At the Harvard Law School Forum on Corporate Governance and Financial Regulation, Institutional Shareholder Services Executive Director Subodh Mishra recently published a summary of an ISS analysis of 450 proposals filed at Russell 3000 companies, which shows how investors’ priorities are shifting toward social, political, and environmental concerns. More than two thirds of these proposals are related to social or environmental issues, chief among them political activity and spending, board and workplace diversity, and climate change and sustainability, Mishra writes. Furthermore, nine of the ten most common types of proposals related to one of these issues, whereas only one (demanding the right to call a special shareholder meeting) is focused on governance. Mishra sees two main factors driving this trend:
First, social and environmental issues themselves are gaining significant traction with investors and the public. Important issues, such as concerns about the transparency of the political process, harassment and equity in the workplace, and climate change risks make headlines and dominate the public discussion daily. At the same time, investors and asset owners are bolstering their efforts towards greater ESG integration, which helps proponents gain further momentum. Second, governance topics may be lower on the agenda for the target universe. Shareholder proposals are typically filed at large-capitalization companies, where many formerly-contested governance issues have now become the standard. Annual director elections, majority vote standard, simple majority vote requirements and even proxy access—to a large extent—are now the norm for the vast majority of large companies.
ISS’s analysis counts proposals related to diversity and inclusion toward its total of “social issue” resolutions; while that’s fair, investors are paying more attention to diversity not only out of a sense of social responsibility but also as part of the investor community’s growing concern with talent as a key driver of business value.
The results of this month’s US presidential election portend a massive change in the regulatory environment in 2017. On workplace issues like wages, scheduling, and diversity and inclusion, as well as social and global issues like LGBT rights and climate change, the federal government may move in a different direction after president-elect Donald Trump takes office on January 20.
While the business community will likely face much less pressure from the Trump administration to take action on matters of diversity or sustainability than it has from the Obama administration, that doesn’t preclude organizations doing so voluntarily. At Slate, columnist Daniel Gross predicts that when it comes to diversity, gender equality, and environmental sustainability, businesses “may well remain [progressive Americans’] most prominent hope”:
There are a few reasons why. On sustainability, for example, most large companies are much more citizens of the world than they are of the United States. S&P 500 companies earn about half of their revenue from abroad. And for the very largest companies—Intel, Microsoft, McDonald’s—the number is closer to 70 or 80 percent. So whether the CEOs believe in climate change (most of them do) or whether the president of the U.S. does, they have to operate in a context in which climate change is a reality and the pressure and imperative to reduce emissions are intense. …
In corporate America, the concept of talent reigns—you need the best possible people to do the job. After 73 straight months of jobs growth, it is getting harder and harder to hire and retain workers of all types. (Thanks, Obama.) In the U.S., women are more than half the workforce and more than half the college graduates. Perhaps the Trump administration will be able to staff up with few women. But companies can’t. If you need the best people, you can’t afford to ignore or denigrate women, or to make the workplace inhospitable to them.
At the Harvard Business Review, Andrew Winston adds that talent considerations weigh on corporations’ pursuit of sustainability as well, as a commitment to sustainable growth helps them attract and retain millennials:
At the Harvard Business Review, Tensie Whelan and Carly Fink discuss the business case for sustainability, which they write “can increase employee loyalty, efficiency, and productivity and improve HR statistics related to recruitment, retention, and morale”:
Research is finding that 21st century employees are focusing more on mission, purpose, and work-life balance. Companies that invest in sustainability initiatives tend to create sought-after culture and engagement due to company strategy focusing more on purpose and providing value to society. In addition, companies who embed sustainability in their core business strategy treat employees as critical stakeholders, just as important as shareholders. Employees are proud to work there and feel part of a broader effort.
One study found that morale was 55% better in companies with strong sustainability programs, compared to those with poor ones, and employee loyalty was 38% better. Better morale and motivation translate into reduced absenteeism and improved productivity. Firms that adopted environmental standards have seen a 16% increase in productivity over firms that did not adopt sustainability practices. Corporate responsibility performance also positively impacts turnover and recruitment. Studies show that firms with greater corporate responsibility performance can reduce average turnover over time by 25-50%. It can also reduce annual quit rates by 3-3.5%, saving replacement costs up to 90%-200% of an employee’s annual salary for each retained position.