Reflections on the 2020 proxy voting season

"Don't vote for our proposal. We don't want you to."

So began the opening remarks of Justin Danhof with the National Center for Public Policy Research (NCPPR) at the 2020 Chevron Corporation Annual Meeting of Shareholders. Danhof was introducing a proxy resolution (or proposal) for a shareholder vote seeking greater disclosure of Chevron’s corporate lobbying oversight and expenditures, one of over one hundred shareholder proposals included in annual company proxy statements across Boston Trust Walden’s investment strategies. Shareholder proposals are a uniquely effective tool to influence company policies and practices because vote results represent the collective opinion of investors. To his credit, Danhof was upfront about the main goals behind the filing of the proposal: to block a nearly identical proposal filed by the Philadelphia Public Employees Retirement System (co-filed by thirteen investors, including Boston Trust Walden) and weaken support for the proposal under the guise of free speech.

SEC rules stipulate that only one shareholder proposal on a given topic may be featured on a company’s proxy statement. By submitting the same request to Chevron (the “resolved” clause) before the Philadelphia Public Employees Retirement System—albeit with a supporting statement that was antithetical to the pension fund’s objectives—the NCPPR succeeded in obstructing the voice of shareholders concerned with potential incongruities between Chevron’s lobbying expenditures and its public positions. This left our proxy voting team with a tough call. Should we support the NCPPR proposal because it called for the same corporate lobbying disclosure we seek? Or, should we vote against it to avoid giving credence to an organization attempting to stifle the voice of shareholders?

This is just one example of a nuanced decision we faced this proxy season. Alongside our recently published 2nd Quarter ESG Impact Report, which provides an overview of Boston Trust Walden’s voting record for the year ending June 30, 2020, we take this opportunity to share our perspective on several votes that prompted internal discussion.

Defining the Pay Gap

Boston Trust Walden encourages companies to evaluate and report their gender pay gap and generally supports shareholder resolutions calling for the same actions. A new proposal in 2020 sought disclosure of a company’s global median gender and racial pay gap.

We agree with the spirit of the proposal—employers should provide assurance that their compensation practices are blind to gender and race. Yet the request for a global racial pay gap metric ignores the uniquely diverse demographics and regulatory structures of countries around the world, posing substantial challenges to implement, interpret, and compare pay practices of companies with vastly differing geographic footprints. While we expect companies to advance equality across all operations, domestic and international, we ultimately did not support this resolution. Our voting policy will be updated to generally vote for proposals calling for analysis and disclosure of a US racial pay gap, which provides investors important information on if and how effectively companies are providing equal pay for equal work. Nearly all publicly traded companies must already provide this data in a uniform manner to the Equal Employment Opportunity Commission, so disclosing it does not require additional corporate resources.

Time for Employee Representation on Boards?

Another proposal sought a report on the feasibility of establishing employee representation on a company’s Board of Directors. With the global COVID-19 pandemic causing many investors to examine the human capital management practices of portfolio holdings, the notion of including employees in the boardroom is gaining traction. Who better to advocate for greater measures to ensure employee health and safety, a living wage, and workplace protections such as paid sick leave?

We strongly believe the voice of employees in corporate decision-making is critical to effective long-term management. But while employee representation on the board is a successful model in some markets, we have not yet seen compelling evidence that it is a ‘best-practice’ model for US companies. The effectiveness of this governance reform should be evaluated within the context of other mechanisms for elevating employee input, including management-employee committees, the ability to enter into collective bargaining agreements, routine engagement such as employee satisfaction surveys, and direct feedback channels, among others. Until we have more conviction about the appropriateness of employee board representation at US companies, we plan to abstain from this proposal.

Full Steam Ahead on Climate Action

We supported five of six proposals requesting additional disclosure on climate-related risk mitigation, a seemingly incomplete record on one of our core engagement focus issues—to encourage companies to aggressively pursue a path toward a carbon-neutral future. The one proposal we did not support was at Union Pacific, which requested a report detailing how the company plans to align its operations with the goals of the Paris Climate Agreement.

Our engagement with Union Pacific dates to 2014, spanning topics from lobbying disclosure to greenhouse gas (GHG) emissions management. In March, two months before its annual meeting, Union Pacific announced a commitment to set a GHG reduction target verified by the Science Based Targets Initiative (SBTi). We commend the progress and communicated directly with Union Pacific regarding the significance of the SBTi commitment.

The Union Pacific example and others that follow are illustrative of our general approach to proxy voting. While our guidelines specify recommendations for or against proposals on most topics, we carefully consider each resolution in the context of the specific company’s business model, evidence of meaningful progress, and our own engagement history.

A Healthy Dose of Perspective

Proposals at McDonald’s and PepsiCo requested a report on each company’s contribution to the obesity epidemic through the marketing and sale to youth of products high in sugar. The proposals specifically highlighted the outsized role of carbonated soft drinks in causing obesity. At Boston Trust Walden, we have engaged extensively with both companies and acknowledge the noteworthy initiatives and resources each has devoted to this serious concern.

For example, McDonald’s features a goal for more than half of all Happy Meal offerings globally by 2022 to feature less than 600 calories and fewer than 10% of calories from added sugars, at which point it will only market Happy Meals that meet these nutritional criteria. Similarly, PepsiCo features a goal by 2025 for two-thirds of beverage volume in its top markets to have fewer than 100 calories from added sugars per serving. These commitments, when coupled with credible NGO and industry partnerships to address product nutrition, led us to conclude that the request of each company was unnecessary. We also believe our constructive dialogues will facilitate continued progress on this and other salient issues. As such, we did not support these proposals.

Principled Investing

Back to the resolution on lobbying practices at Chevron, which sparked much internal debate. We vehemently disagreed with the motivation of the proponents who now routinely mimic resolutions in order to stymie the collective voice of investors addressing significant ESG risks and opportunities. But we ultimately determined that we care less about motivation than achieving the desired outcome. Simply put, our belief in shareholders’ right to transparency on corporate lobbying activities is unambiguous.

Sorry, Justin—we voted for your proposal.