Shareholder Activism: Pushing for Corporate Reform
Should corporate shareholders use their power to effect social change? This question is being debated with increasing frequency as more investors than ever are choosing to flex their muscles to bring about reform on a host of issues ranging from environmental protection to upholding human rights. In our global economy, the role we play as shareholders, and the decisions made by the companies in which we invest, have an impact that reaches far beyond the streets of our city and often beyond the borders of our nation. A company’s conduct with regard to areas such as human and labor rights is as significant in evaluating overall corporate governance as the independence of board audit committees and the level of executive compensation.
Corporations that conduct business in an irresponsible manner—either by engaging in discrimination, polluting the environment, or doing business in rogue nations—pose enormous risks to investors. Had shareholder activism been the norm throughout our nation’s community of investors, abuses that plagued corporations, such as Enron, and institutions, such as the New York Stock Exchange, could have been averted. Had shareholders prevailed in establishing an independent board and audit committee at Enron, it is unlikely that the corporation’s illegal accounting practices would have withstood the scrutiny of truly independent auditors.
Investing in companies that show a commitment to corporate responsibility simply makes good business sense. This is a principle that has a long history at the New York City Comptroller’s Office. The city’s pension funds, worth more than $82 billion, are one of the nation’s largest institutional investors. As comptroller, I serve as the chief investment officer to the funds, and I am proud to continue the tradition of shareholder activism that my predecessors in this office championed.
During his tenure as comptroller, Harrison Goldin and the trustees of the pension funds urged companies to adopt the Sullivan Principles to support human rights in apartheid-torn South Africa. He also worked with other large institutional investors to adopt environmental principles after the Exxon Valdez ran aground in Prince William Sound, Alaska, causing one of the worst environmental disasters in history. His successor, Elizabeth Holtz- man, submitted the funds’ first proposal to bar discrimination based on sexual orientation. Alan Hevesi, on behalf of the funds, pressured Swiss banks to pay restitution to Holocaust survivors. Today, the funds are playing a role in the global fight against slave labor and other human rights abuses, urging ExxonMobil’s board of directors to adopt a companywide workplace human rights policy based on the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work. And the funds are calling on companies to adopt the MacBride Principles and eliminate employment discrimination in Northern Ireland.
Additionally, we have embarked on a shareholder campaign targeting companies that do business in countries that are recognized as state sponsors of terrorism. After all, in our time, no issue is more important than the spread of terrorism across the globe. For those of us who live in New York, of course, the terrible impact of this global menace is painfully and intimately familiar. Federal law prohibits U.S. companies from doing business with certain terrorist nations, but the law is silent on the foreign subsidiaries of these companies. Several companies, including General Electric and Halliburton, have jumped through this gaping loophole. We will also continue to single out companies that violate the spirit of the law, bringing to bear our influence as shareholders to ensure that New York City pension dollars are not being put to work in any nation that supports terrorism.
These changes represent smart business practice. Those of us who serve as guardians of pension funds have a set of basic responsibilities that we must respect. We have a responsibility to pursue the best possible returns on investments while maintaining fund stability and safeguarding the integrity of the funds we oversee. Shareholder activism has helped change the world for the better and has helped the bottom line for millions of investors. By pushing corporations to act responsibly, we can help to improve both their long-term viability and profitability.
William C. Thompson Jr. is New York City’s 42nd comptroller. To learn more about his shareholder initiatives, log on to his Web site at www.comptroller.nyc.gov.