. They refuse to be held accountable because in their own estimation they are already socially responsible.

A Brief for Mr. Kleisterlee

Last week, Vodafone Group announced that Gerard Kleisterlee would replace outgoing Chairman of the Board Sir John Bond. This should be welcome news for shareholders. The Ontario Teacher’s Pension Plan, which led a vote against Bond at last year’s Annual General Meeting, protested that the telecommunications firm currently suffers from “significant structural and strategic weaknesses,” and complained publicly of Vodafone’s “long history of poor capital allocation and disastrous M & A.” The board, they averred, was in need of “rejuvenation” and the company in need of restructuring.

From all appearances, Mr. Kleisterlee is the man for the job.

Kleisterlee gained his reputation at Philips, where as CEO he performed a masterful and unsentimental overhaul of the ungainly conglomerate, getting Philips out of the semi-conductor, component and television business, introducing new licensing agreements, and simplifying Philips’ business operations from eight to three units. Not known as a “gung-ho dealmaker,” Kleisterlee nevertheless demonstrated an intelligent approach to M & A. He is rightly credited with saving Philips from itself and returning the company to growth. Analyst Will Draper sees him as a strong ally for Vodafone’s current CEO, Vittorio Colao, who is trying to reposition the firm around core geographies, revamp the Vodafone brand, and make headway in emerging markets.

When it comes to emerging markets, Kleisterlee will have his work cut out for him. India has been an especially troublesome spot, where Vodafone has fought a pitched battle over taxes from a 2007 acquisition, dealt with some unscrupulous regulators, and is now contending with the ugly unraveling of Vodafone Essar, a joint venture. But for Vodafone’s new chairman getting things squared away in India will be only one aspect of a much bigger emerging markets story. Eventually Kleisterlee is going to have to come to terms with other aspects of that story, and notably with Vodafone’s actions during the uprising in Egypt.

That is, I suspect, where Mr. Kleisterlee will find one of his most difficult briefs. The company’s human rights record in Egypt has come in for some strong and well-deserved criticism. (The two are not necessarily the same.) Officially, Vodafone claims to have had no choice but to comply with Egyptian authorities in shutting down its mobile network and allowing the government to send SMS messages that precipitated a violent crackdown.

Vodafone Group has protested to the authorities that the current situation regarding these messages is unacceptable. We have made clear that all messages should be transparent and clearly attributable to the originator.

The company has consistently taken refuge in the government’s “technical capability” to override and shut down their network. There was nothing they could do, they explained, without putting their own employees’ lives in danger.

But they have not yet answered some serious allegations, like those made by Hossam Bahgat of the Egyptian Initiative for Personal Rights. Bahgat claims that Vodafone “selectively severed phone access for human rights defenders, lawyers, and political activists starting on Tuesday,” January 25th, blocking SIM cards and rendering human rights workers’ phones useless when they most needed them.

Others have asked whether Vodafone did more than merely comply: were they in some way complicit? That was the tenor of the discussion on a Facebook page in the run up to a demonstration at Vodafone headquarters in London; and it continues to be the tenor of the “Vodafail” Global Boycott and Protest. There were even rumors online of secret police running the Vodafone Egypt core room in Cairo, but nothing that could be verified. Access Now rebuked the company for silently tolerating – assenting to — emergency rule in the first place: “decades of emergency law suited Vodafone when they were making billions of profit in Egypt,” reads a strident email promoting one of several online petitions. But as I noted in a previous post, it is not at all clear the people gathered in Tahrir Square would be better off now had Vodafone and other mobile providers never done business with Mubarak’s regime.

Much harder to quarrel with is Salil Tripathi at the Institute For Human Rights and Business in London. He asks, very sensibly, whether Vodafone could have done more to create transparency – to alert customers of impending shutdowns or government interference with the network – and, more importantly, whether they gave any serious thought to developing a “human rights framework” before entering into business with the Mubarak regime.

