A NEW ERA IN SHAREHOLDER ADVOCACY

Now imagine that your concern is something as huge as systematic racial discrimination that isn’t even in the United States but 6,000 miles away in South Africa, and it’s 1971, before the advent of the Internet, let alone social media. The system you oppose is called apartheid, and it is as entrenched in South Africa as the greed and racism of those who instituted it when they colonized this region of the world. What can you do?

This was the situation when attorney Paul Neuhauser and the Episcopal Society for Cultural Racial Unity (ESCRU) decided they had to take action. The South African government had already ignored stiff sanctions and embargoes imposed by the United Nations. Protests around the world were beginning to coalesce into what would become a powerful global divestment movement. However, Neuhauser believed he could do something to force rapid change.

ESCRU’s mission was to fight segregation in the United States. Neuhauser focused on the apartheid problem because it was his goal to bring the organization’s investment portfolio into line with its mission—and Neuhauser had a novel way to do it. ESCRU owned shares in General Motors, which was the largest employer of blacks in South Africa. Neuhauser believed that by operating in South Africa, GM was tacitly endorsing apartheid. Of course, ESCRU could have simply sold the shares it owned and thereby distanced itself from GM’s practices. But selling those shares would have had little impact on the corporation, which was, after all, the largest car manufacturer in the world, with operations on every continent except Antarctica.

Despite ESCRU’s relatively small ownership stake, Neuhauser realized he could use it as leverage to compel GM to change. On behalf of ESCRU he filed a shareholder resolution, asking GM to end discriminatory practices at its South African operations.

Shareholder resolutions have been allowed by the Securities and Exchange Commission since the 1930s, but until Neuhauser’s filing, they had, for the most part, been employed by large investors in arcane matters of corporate governance. By filing a shareholder resolution pertaining to a social concern, Neuhauser was perhaps the first of what have come to be known as shareholder advocates.