Grant Makers Are Ignoring One of Their Most Powerful Tools

Date: 
Feb 24th 2014

Over the past year, shareholder activists racked up a list of accomplishments that would be the envy of many foundations.

They secured agreements from some of the world’s largest companies to set targets for reducing greenhouse-gas emissions. They persuaded companies to be more transparent and accountable with corporate political spending and to abandon support for controversial organizations like the American Legislative Exchange Council, also known as ALEC. They pushed companies to adopt plans to increase board diversity. And they raised questions about problematic pay practices contributing to the upward spiral of CEO pay.

They did all this by using a strategy available to most foundations but ignored by many: They exercised their rights as owners of America’s publicly traded corporations. They filed shareholder resolutions and voted their proxies.

Much of the work of shareholder activists either complements or directly aligns with the grant-making goals of many foundations. Yet with a few notable exceptions, foundations are conspicuously absent among the ranks of active owners, despite their sizable assets.

The 2013 Proxy Preview, put together by As You Sow, a group that focuses on social-interest investor issues, and the Sustainable Investments Institute tracked 365 shareholder proposals on environmental and social issues up for votes at annual meetings last year. While many foundations have unquestionable commitments to dealing with social and environmental issues, they were the key filers of just 23 of these proposals. Early indications are that the numbers will be roughly the same for 2014.

Corporate-governance issues like annual director elections and executive pay may not seem as clearly linked to foundations’ missions as social and environmental issues, but they have important implications for foundations guided by a commitment to social justice or concerns about income inequality. Here, too, the percentage of proposals filed by foundations is shockingly low. Foundations submitted only a handful of the more than 200 governance proposals filed for 2014.

The foundations that did step forward to file proposals made big strides in tackling their missions. Resolutions co-filed by Walden Asset Management, the Pride Foundation, Tides, and others prompted East West Bancorp and j2 Global to make changes to their equal-employment-opportunity policies to ban discrimination based on sexual orientation and gender identity.

The Nathan Cummings Foundation persuaded the Mylan pharmaceuticals company to begin disclosing its political spending and worked with Trillium Asset Management to prompt AT&T to issue a report on network neutrality.

The Merck Family Fund and the Max and Anna Levinson Foundation both worked with Walden to persuade the Stryker medical-technology company to set goals for controlling greenhouse-gas emissions.

Even when proposals aren’t successful in prompting immediate change, they can help shine a spotlight on issues foundations care about both as long-term investors and as grant makers.

Heading into 2014, the Park Foundation, a significant supporter of anti-fracking work in New York State, has once again collaborated with As You Sow to ensure that hydraulic fracturing will be on the agenda at ExxonMobil’s annual shareholder meeting this year.

A 2013 proposal at JPMorgan Chase, filed by the Needmor Fund and other organizations, attracted investor attention to indirect lobbying done through organizations like the Chamber of Commerce, placed the issue squarely in front of the company’s board of directors, and gained coverage by The Huffington Post and other news outlets.

As we head into the thick of the 2014 proxy season, many foundations continue to remain on the sidelines.

Grantee organizations, however, are increasingly recognizing the potential of shareholder activism to open up new avenues to create change. Organizations with interests as diverse as income inequality, student-loan debt, and open Internet access have all approached the Nathan Cummings Foundation with questions about how to use this tool to help promote changes in corporate behavior. In an era of ever increasing stakes, grantees are beginning to view shareholder activism as another potentially powerful tool to add to their arsenal.

Foundations are often at the cutting edge, testing and carrying out innovative ideas for creating a better world long before they become widely practiced, but in this area grant makers have fallen woefully behind.

While pension funds, religious orders, and state treasurers use this tactic to protect the long-term value of their investments and promote positive changes in corporate behavior, foundations, for the most part, have failed to make the connection between their investments and the issues they support. In doing so, they have missed out on a real opportunity to create change.

Laura Campos is the director of shareholder activities for the Nathan Cummings Foundation, a philanthropy committed to long-term value creation through its endowment portfolio.