On this front, Kleisterlee has to fight more than a public relations battle. To be sure, Vodafone’s public response to events in Egypt will send a strong signal to mobile customers in Egypt or Vodafone customers around the world. (Americans rushing out to buy Verizon iPhones might pause to consider that Verizon Wireless is a joint venture with Vodafone – though I have no illusions that that will slow the stampede.) Egypt will also factor into any effort to re-brand the company, and if Mr. Kleisterlee and Mr. Colao intend to make the Vodafone brand synonymous with “mobile data and network quality,” it would make good sense to look closely and seriously at how data and networks played into events in Egypt. One message from Tahrir Square is that data doesn’t just move through networks: a network always touches and is embedded in human situations; and data alters and is altered by its situation. The quality of a network should not be measured simply in terms of signal strength; the privacy and security afforded users of the network also matters, in Egypt and elsewhere. How do these basic rights figure into Vodafone’s promise of “quality”? How is Vodafone going to respect and protect these rights?

Dodging the question won’t do. Blaming bad governance on Bond’s part only begs the question what good governance will look like under Chairman Kleisterlee. Pace Martin Sorrell, who wrote an apology for Vodafone in the London Times, there is no avoiding the “de facto editorial and political judgments” that Google, Twitter and Facebook have made in providing technologies and services to organizers in Tahrir. Denying service in compliance with the Mubarak regime also involves a political judgment, and trying to avoid what Sorrell calls “unintended consequences” is itself an act –a cowardly evasion – with social and political consequences. Limiting exposure to risk is not simply a matter of seeing no evil; and taking intelligent risks, with an eye to the future, and a nuanced understanding of how the world is changing, is the very essence of good judgment.

No business operates in a neutral zone, on a holiday from history. If Vodafone wants to compete in emerging markets, then the company has to earn and keep the trust of people in those markets, prove that they share their aspirations for a better life, and acknowledge that they have a stake in whether people living in those societies suffer or thrive. At this year’s Annual General Meeting, shareholders deserve to hear whether Vodafone is a relic of Egypt’s past, or invested in its future.

Another Postscript on Innovation- Where I’m Going With This "Orientation" Thing

In my last couple of posts I started to make a case for what I admitted might seem like a far-fetched idea: that research into the human condition and the social world could be as deserving of credit and support as scientific and technical research, especially if the goal of supporting “research” with the R & D tax credit is to deliver “public benefits.”

At the very least, non-scientific modes of inquiry – the study of people and society, languages and culture — deserve more credit than currently given (which is, when it comes to the definition of “research” in the R & D tax code, none), because, I suggested, they provide critical balance to innovation, the very thing R & D is supposed to spur. They provide orientation.

I want to talk a little more about the work I want that word to do. I used orientation just to rough out an idea at first, but I’ve come to like it, not in spite of but because of its association with geography, maps, directions, coordinates and a sense of place. Orientation, in the sense I’m using it, is like having an internal compass — a deep sense of where you are, where you ought to go, and the best way to get there.

To take this a little further, orientation requires and stems from a profound sense of place, of the here and now, in all its complexity and connectedness to other places and to what has come before and what is likely to come after. Knowing where you really are is not just local knowledge; it’s knowledge of how you are situated, connected and not connected, where there are continuities and where you can expect discontinuities. For decision-makers, that contextual knowledge is critical to planning and strategy as well as business judgment (and therefore good governance).

Why? Because orientation helps you appreciate and respect limits, providing a much-needed sense of human scale, without which you cannot make innovation meaningful or growth sustainable. Innovation is the spur, orientation, the reins. A good rider needs both. The events of the past few years should make that tolerably clear.

Or, to use the shorthand I’ve been using since my last post: innovation produces wares; orientation creates awareness. I’m not entirely sure of this formulation, because the play on words here disguises as much if not more than it reveals. Wares can take the form of software, hardware, housewares, or other goods and services; I heard someone the other day use the barbarism “thoughtware.” Our word ware comes from an Old English word meaning “goods” – waru. Awareness, on the other hand, would seem to have nothing to do with commodity exchange. We think of it almost as a synonym for consciousness. It derives from the same root as our word guard; to be aware is to keep watch.

But tellingly both words ultimately derive from the same Indo-European root: wer. This particular “wer cluster”

has to do with watching, seeing, and guarding, but the sense of direction is often there—as in guarding (warding) or looking in a certain direction. From this root we get aware and wary, ward (from weard, keeper) and warden, as well as award and reward and wares (things that are guarded or watched).

It’s a good question whether wares need watching because they are valuable or are made valuable by being watched. Likely both, in some measure. Wares – the products of innovation — are the goods awareness watches and keeps, holds and esteems, prizes and guards, the things entrusted to its direction.