On the 2nd of December 2020, Bruce Herbert (Founder and Chief Executive of Newground Social Investment) gave his presentation within the Corporate Social Responsibility and Business Ethics Blog’s End-of-Year Seminar Series 2020 entitled “CSR, Whistleblowing and Human Rights” and organized by Dr. Costantino Grasso, Dr. Dawn Carpenter, and Dr. Luca d’Ambrosio. The series has been organised in partnership with the Centre for Financial and Corporate Integrity (CFCI) of Coventry University and the EU-funded research project VIRTEU (Vat fraud: Interdisciplinary Research on Tax crimes in the European Union – Grant Agreement no: 878619).
In his brilliant talk, Bruce Herbert discussed “Shareholder Activism and Corporate Ethics: Impacting Public Corporations.“
Bruce Herbert is Founder and Chief Executive of Newground Social Investment. He began his career in 1984 with Merrill Lynch, training on Wall Street. But shortly after, he realized that whenever money moves it has an impact – and without tremendous forethought, those impacts can be quite negative. Consequently, he founded Newground to change this.
Summary of the Seminar (by Stephen Holden)
With a focus on the role of shareholders on the actions and governance of corporations, Bruce considers shareholder activism how this may interact with corporate ethics, and the exercise of environmental social governance (ESG), and corporate social responsibility (CSR).
Critically, Bruce explains that with a truly long-term perspective, the interests of investors are aligned with that of the workers, principled environmentalism, and good governance. ESG impact studies have demonstrated that responsible investment leads to increased profits in major firms, and as such not only is it not necessary to give up economic return in favour of moral investments, it is actively counterproductive in the long term. The two may be considered symbiotic in nature. Bruce goes on to explain the nature of the exercise of shareholder voting rights, and how to empower shareholders in exercising their duty.
By considering the various points of influence on a company and the numerous factors that contribute towards corporate decision making, we are able to better understand how to affect these points of influence when encouraging ESG and CSR. This is supported by providing a method of structuring good faith dialogue between shareholders in order to effectively structure shareholder proposal and best achieve the desired results.
Contextualising these points, Bruce provides examples of successful shareholder activism within Du Point’s strip-mining activities in the Okefenokee Wildlife Refuge, and the Champion International Corporation who were polluting the Pigeon River. In both cases, significant environmental damage was being caused, and through direct shareholder intervention and tabling successful proposals with sufficient backing, significant improvements were made leading to improved environmental outcomes while also protecting investors interests. Similarly, Bruce explains that through the use of shareholder activism, McDonald’s undertook a pilot programme that stopped the use of pesticides in 10% of potato growing operations. This was so successful, it was rolled out across all agricultural growing activities, and McDonald’s began encouraging peer and competitor organisations to do the same.
For shareholder activism to be effective, it is important to understand the various methods of counting votes, and how this may be otherwise manipulated in order to achieve the result management desire as opposed to investors. Accordingly, Bruce explains the use of the ‘Delaware Formula’, as opposed to the ‘Simple Majority Formula’ in order to manipulate the outcome of votes. Following reforms, the Delaware Formula was phased out as a means of vote counting, yet this led to a modified version which again allows for the diminishing of voter outcomes. Finally, Bruce explains how personal investors can maximise their impact on corporate operations, including knowing what they own, voting in proxies, connecting with the sustainable impact investment community, and becoming an engaged investor.