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Shareholder advocates are the best and most reliable early warning system for corporate risk

Andrew Behar is CEO of As You Sow, a nonprofit organization dedicated to increasing corporate environmental and social responsibility. Founded in 1992, As You Sow envisions a safe, just, and sustainable world in which environmental health and human rights are central to corporate decision making.

Previously, Behar founded a clean-tech start-up developing innovative fuel cell technologies for grid-scale energy storage. He is a member of the board of the US Forum for Sustainable and Responsible Investing (US-SIF). He is also on the advisory boards of Real Impact Tracker and 1-Earth Institute, on the steering committee of Institutional Investor Educational Foundation, is a member of the UN Green Finance Advisory Group that developed the recently released UN Sustainable Stock Exchange Initiative, and was named one of 30 “Eco Rock Stars and Environmental Mavericks” in Origin Magazine.

His book, The Shareholders Action Guide: Unleash Your Hidden Powers to Hold Corporations Accountable was published in November 2016 by Berrett-Koehler.


 

 

Christopher P. Skroupa: What kind of power do shareholders have in encouraging companies to implement strong CSR strategies?

Andrew Behar: Corporate managers are responsible to their boards of directors and their boards are responsible to the shareholders. In terms of power, shareholders often have the last word, especially with a strong vote. We saw Blackrock demonstrate this on Tuesday as their CEO sent a letter to thousands of companies they hold in mutual funds and ETFs declaring, “a new model for corporate governance.” He went further to say that “society is demanding that companies, both public and private, serve a social purpose…to prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

The implication, after the 2017 proxy season showed that Blackrock and other institutional investors were critical in bringing about unprecedented majority votes at Exxon and Occidental, says that company boards and managers must engage in earnest or votes of this scale may be forthcoming. This flexing of shareholder power aligns with the inflection point we are seeing as investors are focused on companies with strong Corporate Social Responsibility (CSR); whereas five years ago 1:12 dollars was invested in companies with strong environmental, social and governance (ESG) policies and practices, two years ago it rose to 1:5 dollars. A new trends report by US SIF is coming out in 2018 that will undoubtedly show that strong CSR is a driver of investor decision making and ultimately strongly correlated to a company’s long-term success.

We also see this trend reflected in new offerings from Bloomberg, MSCI, Morningstar and Thomson-Reuters. These data firms are now scoring companies on ESG metrics as financial analysts and investors need more and better data to make investment decisions. These data include a broad spectrum of ESG issues, including supply chains, labor practices, climate and environmental issues.  

Skroupa: When developing CSR initiatives, should shareholders be concerned with the relationship they have with corporate executives?

Behar: People running corporations are just people. They have families, a past, a future, biases and dreams. At As You Sow, program staff develop strong and long-lasting relationships with corporate executives over decades, and work with them to find solutions that can be a win-win. Ultimately, the CSR initiatives that succeed and become part of a company’s DNA are the ones that the people on the inside feel good about because they burnish the brand, solve problems in the real world, and are simply part of a better business plan. 

Skroupa: How are shareholders taking initiative to maximize the value of their shares through CSR?

Behar: Shareholders are beginning to internalize the message that ESG programs can bring value to their companies. Because they are often ahead of the curve in understanding new ESG issues, they bring cutting edge proposals to companies. Investors are watching very carefully how company management respond to shareholder engagement, either in direct dialogue or through the shareholder resolution process. When a valid idea is put forward that benefits the company and solves an environmental, social, or governance issue and the company says “we hear you and will review and consider this” or “let’s implement some form of this,” it shows maturity and a long-term vision.

The ROI (return on investment) of a company cleaning up its supply chain to screen out abusive labor practices, toxic chemicals, or to reduce carbon and water risk, generally leads to a positive net in terms of bottom line and the overall company value. Shareholder advocates are the best and most reliable early warning system for corporate risk because they want the company to succeed and make a more sustainable world.

Skroupa: How can shareholders engage with corporate executives in the CSR space for a productive outcome that positively impacts stakeholders?

Behar: Start with a letter describing your idea and ask for a meeting. In most cases you will find CSR professionals at major corporations are well versed on the issues and are willing to engage. Often they have an agenda of their own, as well as policies and practices that they want to improve in their own company. You may find an ally in developing that better business plan that is a win-win with positive ROI.

Always remember that this is a long-term activity. It takes tenacity and understanding of the many pressures faced by the company in a very competitive environment to define metrics for and achieve success. If you are the kind of shareholder that wants to make a better company, you have your research and facts lined up, and are ready to make your case – you may be surprised at rapidly how change comes about. You also may find that an investor like Blackrock with over $6 trillion in assets is voting yes on your resolution which will clearly get management’s attention.


Andrew Behar will be speaking in an interview entitled When Shareholders Engage: Attack or Risk Warning? at the CSR 4.0 conference in San Francisco, California on March 1.

Originally published on Forbes.com. More articles by Christopher Skroupa on his Forbes column.