Shareholder activism” is the term that traditional corporate raiders adopted to make hostile takeovers sound friendlier, while calling for corporate changes to boost their short-term financial returns. The other side of the coin is “shareholder advocacy,” which describes investors advocating to build a better company for all stakeholders by reducing the long-term material risks of corporate actions and their consequences to the environment and society.
One leading organization in this field is As You Sow, a Berkeley, California-based nonprofit founded in 1992 to harness the power of shareholders — groups and individuals — and create lasting change by insisting that corporate leaders address the impacts of their policies and actions that create material risks while also aligning with people and the planet. As You Sow and others believe this is an increasingly relevant pursuit amid an accelerating climate crisis and rising inequality affecting people around the world.
Andrew Behar, CEO of As You Sow, says companies that adopt a stakeholder capitalism framework to benefit more than just shareholders will create lasting value for all stakeholders and strengthen the bottom line. “If it’s good for the employees; good for the customers; good for the community; and good for the supply chain; it’s generally good for the business, which means it’s good for shareholders,” he told me during a recent conversation as part of my research on purpose-driven business. “If you’re an employee at a company with a culture that aligns with your values, your productivity will be off the charts which contributes to the company thriving. Plus you will be the one to get that bonus or that raise. If your company is working to halt the destruction of our planet, it will attract the best and the brightest; it’s going to perform better.
By encouraging individuals to examine their investments and working with shareholders to engage corporate leaders to undertake broad risk analysis and identify how they can change — for example, to have a diverse workforce, address systemic racism, provide equity in working conditions, and address environmental harm — As You Sow uses an existing channel to shift business behavior to be more competitive, Behar says. It’s vital that change comes from an individual level, too. “Anyone who works at a company and has a retirement plan needs to make the case to management that they do not want to invest in climate destruction. We should be investing in companies that have policies that sustain a livable planet for when we retire,” he says, “plus sustainable funds offer competitive financial returns over the long-term.”
Keep reading for more on Behar’s views of the role of shareholder advocacy and As You Sow in encouraging business leaders to take a longer-term view.
Chris Marquis: A lot of the research I do looks at ways in which we can pressure companies to be more accountable. I came across your work on shareholder advocacy and was intrigued — tell me more about your process and method.
That’s why I think we’re successful, because we sit down with company executives after we’ve already done a great deal of research. For instance, when discussing racial justice, let’s say the company scored a five out of 100 on our Racial Justice Scorecard; and their competitor scored a 27. We show them six key performance indicators, or KPIs, and break down the cost and return on investment of adopting them. We also show them the risk — a brand associated with racial injustice is not a competitive brand and may alienate their customers and miss out on investment opportunities. Inevitably the company will agree that our analysis and plan makes good business sense. They often thank us and tell us that we are like “McKinsey for free.Last year we had 188 engagements and 102 of those companies agreed to take action. So we only needed to escalate 86 by filing a shareholder resolution. The idea is, if you won’t do it because it’s a good idea, we’ll talk to all the other shareholders and take it to a vote at the annual meeting. Once we filed a resolution, nearly half of companies agreed to get on the path to change and the resolution was withdrawn based on a written agreement with specific metrics and milestones. About 40 resolutions went to a vote; we earned eight majority votes, with a 45% average vote. Over $1.7 trillion in stock value was voted ‘for’ our resolutions. After the annual meetings we continued the engagements and many companies adopted responsive policies. Where they don’t, other levels of shareholder escalation are available. After all, the board reports to us and if they won’t work to reduce material risk and incentivize necessary change, we have a responsibility to take action.
Marquis: I think that’s very reasonable as there is research shows that companies who are being more attentive to these issues are performing better. How long have you been enacting this strategy, and how has As You Sow evolved over time?
Behar: The start of shareholder advocacy was in the 1970’s when a group of Jesuit priests and nuns showed up as shareholders to a General Motors annual meeting to discuss business relations with South Africa under an apartheid regime. As You Sow was founded by Thomas Van Dyck in 1992 to serve as the plaintiff in legal actions with companies that had carcinogens and reproductive toxicants in their consumer products.
After a few years, we began to win a lot of settlements. We used the money to hire staff to engage companies in direct dialogue on environmental health and sustainability. In 2006, we put together the first report on beverage companies and plastics, spearheaded by Conrad MacKerron, who is currently our Senior Vice President working on circular economy and ocean plastics. Thanks to his and his team’s hard work, three major beverage companies, Coca-Cola, Nestlé Waters, and PepsiCo — made major recycling commitments and continue to improve. Just a few months ago Coke agreed to refill returned plastic bottles reducing virgin plastic by 20%; Pepsi followed quickly – competition is a powerful motivator – I guess this is the new type of Pepsi challenge.
