FOLLOW THE LEADER

Then, perhaps feeling shamed by comparison with GM’s actions, other large American corporations doing business in South Africa, including Goodyear and Ford, also adopted the Sullivan Principles. Although neither GM nor the other companies ceased operations in South Africa, the changes they made struck a major blow against apartheid because within South Africa, there was now an example of a nonsegregated workplace. The modern era of shareholder advocacy was born, and in concert with global social protests, the growing divestment movement, and the courage of the South African people, change would come. Most often, lasting impact is accomplished through the coordination of shareholder advocacy and ongoing social efforts. The two work together—two tools in the social change tool box.

That was decades ago, but the impact of this shareholder resolution can still be felt. Since 1971, the scope of issues that have been addressed by shareholder resolutions—broadly falling under the umbrella of environmental, social, and governance (ESG) issues—has greatly expanded. Shareholder advocates have successfully brought about changes in a vast number of industries.

We’ll get into all of the details of how to file a shareholder resolution later on, but for now, it’s important to know that resolutions are, in general, nonbinding, or, to use the legal term, precatory, which is a request to a corporation’s board of directors to take certain action.

At first glance, it may seem that a request like this wouldn’t carry much weight with a corporate board. However, as Neuhauser’s resolution with GM showed, that request can challenge a board with a compelling moral or financial choice. When thoughtful people come together to identify and address a problem, solutions are often found. This is the essence of why shareholder advocates work to enlist the corporations that are often most responsible for the problem.

Though paraphrased and grossly simplified, some examples of shareholder resolutions could be boiled down to requests such as:

• Please write a report showing the potential negative impact to our corporate brand to be associated with using slave labor in the manufacture of our products.

• Please tell all shareholders how our company’s capital is being spent on political lobbying and how this may create potential brand risk.

• Please write a report showing how it would reduce potential shareholder risk if our company took action to stop the dumping of thousands of tons of electronic waste into landfills.

• Please identify better ways to source our products than destroying the rainforests for lumber and paper, and quantify how making this change will increase our brand reputation and, therefore, our competiveness.

• Please explain to shareholders why we are spending billions of dollars exploring and drilling for oil when the reserves already on our balance sheet will most likely be stranded, and this activity contributes to climate change.

Questions like these are drafted into 500-word shareholder resolutions and presented to all investors in a company for a vote at the annual meeting. They can become the hot topic of debate in the media. Customers and employees soon associate the brand with the issue. You can see that management and the board are under enormous pressure to respond and take action. That is the power that you have as a shareholder to bring these ideas forth and hold corporations accountable.