Resolutions about board oversight fall into two functional categories—suggesting specific types of committees are needed to properly oversee complicated sustainability issues (13, up from seven last year at this time) or asking for the nomination of specific types of experts to sit on the board (three this year).
Specific Issues
Human rights: Proponents raise concerns about a range of human rights issues in five resolutions. At Citigroup, Harrington Investments has withdrawn a proposal that asked it to amend a board committee charter “to explicitly require fiduciary oversight by the committee on matters affecting human rights.” Harrington reports there will be further dialogue with the company. Citigroup had lodged a challenge at the SEC, arguing it was moot given current oversight and would cause it to violate the law in its call for a connection between fiduciary duty and human rights.
Harrington Investments also proposed that Goldman Sachs amend its bylaws to add a new section connecting the board’s fiduciary responsibility to “policies or activities of our company affecting issues of human and indigenous peoples’ rights.” Last year, a slightly different proposal along the same lines was omitted on the grounds that it was moot. Goldman Sachs challenged the 2019 proposal at the SEC, as well, and Harrington withdrew. The 2019 proposal was a binding bylaw amendment.
Harrington wants Bank of America to do the same thing and amend its bylaws “to expressly extend the fiduciary duties of directors to oversight of the Human and Indigenous Peoples’ Rights policy.” The company has challenged the proposal at the SEC, arguing it is moot, illegal, cannot be implemented by the company and is false and misleading, and Harrington withdrew. The proposal was a binding bylaw amendment and Harrington last year withdrew a proposal seeking a more specific policy on indigenous peoples and human rights after the company challenged it on the grounds it was moot.
SomeOfUs says Mastercard processes transaction for white supremacist groups and suggests this poses reputational risks. It therefore asks for “a standing committee to oversee the Company’s responses to domestic and international developments in human rights that affect Mastercard’s business.
The United Church Funds also raises a key current controversy at SunTrust Banks, noting that the bank provides funding to U.S. government contractors that help to carry out “zero tolerance” immigration policies, and also underwrites debt for private prison companies that have been involved in detaining immigrants. The proposal asks SunTrust to set up a board level human rights commit “to create company policies and review existing policies...on the human rights of individuals in the US and worldwide, including adopting and assessing criteria for evaluating potential clients’ corporate social responsibility record and human rights performance.” The parties reached an agreement, which provides for proponent input on the company's materiality assessment for sustainability reporting; SunTrust also will change the charter of its Enterprise Business Practices Committee.
Drug pricing: Proponents want AbbVie and Pfizer to “take the steps necessary to strengthen Board oversight of prescription drug pricing risk by formalizing oversight responsibility, which could take the form of creating a new Board committee or assigning responsibility to an existing committee, and by adding drug pricing risk expertise to the director qualifications skills matrix.” The resolution is new in 2019 and the Sisters of St. Francis of Philadelphia withdrew after discussions at AbbVie, which agreed to additional proxy statement disclosures. AbbVie also had challenged the proposal at the SEC, arguing it consisted of multiple proposals, concerned ordinary business and was moot because of current board oversight and disclosure practices. A challenge has yet to surface at Pfizer.
The proposal contends that given growing problems with drug affordability and legislative and regulatory scrutiny, more oversight at the board level about the pricing of company products is warranted. Further, it says that these companies are particularly vulnerable to risks connected with rising prices given their product mix. (See p. 72 for related proposals suggesting links to executive pay incentives and p. 49 for a proposal about pharmaceutical pricing.)
Climate change: Arjuna Capital is asking Chevron and ExxonMobil each to set up a new board committee on climate change “to evaluate Chevron’s strategic vision and responses to climate change. The charter should require the committee to engage in formal review and oversight of corporate strategy, above and beyond matters of legal compliance, to assess the company’s responses to climate related risks and opportunities, including the potential impacts of climate change on business, strategy, financial planning, and the environment.” ExxonMobil has challenged the proposal at the SEC, arguing it is moot because its Public Issues and Contributions Committee is already charged with climate change oversight.