We realized that if we continued to interact with the large companies of the world — if we brought awareness to the impact that their policies have across the planet and, in particular, to the negative affect the policies can have on their brands — they may start to make changes. It organically grew from there into working on chemicals including BPA and glyphosate in the food system. In 2010 we began to engage energy companies on hydraulic fracturing, utilities on coal, and then evolved our programs to focus on climate finance, stranded assets, banks, insurance companies, and pipelines; the full life cycle — from wellhead to petrochemical facilities — that contributes to climate change and the destruction of ecosystems. Our President and Chief Counsel, Danielle Fugere leads the Energy team across this broad spectrum of industries contributing to climate change.
After the George Floyd murder we developed an initiative to engage companies on racial justice; diversity, equity, and inclusion in the workforce; egregious CEO pay; and slavery in supply chains. We also work with major agriculture companies including General Mills and Kellogg that have provided leadership in moving the food and agricultural sectors to focus on pesticide reduction and regenerative agriculture. In the end, the reason these major companies are adopting these policies and practices is self-serving — they provide a more resilient supply chain in the face of climate induced super storms and safer food that customers demand.
Marquis: I learned initially about your work on proposals, but I also know you do a lot of research as well. So I am curious how the proposals fit into your portfolio of activities?
Behar: We start with research to understand where risk lies with regard to corporate action and which companies are the leaders and which are the laggards in a particular area. To do this we develop key performance indicators (KPIs). These are at the core of our work and become the metrics by which companies measure themselves. The KPIs we develop are not just created within our company. We bring in experts and talk to companies. For example, if we’re researching plastic waste, we will look at the details of packaging design, reusable packaging, packaging transparency, recycled content. I mean … we really get down to the nitty gritty and we check our assumptions with experts inside and outside of industry. We test these scenarios and tune the scoring rubrics. It’s important that they describe the real-world and offer a feasible set of criteria that companies can achieve. If you check out the reports page on our website you can see how we create data visualizations based on KPIs for plastics, pesticides, climate change, racial justice, DEI, and CEO Pay.
Our Racial Justice and DEI scorecards have a total of 57 KPIs that are metrics by which a company can measure itself. On DEI, companies are graded based on disclosure of recruitment, retention, and promotion rates cut by gender, race, and ethnicity. Public release of an Equal Opportunity Employer (EEO-1) form is a good place to start but it does not tell the whole story. On Racial Justice, 20% of the score is based on what a company says and 80% on what they do. We recently added four new KPIs on environmental racism. The best score a company can get is a zero, which means the company is doing no harm. But they can get into negative territory based on environmental violations and fines since 2016 and litigation from front-line communities since 2010. If a company is doing more harm than good, it is scoring in the negative. We bring these scores directly to companies and have dialogues with the laggards to talk about how they can improve their scores. This year, 27 companies agreed to get on a path toward eradicating systemic racism and so we withdrew the shareholder resolutions in exchange for commitments to action.
We recently licensed all of our data to a startup benefit corporation we spun out called As You Know. It sublicensed the racial justice and DEI data to Xponance Asset Management, which uses the raw data to construct racial justice portfolios and separately managed accounts for large institutional clients including endowments, foundations, and pension funds. Now, when we sit down with a company and they know that their low score may be a factor in deciding if they will receive investment dollars, it is a powerful motivator to change. Investors, on the other hand, look for this information to help assess which companies will be most successful in avoiding negative impacts and attention, hiring and retaining the best and brightest employees, and increasing their bottom lines.
Marquis: You discussed an engagement strategy where you work directly with a company. But what if you approach them and they do not respond. What’s the next step in the cases that escalate?
Behar: We developed and filed the first “stranded asset” resolutions based on the “Carbon Bubble” report by Carbon Tracker back in 2013. We asked Exxon, Chevron, and others to explain their plan for addressing the energy transition and avoiding these stranded assets. Exxon wrote the first carbon asset risk report for us in 2014, but it failed to address the key issues in a meaningful and accurate way. In 2017, after three years of work to bring the financial sectors’ awareness to this issue of growing climate risk, we handed off the resolution to larger shareholders including NY State Pension and Church of England. The shareholders’ message, that Exxon must act meaningfully to address climate risk, was heard loud and clear when the proposal earned a 62% vote. Still, Exxon would not reveal any serious plans and a campaign was organized for a no-confidence vote. When that did nothing to change corporate behavior, shareholders concluded that they would have to run a dissident board slate.
