Scandals Waking Investors to Corporate Responsibility
The Naomi and Nehemiah Cohen Foundation has held shares in ExxonMobil through its various money funds for years. But this month’s shareholder meeting will mark the first time that the foundation will send a proxy to vote on resolutions facing the company —including ones on global warming and the salaries of Exxon executives.
It is the season of annual shareholder meetings, and this year the Cohen Foundation is joining nine other Jewish institutional investors in the first coordinated Jewish effort to affect the votes at these meetings.
The 10 organizations — with their combined assets of $1.3 billion — are part of the newly founded Jewish Shareholder Engagement Network. The network’s advisory board will provide guidance on how members should vote on 60 resolutions at shareholder meetings of widely held companies, including 3M, Ford and Pfizer.
Rather than hail the formation of the network, though, the network’s organizers and other socially engaged investors wondered what took Jewish organizations so long to get involved.
“There has been a noticeable absence of Jewish groups involved and organized with their investments,” said Michael Passoff, the associate director of the As You Sow Foundation, a San Francisco-based organization that focuses on the issue of corporate accountability. “It’s long overdue.”
The inactivity of Jewish organizations has been notable because the socially engaged investing movement was started 30 years ago by religious groups that came together to create the Interfaith Center on Corporate Responsibility.
Today the interfaith coalition boasts 275 member organizations with combined assets totaling $100 billion, including the pension boards of the Methodists and the Presbyterian Churches (USA), as well as the much smaller Province of St. Joseph of the Capuchin Order.
Until now, the only active Jewish members in the interfaith coalition have been a Philadelphia investment vehicle called the Shefa Fund and the Reform Pension Board, which represents all Reform movement clergy, making it the largest Jewish pension fund. The two organizations led the drive to create the new Jewish network along with the Nathan Cummings Foundation.
The first stirrings of Jewish interest come at a time of surging general interest in shareholder involvement, sparked by the rash of corporate scandals at companies like Enron and WorldCom. At annual meetings, the number of shareholder resolutions — which can be introduced by almost anyone with stock worth more than $2000 in a company — shot to more than 1,100 in 2004, from 744 in 2001, according to research done by the Investor Responsibility Research Center.
The sharpest rise came during 2002, when labor unions introduced a slew of resolutions calling for closer accountability of executive salaries. The spike during this election year is due primarily to new resolutions calling on companies to itemize political donations and the financial rationale for each donation.
At a time when some observers fear the government is not doing enough to regulate the business world, socially engaged investors have settled on shareholder resolutions as a more direct means of affecting corporate behavior.
“It’s a critical time to raise the moral and ethical voice,” said Sister Patricia Wolf, the executive director of the interfaith coalition. “From a global perspective it’s a wonderful time for groups, like Jewish ones, who have never thought about shareholder advocacy to get involved.”
The network represents six Jewish foundations — including the Forward Foundation, an arm of the Forward Association, which publishes this newspaper — and four institutional investors. But the $1.3 billion in assets owned by network members represents only a fraction of the estimated $25 billion in assets held by American Jewish institutions. Mordechai Liebling, the organizer of the new network and the director of the Philadelphia-based Shefa Fund, has had little luck so far in drawing in major investors like Yeshiva University, which boasts a $1 billion endowment.
Liebling, who organized the network with funding from the Nathan Cummings Foundation and the Jewish Funders Network, was critical of organizations that have failed to monitor the companies in which they invest. “Jewish institutions are in effect abdicating their responsibility as owners,” Liebling said.
From its inception, the interfaith coalition has been dominated by liberal groups and focused on liberal concerns — and the Jewish network is following suit, attracting mostly organizations on the left end of the political spectrum.
“You don’t see the Southern Baptists or the Mormons,” said Tim Smith, the senior vice president of Walden Asset Management, a socially responsible investing firm. But Smith insisted that many corporate governance issues raised by liberal institutions — like CEO pay and the number of independent directors on company boards — should actually be of immediate concern to investors of all political stripes.
Politics is not the only issue at play in the Jewish community, where most institutional investors — liberal and conservative — have opted not to get involved. The Reconstructionist Rabbinical College, with a $15 million endowment, decided not to join the network, citing what it described as the difficulty of communicating proxy votes to its professional investors.
Those Jewish organizations and institutions that have joined the network are putting their weight behind resolutions that reflect concern over the recent spate of corporate scandals. But the network and the interfaith coalition continue to focus most of their attention on social and environmental issues, like global warming and worldwide-health concerns.
The American Jewish World Service, which is a member of the Jewish network, jumped into the fray this year by leading a campaign to have Jewish investors vote for resolutions supporting research into the impact of AIDS on the work force and customer base of companies in southern Africa. The campaign scored an early success in April, when, in a rare move, Coca-Cola recommended in advance of its annual meeting that its investors back the shareholder-introduced resolution, leading to an eventual 97% vote for the measure.
It was another crisis in South Africa three decades ago — the fight to end apartheid — that provided the main impetus for religious groups to become socially engaged investors. The interfaith coalition coalesced around the push for divestment from the South African government — a move that is widely described as one of the first major steps leading to the end of apartheid.
The divestment campaign was launched at time when the governments of Israel and South Africa were relatively close, and the timing is one of the major reasons that Jewish groups did not become involved in the religious investor movement early on, according to Liebling.
This year marks the appearance of the first shareholder resolution posing a direct challenge to the Israeli government. To protest the use of Caterpillar tractors by Israel to bulldoze Palestinian homes, Jewish Voice for Peace sponsored a shareholder resolution calling on the company to investigate how its products are being used by Israel.
The measure secured the 3% of the vote necessary to be put on the ballot again next year, but was not endorsed by the Jewish network.
The potential for shareholder resolutions to affect Israel is one of the main reasons Liebling says Jewish investors should become involved. When campus activists started a campaign to divest from Israel, Liebling said his standing among institutional investors put him in a position to write a memo to the major engaged investors, asking them not to support the divestment campaign. None did.
But the issue goes beyond self-interest, Liebling said, arguing that Jewish organizations have a religious mandate to invest responsibly, citing what he calls the Torah of Money. Liebling likes to point to a talmudic discourse on the ownership of an ox. If 10 people hold shares in an ox, so the learning goes, then each owner must pay one-tenth of any damage that the ox may cause.
Living in a country where limited liability rules allow shareholders to be absolved of any responsibility for the companies they own, Liebling says the lesson is clear: “You cannot transfer responsibility for the effects of your assets.”