Promoting Financial Security through Active Ownership

At Commonwealth, we are continuing to grow our understanding of strategies and tools that can help influence business leaders to invest in employee financial security. We previously shared our early thoughts on the role investors can play in promoting financial security, and are exploring developing financial security metrics investors could use to evaluate companies.

Still, investors can do more than simply invest or divest. There may be opportunities for investors to use active ownership to encourage businesses to embrace employee financial security. Public companies report to shareholders at annual meetings, and shareholders have the opportunity to vote, in person or by proxy, on topics raised by management related to governance, salary and benefits, and business activities. They can also raise and vote on their own issues related to business decisions by submitting shareholder proposals.

While these annual meetings have traditionally involved votes on board governance, shareholder rights, and executive compensation, the number of shareholder proposals related to environmental and social issues continues to grow. In 2017, 827 shareholder proposals were submitted, with 42% (345) relating to environmental and social concerns.

Even when proposals do not pass, they can prompt a discussion with management and business press around meaningful issues. Two recent examples caught our eye:

  • Parental Leave: Investment firms and shareholder groups successfully worked with labor activists and employees to change parental leave policies at Starbucks and Walmart. In each case, shareholders filed a proposal for the company to review their parental leave policies. Before the proposal could be put to a vote at their respective annual meetings, both companies announced changes to their policies. However, shareholder proposals alone did not drive company change. Activists also organized employees to push changes within the company. The shareholder resolution process was one tool used to garner the attention of leadership, and employees, activists, and shareholders working in collaboration proved to be a winning combination.
  • Gender & Board of Director Diversity:  Institutional investors have used their shareholder power to drive change around diversity at the board level. State Street made national headlines in 2017 with their “Fearless Girl” campaign to increase the number of women on corporate boards. State Street pledged to vote its shares against any board chairs with all-male boards and a year later announced that 152 companies had taken action.

Financial anxiety can decrease worker productivity and increase turnover, so employees and investors can find common ground in the need to build worker financial security. These successes give a potential blueprint for shareholders interested using their investment power to drive company change. Investors who value financial security can leverage their shares through similar campaigns.

At Commonwealth, we are exploring which aspects of employee financial security could be impacted by investor decisions, and what a shareholder-driven campaign for employee financial security might look like.

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