In 2020, As You Sow put together a six person slate and worked with a major shareholder to negotiate for three board seats in January 2021 prior to the board filing deadline. Meanwhile, Engine No.1 ran a separate slate of four directors and won three seats at the May 2021 AGM vote. One of their directors knocked off one of ours, so five new board directors arrived at Exxon in 2021 courtesy of shareholder advocates who escalated to become “activists” after a decade of not being heard. Unfortunately with a 12 person board, five is not a majority and the new board has so far not been fulfilling its mandate.
We also escalate by filing shareholder derivative actions — we are a plaintiff in one such case at FirstEnergy that is awaiting judge approval of a proposed settlement. We are currently a plaintiff in cases at seven mid-sized oil and gas companies where we are filing books and records requests which can be a precursor to a derivative action. Derivative actions allow a shareholder to stand in the shoes of the company and sue the board for breach of fiduciary duty or, in some egregious cases, for criminal negligence. As shareholders and owners of companies, boards reports to us. The board’s job is to set strategy and incentivize the executives to carry it out. If Boards will not consider and address the risks we are identifying, then exercising our responsibility as a shareholder is the last resort.
Marquis: While I agree with you and your position, I have to bring this up. There have recently been a number of things in the news about how even the Securities and Exchange Commission’s (SEC) modest proposal to make a variety of disclosure items mandatory has created a ton of backlash. You say your work puts yourself on the same side of the table as the company, but there’s been a lot of opposition to reporting on sustainability metrics as well. What do you think about that?
Behar: The “backlash” is not reflective of investors’ interests. Any serious investor who says that they do not want accurate and verified disclosure of material information has another agenda. There seems to be an attempt to politicize these basic fundamentals of capitalism by groups that fear honest disclosure and risk reduction. This is not a political issue and that framing is an attempt to manipulate the uninformed.
We believe that the SEC proposed climate disclosure rule is, at base, simply about trust. The SEC’s most fundamental job is to make sure there is honest disclosure between a company and its owners. The new rule means that a company is required to accurately disclose information about climate, which is a financially material subject, and have that information verified and treated like audited financials. I do not know any investors who wants to base an investment on misleading information, do you? Anyone who objects to the new climate disclosure rule is essentially saying that they prefer to invest based on inaccurate, unverified, data in a format that is not complete or comparable across companies. Investors rely on audited financial statements. That is why we trust them. The new rule says that all material information be treated in the same way.
Marquis: Some may disagree on whether it’s material, and I think that’s the issue.
Behar: According to the Supreme Court, the definition of “material” is information that an average investor requires to make a buy or sell decision – so it’s up to investors to decide what we need. Investors have spoken clearly, through votes on climate resolutions, that climate risk is material risk and they seek clear and comparable data from companies regarding their greenhouse gas emissions and reduction actions. The good news is that the Sustainability Accounting Standards Board (SASB) and other materiality standards in the EU and the UK are merging into the International Sustainability Standards Board (ISSB) and soon we will have global, sector specific, standardized definitions of materiality. However these definitions evolve, the fact that a company should be disclosing material information accurately and that it is verified and in a standard format is beyond question for any reasonable investor.
On the other newly proposed SEC rule that just came out regarding mutual fund naming, we have been doing a great deal of work on this since 2015 when we first developed a suite of “Invest Your Values” tools. This online platform empowers investors to know exactly what is hiding in the funds and ETFs in their 401(k), 403(b) or personal investments. Most prospectuses show the top ten holdings; if you own a Russell 1000 ETF, our tool shows you all 1,000 companies in that fund. There are 100 million people investing over $10 trillion of their savings without any comprehensive knowledge of where their money goes. Amazon employees who participate in their 401(k) plan profit from companies that are burning down the Amazon rainforest. Nearly every working person puts away money from each paycheck to save for a future retirement. The only problem is that our hard-earned dollars are being invested in companies whose activities are making it difficult to ensure a livable planet to retire on.
The financial system has created so much complexity that most of us have to trust the fiduciaries and asset managers that created this maze of opacity. The vast majority of assets are in Vanguard, BlackRock, and TIAA target date funds which invest in oil, coal, pipelines, deforestation, private prisons, and guns. It is not surprising that the teachers who were shot dead in Uvalde Texas had five gun makers and three gun retailers in their retirement plan. It doesn’t have to be this way. People, using increasingly available and free tools like Invest Your Values, can know what they own and align their investing with their values.
