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  1. 1. Shareholder Advocacy Solutions Holly A. Testa, CFP™ AIF™ SRI in the Rockies, 2008 Preconference Meeting October 25, 4:50 p.m.
  2. 2. Shareholder Advocacy Solutions <ul><li>What is shareholder advocacy, really? </li></ul><ul><li>What is First Affirmative already doing? </li></ul><ul><li>What do our valued partners do, and how can we work together? </li></ul><ul><li>Planning for the future-what next? </li></ul><ul><li> </li></ul>
  3. 3. Motivation <ul><li>“ I’m mad as hell, and I’m not going to take it anymore!” Howard Beale, Network, 1976 </li></ul><ul><li>…so, what happens after you have shouted out the window at the top of your lungs? </li></ul>
  4. 4. Shareholder Advocacy <ul><li>Underlying Philosophy </li></ul><ul><li>… individuals and institutions that own shares in companies have a right and even a responsibility to provide guidance to management on pressing policy issues the company faces. * </li></ul><ul><li>Working Definition </li></ul><ul><li>An array of activities undertaken by shareholders of a corporation designed to change corporate policies or practices** </li></ul><ul><li>Sources: Trillium Asset Management*; Shareholder Action Process, Walden Asset Management** </li></ul>
  5. 5. Shareholder Advocacy Tools <ul><li>Proxy voting </li></ul><ul><li>Dialogue with corporate management </li></ul><ul><li>Dialogue with regulatory agencies </li></ul><ul><li>Filing shareholder resolutions </li></ul><ul><li>Communication and cooperation with other shareholders, investment advisors and clients </li></ul><ul><li>Media campaigns </li></ul><ul><li>Divestiture </li></ul><ul><li>Boycotts </li></ul>
  6. 6. Proxy Voting <ul><li>Probably the most basic advocacy tool </li></ul><ul><li>Evaluate all proxy questions on owned shares based on the merits and vote appropriately-not just “with management” </li></ul><ul><li>Common Issues </li></ul><ul><ul><li>Corporate governance/executive compensation </li></ul></ul><ul><ul><li>Environment </li></ul></ul><ul><ul><li>Energy </li></ul></ul><ul><ul><li>Diversity </li></ul></ul><ul><ul><li>Human rights/labor practices </li></ul></ul><ul><ul><li>Health and safety </li></ul></ul>
  7. 7. Proxy Voting at First Affirmative <ul><li>Options available via the Client Questionnaire </li></ul><ul><ul><li>Authorize First Affirmative to vote all proxies according to the published voting guidelines </li></ul></ul><ul><ul><li>Delegate proxy voting authority to activist managers, i.e. Trillium, Walden, Boston Common (Fairways accounts only) </li></ul></ul><ul><ul><li>Client retains voting rights </li></ul></ul>
  8. 8. Proxy Voting at First Affirmative <ul><li>Resources </li></ul><ul><ul><li>First Affirmative proxy voting guidelines on the website </li></ul></ul><ul><ul><li>Proxy voting guidelines for many mutual funds and managers are available on their web sites </li></ul></ul><ul><ul><li>Professional Members have access to Proxy Governance database, providing extensive analysis on proxy issues </li></ul></ul>
  9. 9. Dialogue <ul><li>Letters to companies on targeted issues </li></ul><ul><li>Meetings with company management </li></ul><ul><li>Attendance at shareholder meetings (usually in conjunction with a shareholder resolution) </li></ul><ul><li>Participation in efforts to effect change on regulatory and policy issues </li></ul>
  10. 10. Shareholder Resolutions <ul><li>A proposal put forward by eligible owners of corporate stock requesting management to take certain actions </li></ul><ul><li>The proposal must conform to the rules of the US Securities and Exchange Commission for inclusion in the proxy statement that the corporation distributes to shareholders </li></ul><ul><li>Usually a result of coordinated action by coalitions of institutional and individual shareholders </li></ul><ul><li>Non US companies are subject to few resolutions, due to very high hurdles for filing resolutions in many countries </li></ul>
  11. 11. Case Study: Predatory Lending <ul><li>Social investors have filed at least two dozen shareholder resolutions directed at predatory lending practices since 1999 </li></ul><ul><li>Companies targeted include </li></ul><ul><ul><li>Wells Fargo </li></ul></ul><ul><ul><li>Bank of America </li></ul></ul><ul><ul><li>Household International </li></ul></ul><ul><ul><li>Lehman Brothers </li></ul></ul><ul><ul><li>Countrywide </li></ul></ul><ul><li>Source: Interfaith Center on Corporate Responsibility </li></ul>
  12. 12. Wells Fargo-2005 <ul><li>Whereas….. </li></ul><ul><li>California regulators filed suit seeking 38 million in penalties for failing to meet state disclosure standards </li></ul><ul><li>Class-action lawsuit in Illinois for charging fees on loans up to 11%, above 3% state limit </li></ul><ul><li>New York found violation of federal law prohibiting markups on fees </li></ul><ul><li>Resolved…. </li></ul><ul><li>Study ways to link executive compensation to successfully address predatory practices </li></ul><ul><li>Outcome… </li></ul><ul><li>Successful-executive compensation was linked to address predatory lending practices </li></ul>
