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Church agency draws corporate world into dialogue on issues

7/14/2003 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.

For related coverage, see UMNS story #359. A photograph of Bishop Felton Edwin May is available at

By United Methodist News Service

As a major investor, the United Methodist Church has been able to nudge some well-known companies into taking steps that address corporate governance and social concerns this year.

Financial giants such as Citigroup and Morgan Stanley have agreed to enter into dialogue about keeping financial analysts independent from other areas of their businesses - a step that would help avoid the types of conflict-of-interest scandals that have hit Wall Street in recent years. Pharmaceutical giants Merck and Pfizer are entering into dialogue about providing affordable medicine to fight HIV-AIDS, tuberculosis and malaria, which are devastating parts of the developing world. And Gillette and Reebok are in discussions with the board about factory emissions that affect the global climate.

Those are a few of the reasons why Vidette Bullock Mixon, director of corporate relations and social concerns for the United Methodist Board of Pension and Health Benefits, is pleased with this year's series of annual shareholder meetings.

"We feel that it was a successful year," she says from her office in Evanston, Ill.

Each year, from March through June, many if not most publicly traded companies in the United States hold meetings where stockholders vote on policies and conduct other business. As an institutional investor, the Board of Pension and Health Benefits uses the meetings to advocate for the church's official positions on a range of concerns.

With more than $10 billion in assets, the board manages the largest pension fund of any Protestant denomination. Using the church's Social Principles and other policies as a guide in its investing, the board screens out companies that draw income from tobacco, alcohol, pornography, gambling or weapons-related businesses. Church policies also inform the board's advocacy work with companies in which it invests.

This year, the board filed resolutions for consideration at 32 shareholder meetings - an increase from 25 last year. Most of those resolutions were withdrawn ahead of time. "Of the 32 resolutions that were filed, a total of 20 shareholder resolutions were withdrawn due to constructive dialogue" and a willingness by the companies to address the concerns raised, Mixon says.

The fact that so many companies are willing to engage the board in conversation, particularly about corporate governance, is significant, she says. After so many issues around corporate misconduct came to light in 2002, companies this year seem more interested in showing investors that they're trying to be open and transparent, she says.
Investors also have been more vocal in expressing concerns and offering recommendations to their companies, she says.

Shareholder groups filed 862 proposals for corporate reform - an increase from 802 last year, according to the board, citing figures from the Interfaith Center on Corporate Responsibility and the Investor Responsibility Research Center. The Interfaith Center teams up with the board and other partners in filing resolutions and attending meetings.

The board and its ecumenical partners were able to get many companies to commit this year to greater disclosure about practices and policies. Those concerns include ensuring proper governance in companies where the same person is both chairperson and chief executive, and promoting global standards for how corporations treat their workers and the environment.

"An issue that continues to be a priority with the general board is the environment and climate change and global warming," Mixon says.

After Gillette and Reebok agreed to disclose efforts to address carbon dioxide emissions, Mixon attended their annual meetings to commend them. Providing that positive reinforcement is part of building a rapport with companies, a process that takes years and involves trying to raise issues in a non-confrontational way.

"The general board's preference is to be in dialogue with corporations in which we invest, especially over the long term," Mixon says. The board finds that it gets more accomplished when it spends several hours talking with a company about policies instead of a few minutes at a shareholders' meeting stating a position on a resolution, she says. It is in ongoing conversations with about 60 companies, such as Abbott Laboratories, Coca-Cola, Disney, Nike and McDonald's.

This year, the board will begin a second round of conversations with six to eight major institutions, including Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, about ensuring financial analysts' independence, says Laurie Michalowski, the board's coordinator for socially responsible investing. The board plans similar conversations with international companies, such as Credit Suisse.

As a long-term investor, the pension agency wants the companies to do well and generate good financial returns for United Methodist constituents, Mixon adds.

Along with the successes, Mixon says there were "several disappointments" this year. Companies have the right to challenge shareholder resolutions at the Securities and Exchange Commission, and it seemed the SEC's opinions varied from the past, she says. For example, the SEC allowed Johnson & Johnson to omit a resolution on glass-ceiling concerns, and Conoco Phillips was allowed to drop a resolution on climate change.

Other resolutions simply went to a vote. A statement calling on Delphi Corp. to adopt global standards for labor practices and human rights at its facilities drew a 27.5 percent vote. Another resolution urging Exxon Mobil to address climate-change concerns drew a 22 percent vote. Shareholders with about 20 percent of Bed, Bath & Beyond's stock supported a resolution on glass-ceiling concerns. And the board got a 9 percent vote supporting its call for PG&E Energy Corp. to report on gas emissions at two Massachusetts power stations - emissions cited by the Environmental Protection Agency as harmful.

The percentages are significant, though they may seem small. Michalowski explains that a 3 percent vote is enough to bring a resolution back to the shareholders' meeting the following year, and that can be an incentive for a company to go ahead and address a concern through dialogue. A vote in the 20 percent range sends a clear message to management that "there are significant institutional investors" who are concerned about a particular issue, she says.

For the Board of Pension and other socially responsible investors, change is often a gradual process, not a sudden outcome.

"In many cases," Michalowski says, "it will take several years before we see the result that is expected or hoped for. It is a sustained effort."

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