Thursday, December 11, 2008

Investors Write President-Elect Obama to Restore Shareholder Resolutions on Risk

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MORE THAN 60 INVESTORS, GROUPS URGE OBAMA TO IMPROVE FINANCIAL RISK DISCLOSURE BY U.S. CORPORATIONS

President-Elect Encouraged to Work in First 100 Days to Reverse Recent SEC Roadblocks to Shareholder Proxy Resolutions Inquiring About Risks

Full text of the joint letter and complete list of signatories.

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Coverage: Pensions & Investments

WASHINGTON, D.C. – December 11, 2008 – President-elect Barack Obama can help to avoid future market disruptions and also pave the way for a sustainable economy if he protects and strengthens investors' rights to use the shareholder resolution process to highlight corporate risk factors and press for needed remedies, according to a joint letter submitted today by 60 leading institutional investors, investment firms and investor groups.

The letter asks the help of President-Elect Obama to act within the first 100 days of his administration to reverse a five-year “pattern” at the SEC blocking shareholders from using proxy resolutions to request better disclosure of identified financial risks to a company. These risks may include marketplace, social, or environmental concerns.

The letter to Obama was signed by a diverse group that includes, among others, the Office of the Comptroller of the City of New York; noted shareholder advocates Robert A.G. Monks and Amy L. Domini; Calvert Group, Domini Social Investments, Trillium Asset Management Corporation, Boston Common Asset Management, and Catholic Healthcare West.

Leading organizations of investors also endorsed the letter, including: the Investor Network on Climate Risk (INCR), a network of 75 institutional investors and financial institutions with over $5 trillion in assets; the Investor Environmental Health Network (IEHN), whose shareholder members are concerned with financial and health impacts of product toxicity hazards, with $30 billion in assets; and the Interfaith Center on Corporate Responsibility (ICCR), representing nearly 300 faith-based investors with $100 billion in assets.

The joint letter reads, in part: “All investors need better tools to assess corporate risks and more effectively participate in corporate governance and we look to your administration and the Securities and Exchange Commission (SEC) to facilitate such reforms. From the creation of the SEC in 1934, investors have been in a unique position to monitor the companies in their portfolios, and to guard against certain risks to stock price, and to society, by encouraging responsible decision-making by management.”

The letter continues: “In particular, we believe restoring the ability of institutional investors to use the shareholder resolution process to probe companies on certain areas of investment risk is an important initial step. These include the kind of credit risks associated with the mortgage crisis, as well as an array of environmental and social issues which we believe may have large financial implications e.g., climate change and product toxicity … it is our belief that shareholders are in a very good position to help companies evaluate risk.”

However, the letter notes: “For the last five years, the SEC has gradually been closing the door to important shareholder concerns. Shareholder proxy requests that had been allowed in previous years asking for better disclosure of financial risks to companies have been stymied.”

Cheryl Smith, co-CEO at Trillium Asset Management Corporation, said: “The current financial and economic crisis demonstrates the extent to which all sectors and all participants in the market, whether companies, investors, employees, or communities, are interrelated and deeply affected by the actions of any one participant. Protecting and enhancing the rights of investors to seek and receive information from their companies about company activities improves the stability of the financial system as a whole.”

As the letter explains: “We recognize that in the early days of your administration you will be focused on shoring up the economy and helping to restore consumer confidence. As part of your strategy we urge that you help us to correct decisions that have undermined our ability to use the shareholder resolution process to probe these issues on a company by company basis.”

Calvert Senior Vice President for Social Research and Policy Bennett Freeman said: "The President-elect has made it clear that addressing climate change will be a top priority. With our record of encouraging companies to assess and manage the business risks associated with climate change, investors stand ready to work with policy-makers and corporations to tackle this monumental challenge. A change in SEC rules on risk evaluation will make us even more effective partners in this effort."

“We view shareholder resolutions as an essential part of our tool kit as a fiduciary. The SEC’s withdrawal of our right to use resolutions to probe risks that concern us has hampered our ability to monitor and enhance corporate performance and responsibility,” said Lauren Compere, director of shareholder advocacy at Boston Common Asset Management.

Sanford Lewis, counsel to the Investor Environmental Health Network noted:
"With recent product toxicity issues, such as lead in toys, many companies knew about the potent financial risks posed by chemicals in their product lines. Even though they omitted these disclosures in their financial reports, shareholder resolutions to seek better disclosure of these risks through the proxy process were also being obstructed by the SEC.”

Full text of the joint letter and complete list of signatories.

CONTACT: Patrick Mitchell, (703) 276-3266 or pmitchell@hastingsgroup.com

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