An activist investor is an individual or group that purchases large numbers of a company’s shares or tries to obtain board seats with the goal of effecting a major change in the company. A hundred years ago activist investors were wealthy individuals that were trying to take control of a company. Today activist investors are usually hedge funds and money managers. It can take a lot of shares to direct a company to make changes, and yet as SRI investors one of our goals is to direct companies, sectors, industries, and the economy down the path that is better in the long term based on a set of personal values. So the question is: “As an individual investor how can I possibly make my voice heard when it comes to my values?”
The short answer is: By aligning with investment managers that share your values and manage the portfolio, proxy votes, and resolution proposals in such a way that it guides companies down that path. To consider this in context, let’s build a mini case study around Amazon (AMZN). I want to explain the mechanics of how change can be brought about in a large corporation.
Amazon had an annual general shareholder meeting on June 10th, 2015. Five days before the meeting www.corpgov.net released an article scoring Amazon on their corporate governance and suggesting how shareholders might vote their shares to improve corporate governance. I will focus on two of the issues: There was a vote to determine whether shareholders would require Amazon to: 1) produce a report on their environmental sustainability and 2) a report on human rights risks of Amazon’s business.
Now to be honest, does a creating a corporate report every year on sustainability and human rights really create meaningful change? Hard to say, but it could at least do two things: 1) There is a business adage that says, “What gets measured gets managed” meaning that by simply beginning to track and measure a metric there is a psychological impact that causes managers to consider how their decisions will impact that metric and 2) it communicates to the managers and decision makers that this is an important metric that the board and shareholders will be looking at and evaluating their performance by. To go a step further would be to tie a portion of performance based compensation of the managers to changes in these metrics.
The Amazon Board of Directors opposed both of these initiatives (environmental sustainability report & human rights risks report) (see the official proxy statement), the board did not introduce these initiatives so how did these initiatives make it on the shareholder ballot? The human rights initiative was a campaign by two groups: Amazon Anonymous and SumOfUsWith SumOfUs filing the actual resolution on behalf of a group of shareholders. The environmental sustainability resolution was filed by Calvert Investments, a manager of a series of socially responsible mutual funds and a shareholder of about $5.7 million in Amazon stock at the time.
How did it all play out? Both resolutions failed, the sustainability report receiving 24.6% of proxy votes, and the human rights risk report receiving 4.7% of proxy votes [http://www.proxymonitor.org/Results.aspx], failure to vote was equivalent to an ‘against’ vote. Significant supporters of the resolutions included Amazon shareholders such as: Calvert Social Index Fund, Trillium Asset Management, Domini Social Funds, Christian Brothers Investment Services (CBIS), and Florida State Board of Administration (FSBA). Calvert, Domini, and CBIS are all funds managing assets with a specific mandate of Social Responsibility (CBIS manages $4B in assets for 1000+ Catholic institutions). FSBA manages the $140B in pensions and retirement assets for the State of Florida, FSBA voted for the sustainability resolution and against the human rights resolution (see here and here).
The point I am making is that even though these resolutions lost, there is shareholder pressure on Amazon to pay attention to their environmental impact, their human rights risks, and their corporate governance practices (there were two additional ballot measures related to corporate governance). A significant amount of the shareholder pressure came from Socially Responsible Funds that are not just allocating capital to socially conscience companies and away from others, but they are also actively proposing resolutions to improve the social responsibility of the companies they invest in and are voting on their investors’ behalf consistent with those values. When an investor places assets with a Socially Responsible money manager, even if the actual companies that the manager invests in are not too different from a non-SRI fund, investors get the additional value of knowing the fund will be voting in such a way to promote responsible corporate behavior and this can be a big part of what drives long-term change within companies.
There is clearly pressure on Amazon to be thoughtful of their environmental and social impact coming from shareholders, customers, and activist groups. Over a hundred protesters were gathered outside the annual meeting in Seattle, mostly advocating for workers rights. Additionally, a not-for-profit group Green America has launched a campaign called “Amazon: build a cleaner cloud”. The cleaner cloud website reports that Amazon servers burn enough energy to power 600,000 homes and 77% is from non-renewable sources. Green America is pushing Amazon to focus more on alternative energy to power data centers. A group of Amazon customers also wrote an open letter to the VP of Web Services asking for transparency on Amazon’s efforts toward renewable energy. Amazon has been responding to this pressure, in November they announced their goal to “achieve 100 percent renewable energy for their AWS infrastructure footprint” and they announced in January they are acquiring a wind farm in Indiana.
So back to our original question: “As an individual investor how can I possibly make my voice heard when it comes to my values?” and our answer “By aligning with investment managers that share your values and manage their portfolio, proxy votes, and resolution proposals in such a way that it guides companies down that path.” Individual investors do not have to join protests, write letters to VPs, or form not-for-profits, when investors put their money with an investment manager that aligns with their values they set off a domino effect that results in corporate change. As more 401k assets, IRA’s and brokerage assets flow into SRI funds, the managers of those funds will have more power to demand change in the companies that they invest in – like activist investors. It matters where you put your money. Put it somewhere that aligns with your values.
Some additional articles and sources on Amazon’s annual meeting: