Social Research and Advocacy in Action

The company briefs below report on the progress of shareholder initiatives led or participated in by Walden, as well as other newsworthy company actions.

A Seat at the Table

I have been interacting with companies for 35 years, in private meetings with management, in larger stakeholder sessions with investors and other concerned organizations, and at stockholder meetings or industry association conferences. I have done this during my tenure as Executive Director of the Interfaith Center on Corporate Responsibility and in the last five years as Director of Socially Responsive Investing at Walden.

In all these years I have never had the opportunity to address the entire board of directors of a company. Thus I was delighted when Costco invited me to attend its May board meeting to discuss a corporate governance reform we had proposed, especially since Walden has been a long-term investor and Costco is among our top stockholdings.

My experience with companies based in the Northeast is of boardrooms with dark wood and an “official” air. Costco’s headquarters are outside Seattle in a modern, several story building. As you walk inside, you immediately notice a bustling, friendly atmosphere with executives dressed casually and ready to work. The same atmosphere was apparent in the working boardroom, where to my amusement, I was the obvious outsider in my coat and tie.

The board, which includes four top Costco executives and a number of prominent independent directors, had invited me because it faced a dilemma. The previous year, approximately 75 percent of shares were voted in support of our proposal urging annual election of all directors. Currently, one-third of the Costco board is elected each year for a three-year term, a staggered board structure. I made the case that annual election promotes increased accountability of each individual director and gives investors the chance for a “referendum” on the entire board at each stockholder meeting.

Many Costco directors responded that, in governance, one size does not fit all and a general preference for annual elections should not always override the benefits of a staggered board structure. Costco suggested that as a company with good employee relations and better-than-peer group benefits, the added continuity afforded by staggered elections helps preserve the organization’s culture and values. The discussion shifted back and forth, covering the breadth of points that motivate investors to vote for this reform.

While no conclusion emerged, the experience provides a clear example of what Walden strives for—in-depth and thoughtful engagements with company decision-makers on issues our clients care about.

Good News Abounds

As detailed below, a number of companies that are in many Walden client portfolios have experienced substantial breakthroughs in recent months.

Nike has captured the gold standard on supply chain transparency with a complete listing of its global contract manufacturers (more than 700) in a Workers & Factories section on its website. Further, Nike’s latest corporate responsibility report sheds more light than ever on the company’s challenges to monitor and enforce its labor standards in factories that make Nike footwear and apparel. For good reason, Nike has successfully transformed its image from one of “arch-villain” of cheap labor exploitation to a trendsetter in public accountability. Walden subsequently participated in a small group that provided feedback to Nike on its new report.

In April, TJX voted to declassify its board, opting instead for annual election of all directors. TJX listened, and responded to, its shareholders. For several years Walden had led a shareholder initiative pressing for this accountability-enhancing governance reform.

Illinois Tool Works, in response to concerns put forth by Harrington Investments, committed to send an inspection team to China to monitor and assess its plants and suppliers for compliance with human rights and labor laws.

Johnson & Johnson, at the behest of religious investors, has agreed to disclose on its website its annual political contributions. Given widespread controversy over drug access and pricing, safety, and marketing practices, investors have sought greater transparency on political giving from pharmaceutical companies.

And finally, the “pleasant surprise” award for the most unexpected response at an annual meeting goes to IBM’s CEO, Sam Palmisano. In response to an employee’s question as to whether he would return some of his 2004 compensation, given that recent financial results were far less than analyst expectations, Palmisano surprised attendees with an announcement that IBM’s top 50 executives would forgo pay increases until the financials improved. At the very least, this is a step in the right direction that we hope will be echoed in boardrooms across the country.