Shareholders Wield Their Power

By law, corporations must periodically report to shareholders on how they are faring financially, but these days companies are under increasing pressure to explain how their operations help or harm the environment, their workers and their surrounding communities.The push for what is known as "full disclosure," or corporate "transparency," is coming from forces including environmental organizations, labor unions and socially active investors.Though fairly new, the movement is "intensely global and of huge significance," said Linda Descano, senior vice president for environmental affairs at the international investment firm Salomon Smith Barney.A range of constituencies are now looking for more than summaries of profits, losses and projected growth, the tradional contents of annual reports issued in advance of shareholder meetings held in the spring.Increasingly, they are seeking revelations about the use of potentially dangerous chemicals, the hiring of minorities and women, and wage levels in offshore factories, among other chosen barometers of corporate responsibility. "It is a more holistic view of companies, and decisions are being shaped more and more by environmental and social factors," said Descano, who tracks the trends at Salomon Smith Barney's headquarters in New York.Some corporations are laying bare these facets of their operations, though often with a shove from institutional investors such as religious denominations and labor pension funds.For example, General Motors Corp. agreed to compile a copiously detailed report every year of its environmental performance. The decision came after some well-endowed institutions filed shareholder resolutions, at three consecutive annual meetings, calling for disclosure."When we got around the table with one another, we found that we had a lot of common ground," said Judith Mullins, director of GM's Public Policy Center in Detroit.She was referring to discussions with the Boston-based Coalition for Environmentally Responsible Economies and its drive to standardize the reporting of environmental information by corporate America. Five years after adopting the coalition's principles, GM has identified and fixed environmental problems at its manufacturing and assembly plants that might have gone undetected before committing to public reporting, Mullins said.NEXT TWO GRAFS OPTIONAL TRIMIn one instance, managers discovered that the galvanized, recycled steel they were using at a foundry had high levels of zinc, which had led to a slight increase in toxic emissions, Mullins related. Now the company uses recycled material that is not galvanized.Along with GM, approximately 50 major companies including Sunoco Inc. and BankAmerica Corp. fill out an exhaustive form prepared by the coalition and updated annually, according to spokesman Ian Watt. The report delves into such matters as the use of natural resources, emissions and wastes, workplace safety, and community relations.Hundreds of companies compile their own annual environmental audits, but the coalition says the standardized format makes it easier for investors and others to compare companies within an industry.END OPTIONAL TRIMThis spring, active shareholders are urging 150 major corporations to advance ground on the social and environmental fronts. In most cases, the advocates are aiming to throw the light of disclosure into the frequently dim corners of business activity, according to monitoring groups.One resolution calls on Exxon Corp. to appoint an independent panel to evaluate its policies on global warming. The company has funded lobbying efforts to counter the finding, in a number of scientific studies, that the burning of fossil fuel contributes to global warming. Exxon's meeting is scheduled for May 27.Wal-Mart Stores Inc. is being asked for a "glass ceiling" report on its advancement of women and minorities to executive levels and for another report documenting whether its overseas contractors use child labor or violate workers' rights. Wal-Mart says it will meet some time in June; most shareholder gatherings are in April or May."What we're trying to do is press corporations to pay attention to the double bottom line of both financial performance and corporate citizenship," said Tim Smith, executive director of the Interfaith Center on Corporate Responsibility. "One of the key things is getting corporations to share meaningful information on the social bottom line."Based in New York, the Interfaith Center represents 275 Catholic, Protestant and Jewish organizations, including pension funds and health care institutions, that own substantial stock in companies.[OPTIONAL TRIM NEXT 11 GRAFS]Late last year, a broad ad hoc coalition calling itself the "Corporate Sunshine Working Group" asked officials of the U.S. Securities and Exchange Commission, the regulating body for publicly traded corporations, to light a fire under companies that have lagged in divulging details.Under federal securities law, companies are required to publicly disclose any environmental liabilities -- including toxic waste removal and lawsuits filed on behalf of local communities -- that could affect the value of their stock.The Dec. 14 letter pointed a finger at several companies, including mining and manufacturing giant Phelps Dodge Corp. In a separate complaint filed last year, the United Steelworkers of America alleged that the Phoenix-based company has grossly underestimated the costs of cleaning up mining sites contaminated by toxic chemicals. The union represents some of the company's workers.Phelps Dodge vehemently denies the accusations. "We've been diligent in disclosing our estimated liabilities in our reports to shareholders," said spokesman Clay Allen. "We are in full compliance with SEC requirements."Beyond stricter enforcement, the Corporate Sunshine Working Group is urging the SEC to adopt new rules that take into account the wider concerns of active shareholders."Many investors are looking not only at a company's performance, financially, but also how it affects the kind of world we live in, environmentally, socially," said Sanford Lewis, a consultant to the steelworkers' union and director of the Good Neighbor Project, which monitors corporate practices.Lewis's project in Waverly, Mass., spearheaded the appeal to SEC together with Friends of the Earth, an environmental organization in Washington. Signers of the letter included leaders of 100 labor, environmental, religious, community and public interest groups, as well as investment funds with a social mission.The SEC is currently reviewing its rules of disclosure but is unlikely to buy into the wide notion of corporate responsibility articulated by Lewis and others.The federal regulatory agency requires companies to make public all the information a "reasonable investor needs to know to make an informed decision about whether to invest" in a given enterprise, said SEC spokesman John Heine."This has always been understood as financial information, which has to do with the bottom line, whether it will affect the return on investment," said Heine. "It has never been understood in the sense of whether the company's operations will be, quote unquote, good for the environment, whatever that might mean."At the same time, he stressed that the SEC wants to make sure investors have "adequate information." And that means disclosure of anything that might create serious liabilities, including environmental and labor practices.[END OPTIONAL TRIM]The demand for disclosure is apparently growing along with the numbers of socially minded investors and local groups that say they want to hold corporations to high standards of social accountability. Information is power to these and other constituencies."It helps investors. It helps consumers. It helps local communities, and it helps drive a process of change within these companies," said Simon Billenness, senior analyst of Franklin Research and Development Corporation, a Boston-based manager of "socially responsible" investment portfolios.For their part, corporations are often wary of those who would like to render them transparent. The cost of compiling data is one factor, according to analysts. Another is the shareholder fear that organizers will use the reports as ammunition for lawsuits and consumer boycotts.Still, the pressure level is rising. A new organization called The Stakeholder Alliance is promoting the idea of a standardized, annual report by companies to all those with a stake in the outcome of decisions. That expansive list would include consumer, environmental, labor and other groups, says Ralph Estes, founder of the Washington-based alliance.Observers say corporate America is beginning to spread the wealth of information voluntarily for reasons that have a lot to do with the bottom line."Strong community relations and a good reputation could be critical to expanding in the high-growth, emerging markets," said Descano of Salomon Smith Barney.She cited access to markets in Europe, which has strict environmental and labor standards, as well as the public image of retail companies that use factories abroad and sell sneakers and other goods to American consumers."The whole landscape is changing, and nobody knows exactly what it will look like in the end," said Descano, referring to a lingering uncertainty over how to quantify a company's social and environmental performance."But clearly, there's a growing sense that to maintain the integrity of one's brand, particularly in the era of globalization, a company has to demonstrate what it is doing," she added. "It has to take proactive steps with regard to its employees, communities and the environment."William Bole is a free-lance journalist based in Lowell, Mass. His articles have appeared in the Washington Post, Los Angeles Times and New York Times Syndicate, among other newspapers and wire services.REQUIRED TAG: This article originated with the American News Service.


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