There is also a great deal of mythology around financial returns. If you compare the single sustainable fund in Amazon’s 401(k) plan (VFTNX), which has less than 2% of Amazon’s retirement assets invested in it, with the Vanguard target date fund with 52% of Amazon’s retirement assets invested (VFIFX), the sustainable fund outperforms by over 5% over 10, 5, and 3 years, including fees. It would take an Amazon employee under a minute to adjust their plan. Instead, our trusted fiduciaries are keeping us invested in our own destruction and we are often making less in returns. What’s wrong with this picture is that no one is aware of it – that is why we built these tools for anyone to use for free at www.investyourvalues.org
Marquis: This is such an interesting discussion. In some ways, when you present to these companies within the system of putting shareholders first and maximizing what is good for them and their bottom line, you’re still putting the shareholders first.
Behar: We are at an important moment in time. The 1970 ideas of Milton Freidman that brought the world to the state of injustice and ecosystem collapse are being discarded. Recently the World Economic Forum declared in a manifesto that “fourth industrial revolution” has begun. They state that this “represents a fundamental change in the way we live, work and relate to one another…to create an inclusive, human-centered future.” The Business Roundtable agrees and announced the new purpose of a corporation. This is not greenwashing, this is a philosophical shift that is being implemented. Both groups agree that “stakeholder capitalism” is simply good business. If you take care of your employees and create a diverse supportive culture you will attract and retain the best and the brightest. If you care for your customers they will be loyal to your brand. If you preserve the commons and do not externalize your pollution you will have fewer lawsuits, fines, and climate impacts. If your suppliers follow the ethos of your company, you will have a resilient supply chain in which you will have coherence and be able to deliver products. All of this is good for shareholders because it’s good for business and all stakeholders.
Marquis: There are some folks who say we should focus on working with the government to change people’s minds about what the purpose of a business should be. Like at the end of your argument, you say it’s good for business. So objectively, aren’t the shareholders still the real bottom line?
Behar: The point is that good business is not about the supremacy of any single group, it’s about improving the position of all stakeholders. Like Arnold Schwarzenegger said, we don’t have to choose between the economy and the environment. As the California economy ably demonstrates, the two go hand in hand.
Marquis: Another way to think about it is, what if we change the rules? So instead of having every business make these changes voluntarily, we could change the laws instead.
Behar: The new proposed SEC rules that will make accurate climate disclosure and fund naming mandatory are very important and shows the agency delivering on its core mission to establish trust in the markets. Ultimately business wants predictability and stability. The reason so many businesses choose to shift into renewable energy is that they can predict exactly what their energy costs will be; if they put solar on the roof they have the cost of servicing their debt versus wildly fluctuating oil and gas commodity prices. Businesses need to stay focused on what’s good for all stakeholders. Ultimately market forces drive change, this is the force for long-term transformation – government and policy will always follow business.
Marquis: What do you think about an individual citizen’s role in this? With this data so easily available, people can use it to educate themselves in order to make better-informed decisions. And clearly that is part of your theory of change. With data more and more available, how has your work changed?
Behar: Anyone who works at a company and has a retirement plan now has the data at their fingertips to know what they own. They can make the case that they do not want to invest in companies determined to bring about our planet’s destruction. We can all be investing in companies that are creating a regenerative economy based on justice and sustainability.
Also new technology has enabled us to develop a proxy voting service called As You Vote. It’s available on the Broadridge ProxyEdge institutional voting platform. Endowments and institutional investors subscribe to our ESG-aligned guidelines with one easy click, the fees are very reasonable, plus we use our portion for advocacy and donate half to other non-profits educating endowments and foundations about sustainable investing.
Technology and policy are converging with a growing movement of shareholders of all ages — and we are on the cusp of a major shift in corporate power. The new SEC disclosure rule will establish trust. Universal proxy that goes into effect this September will empower shareholders with a unified proxy ballot for the first time. Our invest your values tools let people see exactly what they own. Every person will be empowered to stop asking what they can do about climate change and racial justice and direct the power of their money. This capital flow will shift to companies that are leaders in each sector and the old extractive economy will wind down. Market forces are global and unstoppable; more than a ripple, a wave is forming below, soon a tsunami. This is the moment in which every corporate board has the opportunity to make their company a leader in the emerging regenerative economy based on justice and sustainability.