Food: Last year, Harrington asked McDonald’s about its charitable contributions and their impact on public debate over healthy food. It is following up with the same theme in a new proposal this year at the company, expressing a wide variety of concerns about the types of food offered by the company and food safety. It wants to see
a special Board Committee on Food Integrity to restore public confidence in our Company’s reputation for food quality and integrity. The committee should assess the recent company breaches of safety and security of McDonald’s restaurants’ food service as well as long term concerns and criticism regarding food quality, recommending any necessary improvements in governance, sanitation and safety systems necessary to instill in our Company’s culture the highest standards of food quality and security.
The company has challenged the resolution at the SEC, arguing it relates to ordinary business since it concerns food preparation methods, which it says are quintessentially routine matters for a restauranteur.
Public policy and social risk: The Sustainability Group wants Amazon.com to set up a “Social Risk Oversight Committee” that could
provide an ongoing review of corporate policies and procedures, above and beyond legal and regulatory matters, to assess the potential societal consequences of the Company’s products and services, and should offer guidance on strategic decisions. As with the other Committees of the Board, a formal charter for the Committee and a summary of its functions should be made publicly available.
The company has challenged the proposal at the SEC, arguing it can be excluded because it relates to ordinary business, since it concerns the company’s product offerings and policies, relates to business practices and operations, and relates to Amazon’s choice of technologies.
Jing Zhao wants Applied Materials to set up a committee “to oversee the Company’s policies including human rights, governmental regulations and international relations affecting the Company’s business.” But the company successfully challenged the proposal at the SEC, which agreed the resolution was moot – since the board as a whole current oversees public policy issues. In its challenge, the company said its audit committee attends to risk management and Applied Materials already has robust policies about human rights and governmental relations.
Marco Segal suggests that Verizon Communications needs a dedicated committee at the board level given the wide range of environmental and social challenges it faces that have the potential to damage its reputation. It notes problems in the last year connect to allegations of mistreatment of pregnant women, allegations of sexual harassment and discrimination, the “throttling” of firefighters’ access to its communications network during the California fires, and privacy protections being tightened in Europe and potentially the United States. It points out that competitor AT&T has a dedicated public policy committee but these issues are only one of 14 responsibilities for Verizon’s Corporate Governance and Policy Committee. It asserts, “The fact that Verizon finds itself enmeshed in needless controversies suggests that public policy issues are getting short shrift at the board level and that a standalone committee is warranted to avoid reputational damage and other risks on a wide range of issues.”
Experts
Only three resolutions in 2019 ask companies about requiring specific types of board experts, but one raises the issue of human capital management, which is new to proxy season. The AFL-CIO is proposing that Amazon.com amend its Guidelines on Significant Corporate Governance Issues and “add human capital management to the types of business and professional experience included in the qualifications and skills of a director candidate considered important by its nominating committee. The proposal argues that companies should pay close attention to managing human capital, as it is critical to “value creation and a source of potential risk”—to which boards should attend. It points to BlackRock’s focus on the subject as one of its 2018 engagement priorities and the new Human Capital Management Coalition that submitted a petition to the SEC in July 2017, as investors backed by $2.8 trillion in assets under management, seeking more disclosure about corporate policies and practices. In Amazon’s case, the proposal says, the company has come under fire for alleged poor treatment of employees in its fulfillment centers, and an “exhausting environment of ‘purposeful Darwinism.’”
The other two proposals reprise past concerns. At Motorola Solutions, the Episcopal Church asks that the nominating committee choose “at least one [independent] candidate who: has a high level of human rights expertise and experience in human rights matters relevant to Company production and supply chain, related risks, and is widely recognized in business and human rights communities as such.” It is a resubmission that earned 10.4 percent in 2018. It also earned 4.9 percent in 2018 at Caterpillar.
Individual investor Robert Andrew Davis proposes that PNM Resources proffer an independent board candidate who “has a high level of expertise and experience in environmental and climate change related matters relevant to electric generation and transmission and is widely recognized in the business and environmental communities as an authority in such fields.” Davis points to recent UN assessments that point out community risks posed by climate change and “growing losses to American infrastructure and property and impede the rate of economic growth over this century,” to which electric utilities are particularly exposed. He notes that Chevron and ExxonMobil have added climate experts to their boards and assert that PNM would benefit from such a board member.