Shareholder Activism: The Nike Vote
This is the first part in a series about shareholder activism for the retail investor. Do you know about the upcoming Nike vote on political contribution disclosures?
Whether you’ve dabbled in investing or are a seasoned investor, you’ve probably received large bundles of ballots in the mail. But you’ve most likely never voted – over 50% of all small-time shareholder votes are never submitted.
For the average retail investor, it can be easy to dismiss proxy voting as a complicated, fruitless process. But nearly 80% of the shares in publicly traded companies are directly and indirectly owned by individuals. This means that businesses are beholden to us, and not the other way around.
Even if you’re a minor shareholder, adding your voice to other shareholders can garner attention and help define the social and environmental direction of the company.
What is Proxy Voting?
A proxy vote is a ballot cast by a shareholder of a corporation via “proxy,” rather than in person at a shareholder meeting. All shareholders of a company – small or large – receive a proxy ballot that details the various measures up for a vote. While there are many issues that can be voted on, such as approving a stock compensation plan or electing directors to the board, we’re going to focus on a specific type of ballot initiative: the shareholder resolution.
What are Shareholder Resolutions?
Shareholder resolutions are proposals submitted by shareholders that have been opposed by corporate leadership. This is because shareholder resolutions often deal with corporate governance issues ranging from executive compensation to financing structure or corporate social responsibility issues, such as climate change, human rights in the supply chain, animal welfare, and more.
It’s fairly easy to launch campaigns: any individual who owns $2000 worth of stock for one year can file a shareholder resolution to be voted on at the annual meeting. Then all shareholders can vote on the measure.
Do Shareholder Resolutions Work?
There are many historical examples of shareholder resolutions changing corporate policy, even if they don’t get a majority vote. The embarrassment of a sizeable outcome, resulting media stories, risk of alienating shareholders, and the threat of the vote repeating the following year, are often enough to bring management to the negotiating table.
In 2011, shareholder advocacy group As You Sow lodged a proposal asking McDonald’s Corp. to issue environmentally friendly solutions for their foam cups. After 29.3% of shareholders voted in favor of the measure, McDonald’s launched a test program where they replaced foam cups with paper cups. In 2013, they announced that they would substitute all foam cups with paper cups at 14,000 stores nationwide.
Academic research also confirms the impact of shareholder resolutions. An analysis of over 2,665 shareholder proposals found that when shareholders file ESG (environmental social governance) related resolutions, performance of the company on that particular ESG issue improves, even though social resolutions rarely achieve majority support.
The Nike Vote: Just Do It
Fall proxy season is in full swing. On September 21st, shareholders like you can decide if Nike should disclose their political donations. The vote asks the board to issue an annual report stating policies and direct/indirect donations sent to any political campaign or spent to influence public policy.
Do you think Nike should be fully transparent in their dealings and tell shareholders how they spend money to influence politics?
Companies contribute millions each year to political campaigns and lobbying efforts which has fueled the rise of something even more sinister: dark money. Dark money refers to money spent by a particular subset of tax-exempt groups that do not have to disclose their donors. This presents a loophole that allows corporate donors to give anonymously without reproach or regulation.
According to the Center for Political Accountability, dark money significantly shapes policymaking, thereby influencing climate change, tax break policy, redistricting, and growing income inequality. Until measures like the upcoming proxy vote hold corporations accountable, Nike and others will continue to be entrenched in secrecy. Simply put, the impacts are far-reaching and undermine democracy.
In today’s climate of heightened corporate activism and rising political tensions, a strong showing for this measure can have an amplified effect and encourage Nike to pursue greater transparency in their dealings.
If you are interested in influencing corporate governance or supporting the critical issues you care about, it may be time to start paying attention to shareholder resolutions. The CEOs work for you, but only if you open that envelope…