New muscle for conscientious capital

Changes to law would give activist shareholders new power in the boardroom

By: Paul Pellizzari

  Why don't more labour unions and church groups use their stock holdings to challenge corporations on their human rights and environmental records? Canadians may start seeing more questions coming from the floor at annual shareholder meetings as a result of a new federal law that appears to be a response to widespread calls for more corporate accountability.
  After years of getting jilted by the law, shareholder activists are poised to win a bit of breathing room if the Canada Business Corporations Act (CBCA) is revised according to schedule.
  If Bill S-11 passes into law this spring, the CBCA, the law that governs crucial aspects of corporate and shareholder activity, will be purged of the paragraph that has rankled conscientious investors for decades. Historically, shareholders' ability to influence corporate responsibility has been muffled, if not always suffocated, by the CBCA. In the future, corporate boards will no longer be able to reject shareholder proposals with "the purpose of promoting general economic, political, racial, religious, social or similar causes."
 

The culture is changing. In responding to calls for shareholder democracy, the government is reading growing anti-globalization sentiments and responding.

  This is a shift for the Chretien Liberals, who first tried to update the CBCA in a bill that died on the Commons floor when the 2000 election was called. A year ago, they were planning to keep the paragraph, 137 (5)(b) that would have limited actions for "social or political causes." The CBCA hasn't received any substantial change since its introduction in 1975. Why the sudden shift?
  "The culture is changing," says Eugene Ellmen, executive director of the Social Investment Organization (SIO), a group that promotes socially responsible investing. According to Ellmen, political winds are shifting. "The government is reading the anti-globalization sentiment" that has emerged from protests that landed in Quebec, "and that's part of these changes for sure," he says.
  Shareholder proposals allow investors to table issues of concern to corporate management, and to other shareholders who can then vote their support or rejection. This spring, for example, proposals were submitted to Hudson's Bay Co. and Sears Canada on the issue of sweatshop labour. Led by Working Enterprises, a union-owned organization in Vancouver, and Ethical Funds, a fund manager that sets so-called social screens for investors, the Bay and Sears were asked to improve their codes of conduct and monitoring systems. These activist shareholders want to ensure that apparel suppliers respect internationally recognized workplace rights. Because of the labour issue's high profile, these brand-conscious companies chose to circulate the proposal in their proxy materials, even though, under the terms of the old CBCA, they could have rejected them.
  Compared with the American market, Canada sees relatively few shareholder proposals. This differential - an average of 300 proposals are tabled annually in the USA, while about half a dozen appear in Canada - cannot be explained by the fact that, proportionally, there are many more companies traded on public exchanges in the USA. The ability to file has been an issue in Canada. Duff Conacher of Democracy Watch, which leads the Corporate Responsibility Coalition lobby, believes that the new CBCA represents a "lowering of barriers" and that "increasing interest by unions in voting their holdings" (see last week's article about the book Working Capital) will likely increase the number of proposals in Canada in the future.
  Ellmen concurs: "The government is signaling to church organizations, pension funds and the labor movement that it's OK for you to introduce these issues and start engaging with management." Instead of four or five proposals each year, we may soon see between 12 and 20, he estimates.
  Under a couple of new proposed subsections, 137(7) and (8), a company that excludes a proposal must inform the party who submitted it and provide a reason. If the shareholder is not satisfied, an appeal is possible, and the courts will have the option to "restrain the holding of the meeting to which the proposal is sought to be presented, and make any further order it thinks fit." Certain terms, such as minimum shareholding requirements, will determine who is eligible to file a proposal.
  Whatever the number, executives and boards will now have a harder time ignoring the legitimate concerns of social and labour advocates who want to use the votes of equity holdings to influence corporate practice.

Paul Pellizzari is author of Ethics in a Grocery Cart (EthicScan, 1998) and co-author of Shopping with a Conscience (Wiley, 1996), two books on corporate social responsibility. He is the editor for theinvolvedfather.com (an on-line parenting magazine), a regular columnist for the Corporate Ethics Monitor, and a contributor of freelance articles on a variety of issues dealing with business's effects on society. From 1995 to 2000, he was director of research at EthicScan Canada.

Posted: June 18, 2001

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