BY SUE BOLAND
"Shareholder activism" is promoted by many environment and human rights groups and trade unions as a new method for achieving social and environmental change. It involves organising an alliance of shareholders to ask questions and propose resolutions at company annual general meetings.
A Greenpeace International document, "Making it Happen" (available from the Corporate Watch web site at ), claims, "Business is now the only institution in the modern world powerful enough to foster the changes necessary for ecological and social sustainability. It has become a key target for anyone interested in achieving social change."
Greenpeace International advocates consumer boycotts, shareholder action and direct lobbying of corporate executives as ways to change corporate behaviour. In the United States, Canada and Europe, shareholder action has become a focus of peak trade union councils and environment organisations.
Shareholder activism originated in the US in the 1970s when religious investors formed a coalition called the Interfaith Center for Corporate Responsibility (ICCR) to work for peace and social justice.
After the Exxon Valdez oil spill in 1989, an investor-environmental alliance called Coalition for Environmentally Responsible Economies was formed.
US trade unions also began to advocate shareholder action, arguing that 15 million workers own stock in their companies through employee stock ownership plans. The American Federation of Labor-Congress of Industrial Organisations (AFL-CIO) seeks use union-controlled pension funds to influence company annual general meetings. It has a division devoted to organising "worker capital" for its campaigns.
Recently, environment groups and trade unions have begun organising shareholders in Australia. In September 1999, the Wilderness Society WA organised Wesfarmers shareholders call an extraordinary general meeting (EGM) to vote on resolutions on the company's woodchipping operations. A month later, environment groups organised North Ltd shareholders to call an EGM to vote on resolutions on the Jabiluka uranium mine.
Australian campaigns
In May, the ACTU and the Construction, Forestry, Mining and Energy Union were part of an international coalition of unions that moved resolutions at Rio Tinto's two AGMs. The Finance Sector Union and the ACTU are currently seeking shareholder support for a resolution to be moved at the Commonwealth Bank's AGM in late October.
The Rio Tinto shareholder campaign inspired ACTU secretary Greg Combet to say that "there is a lot of scope" for corporate campaigning: "Take an issue like corporate governance. This is an issue that should be of interest not only to the investment community and shareholders more generally. It is also a matter of public interest that companies should be well governed" (the Australian, May 27-28).
The move to shareholder campaigning followed the election of the federal Coalition government in 1996. Lobbying hostile government ministers was clearly fruitless. Since its election, the government has stacked the court system with appointees who have similar views to the government.
The environment and trade union movements were faced with a choice: organise grassroots protest movements and industrial action to win their demands, or pursue elitist lobbying campaigns. Most chose the latter.
Shareholder resolutions on environmental and progressive social issues have never won a majority at a company AGM, and they are never likely to. Greenpeace and the AFL-CIO often claim "victory" after gaining the votes of as few as 5% of shareholders.
Domini Social Investments, which works with the ICCR, explains: "Filers of social issue resolutions don't expect their resolution to receive a majority vote and be adopted by management. Rather, filers use these resolutions to get management's attention."
Friends of the Earth (FoE) International agrees that the purpose of these resolutions is to persuade company managers to voluntarily change corporate practice.
Real owners
Greenpeace, FoE International and ICCR call on supporters to buy shares in target companies and exhort small shareholders not to sell their shares. FoE International says that small shareholders need to "communicate their values and concerns to the companies they own, [and] exercise ownership responsibility".
This is advice is wrong. Small shareholders are not the real owners of corporations. When companies issue shares to the public, they maintain the fiction that small shareholders are part-owners. The truth is that companies only issue shares in order to get extra capital.
Real ownership and control of corporations lies with a tiny minority of shareholders, sometimes just one or two. At AMP's AGM in May, the CEO Stan Wallis knew the outcome of the meeting before it began because he had enough proxy votes to ensure the outcome.
Company AGMs have traditionally been lifeless affairs. The real owners make their wishes known behind closed doors. To ensure that AGMs remain meaningless, government regulations determine what sorts of shareholder resolutions are allowed.
In many countries, companies are allowed to exclude resolutions which do not pass a "relevancy" test or which deal with the "ordinary business" of the company. "Ordinary business" is defined to include employment issues below the level of senior management, excluding many labour rights resolutions.
In Canada, companies are allowed to exclude resolutions which they believe to be submitted to promote economic, political, racial, religious or social causes.
Law changes
In July, the Australian government announced that it would change the law to ensure that an EGM could only be called by shareholders who control a minimum of 5% of issued voting shares. In a company as large as Telstra, a 5% stake would be equivalent to more than $4 billion worth of shares. The North Ltd EGM was called by shareholders with less than 0.5% of North Ltd's total stock.
The Australian on May 27 reported comments by Rio Tinto company secretary Ian Falconer that AGMs might be superseded by electronic voting. The Commonwealth Bank's chief executive David Murray also questioned whether AGMs should be held at all.
There are other problems with shareholder campaigns. FoE International says that it is sometimes necessary to "scale down or up" publicity campaigns when seeking support from other shareholders. Other groups say that "confrontational activity", such as demonstrations, will jeopardise shareholder support for resolutions.
It is difficult to build publicity campaigns around shareholder resolutions because they are usually couched in terms of what would be most profitable for the company. For example, the main argument used by North Ltd shareholder Erika Ford in support of her resolution that the company to withdraw from the Jabiluka uranium mine was that the international uranium market was saturated.
FoE International also points out that shareholder resolutions cannot be used to ask a company to cease its core business. That would be tantamount to calling on the company to close down and wouldn't gain shareholder support.
The Rio Tinto campaign was initiated at a meeting of trade unions from 14 countries in 1998. In previous years, such a meeting might have launched an international campaign that included industrial action and public protests. Instead, the meeting initiated a Rio Tinto Shareholder Coalition to submit two resolutions to Rio Tinto's AGMs. One called for the Rio Tinto board of directors to be made more accountable by appointing an independent non-executive deputy chairperson. The other called on the company to implement a workplace code of labour practice at its operations worldwide. The first resolution gained 20.3% support and the second, 17.3%.
Rio Tinto workers gained little from this campaign. The company is still hostile to unions, and the campaign did not generate wide public support because you had to be a shareholder to be involved.
Shareholder campaigns strengthen the power and influence of corporations by maintaining the exclusion of the mass of people (who do not own shares) from political campaigns. The fact that small shareholders can never win the majority of voting shares for their resolutions means that the real owners of corporations win.
Grassroots activism may be considered outdated by slick environment and trade union lobbyists, but it is still gets better results.