  13. 13. Lehman Brothers-2004 <ul><li>Whereas….. </li></ul><ul><li>Judgment stated that Lehman “substantially assisted” First Alliance in perpetuating fraud, 10% responsible in a $50.9 million judgment </li></ul><ul><li>Household International settled with Attorneys General of 20 states to provide a $484 million restitution fund </li></ul><ul><li>Citigroup settlement for $215 million with the FTC </li></ul><ul><li>Resolved…. </li></ul><ul><li>Require development of procedures to screen loans and their originators so that Lehman is not party to securitizations involving sub prime loans </li></ul><ul><li>Outcome… </li></ul><ul><li>Withdrawn (usually means company agreed to address, but look what happened!) </li></ul>
  14. 14. Mortgage Meltdown:Actions-2008 <ul><li>30 “traditional” governance proposals filed to address mortgage industry risks: </li></ul><ul><li>Amend audit committee policies—highlight conflict of interest risks with credit rating agencies rating both companies and their lenders </li></ul><ul><li>Executive compensation </li></ul><ul><li>Disclosure of Mortgage Practices </li></ul><ul><li>Independent board members </li></ul><ul><li>Separation of CEO and board chair positions </li></ul>
  15. 15. First Affirmative Participation <ul><li>Broad Based-Through Partnerships </li></ul><ul><li>Long term member of the Social Investment Forum; SIF membership included in Professional Member benefits package </li></ul><ul><li>Participate in Forum sponsored campaigns - examples: Washington Redskins Bank of America sponsorship, Shareholder Rights campaign </li></ul><ul><li>Research and discussion with partner organizations such as Interfaith Center On Corporate Responsibility and our activist managers on how to deepen our involvement in the future </li></ul><ul><li>Transformative Investing Website-partnership with advisers, serves as forum for discussion surrounding advocacy issues </li></ul>
  16. 16. First Affirmative Participation <ul><li>Shareholder Advocacy Opportunities for Clients </li></ul><ul><li>Increased communication of shareholder issues through our newsletter, Affirmative Thinking </li></ul><ul><li>Confidential Client Questionnaire and Social Policy Questionnaire allows opportunities for clients to express preferences </li></ul><ul><li>First Affirmative delegates advocacy work by choosing managers who are actively engaged </li></ul><ul><li>Investment Managers used by First Affirmative sponsored or cosponsored 75 shareholder resolutions in 2008 </li></ul>
  17. 17. Sustainable Investment Solutions <ul><li>Efficiencies- Advocacy models give preference to mutual fund managers with a strong record of shareholder advocacy; mutual funds limit customization, but there are models that can meet special needs </li></ul><ul><li>Dynamics -Many mutual funds used are engaged in shareholder advocacy, but no customization </li></ul><ul><li>Generations -Shares cannot be counted as shares that individual managers represent (exception: mutual fund shares) </li></ul><ul><li>Fairways -Clients can be placed directly with activist managers and be directly involved in letterwriting campaigns and advocacy efforts of those managers </li></ul>
  18. 18. Shareholder Advocacy Resources <ul><li>First Affirmative Resources </li></ul><ul><li>Adviser Update, Shareholder Advocacy: Opportunities and Challenges </li></ul><ul><li>Professional Member Benefits-Social Investment Forum and Proxy Governance access </li></ul><ul><li>First Affirmative Proxy Voting Guidelines </li></ul><ul><li>Transformative Investing Advocacy Group </li></ul><ul><li>Guidelines for Fairways Accounts </li></ul><ul><li>2008 Proposed Proxy Actions List </li></ul><ul><li>First Affirmative Advisers </li></ul>
  19. 19. Resources <ul><li>Partner Resources </li></ul><ul><li> , Advocacy and Public Policy Working Group </li></ul><ul><li> Interfaith Center on Corporate Responsibility-the prominent organization that coordinates activities and organizes social agenda shareholder resolutions </li></ul><ul><li> As You Sow </li></ul><ul><li>Organizations focusing on specific issues: </li></ul><ul><ul><li>Center for Political Accountability </li></ul></ul><ul><ul><li>Coalition for Environmentally Responsible Companies (CERES) </li></ul></ul><ul><ul><li>Association of Federal, State and Municipal Employees (AFSME) </li></ul></ul><ul><ul><li>Global Reporting Initiative </li></ul></ul><ul><ul><li>Equal Employment Coalition </li></ul></ul><ul><li>Activist manager and mutual fund websites </li></ul>
  20. 20. Real World Effects?
  21. 21. What Next?