ETHICAL INVESTING: ACTIVISM AND ADVOCACY OF SHAREHOLDERS
Activist investors are not contented with just purchasing stocks and supporting its actions or decisions. They want to change the norms of targeted corporations for two reasons: align investments with their core values and make entities behave more responsibly.
There are at least four ways shareholders commonly use to imprint the changes they desire.
Divestment is simply an act of selling an asset either for financial or social goals. Considered a last resort, the opposite of investment is normally used in worst scenarios. One classic example of divestiture was the activism in the Michigan State University. In the late 1980s, MSU students pressed the university to divest the stocks of firms with businesses in South Africa apartheid from its endowment portfolio, including Coca-Cola. Several large investors, including some city, county, and state governments, followed suit. Although it cannot be assessed whether the act made a substantial economic pressure to urge South African leaders to change their ways, it is safe to say it brought heightened attention to the human rights abuses in the country.
Electing New Directors
Ethical investors can opt to replace board members whose views they disagree with. Companies have differing rules for nominating directors, which can be found in their proxy statement. Unfortunately, a firm may not bother looking at a nomination from an unknown shareholder — or take it seriously at the very least. Majority of corporations have established methodologies for scouting potential board members. But, in July 2011, the US Court of Appeals against a proposed SEC rule that would have enabled shareholders, who own at least 3% of outstanding shares for at least three years, to place their nominees on the proxy ballot.
Some investors want to take things to the next level by introducing their own issues to vote on. To propose a resolution, an investor must have a significant stake in the firm, which, according to the SEC, is 1% of all outstanding shares or $2,000 worth of shares. He or she must hold it for at least one year before the resolution submission deadline.
Basically, shareholder resolutions allow investors to influence policies and address issues on the table. Certain guidelines are followed when submitting a resolution, such as it should not be longer than 500 words. The individual or group (or their representative) who files the resolution must attend the meeting to present it. Corporations need not to accept and implement those resolutions even if they obtain a majority vote.
This is the most basic way of echoing opinions. Investors cast their proxy ballots either electronically or via mail. Normally, a shareholder gets one vote for every share he or she owns. If an investor holds a stock class with special voting rights, he or she will get multiple votes per stock.
Several shareholders do not give attention to their proxy ballots because they are too occupied to study the issues to be voted and make a sound decision. But for activist investors, this is their way of letting their voices be heard to somewhat create change. Most of them have no time to do their own research, so, they turn to seasoned investors for guidance. Upon knowing the issue at hand, they can decide to vote with the entity or against it.
Institutional investors can make a great influence on the election results because their huge size allows them to possess large numbers of stocks. Therefore, it may need a collated effort from huge numbers of small shareholders to impact a vote’s outcome.
Ethical Investing: Instruments for Ethical Investing
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Digesting Financial Statements: Revenue
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