Stockholder activism changes companies from inside
Text: Roeland Muskens
In may 2015, the founder of Follow-this, former financial journalist Mark van Baal (see interview), spoke at the annual meeting of shareholders for the first time. 300 people had bought a stock and nominated Van Baal to speak on their behalf. Van Baal didn’t accomplish much however. Follow-this did not represent enough capital to put Shell’s climate policy on the agenda, but Shell director Van Beurden did show that he wanted to take van Baal seriously. “When I started about the emails he said: ‘I’ve read them all.’”
A year later and Van Beurden saw Van Baal take the stage again. But unlike the previous year, Follow-this didn’t represent ten thousand euro’s worth of stocks but closer to five million. Not just enough to take the floor, but also to hand in a resolution. In the months leading up to this Follow-this had succeeded in finding ten people who were each willing to invest half a million into Shell stocks to strengthen follow-this their cause. The Shell director got into an extensive discussion with Mark van Baal, who had started his speech with compliments for which steps Shell had already made towards sustainability. Despite the friendly tone the Shell top discouraged the Follow-this resolution. But a breach was made in the bastion of shareholders: the institutional investor Actiam (representing over 66 billion in investments) voted for the Follow-this resolution. And at this point large pension funds like Aegon and Nationale Nederlanden have also come around.
Activist shareholders aren’t a new phenomenon. Attempts of shareholders to change the policy of a company aren’t just reserved for do-gooders. Quite the contrary in fact, shareholder activism is most common among hardcore investors and hedge-funds who want to ensure maximal short term profits. And that’s the way we usually know investors to be: always willing to risk sustainability for quick profits. Companies that cautiously move towards sustainability or socially responsible practices risk unruly shareholders or even a hostile take over. A well known example is the Children Investment Fund. This investment fund was responsible for the 2007 breakup of the ABN-Amro bank, which sold parts of to the Royal Bank of Scotland, Fortis, and Banco Santander. This eventually lead to the imminent bankruptcy of the bank and the Dutch government was forced to step in. The remarkable thing was that the Children Investment Fund pushed through this strategy with only one percent of the stocks.
That enormous influence based on relatively little stocks had already come to the attention of Mark van Baal. In reality you really don’t need a majority to still have influence he realized. Of course there’s a correlation between the influence and the amount of stocks, but that relationship isn’t linear. Even relatively small shareholders have the right to address the floor and to put points on the agenda. But success is mostly dependent on another weapon: publicity. Companies are eager to avoid the image of not listening to share holders, especially when it comes to long term concerns.
The annual shareholder meeting of Shell, traditionally held in the Circustheater in Scheveningen, has been the stage for activists for years. Greenpeace, Environmental defence, human rights activists from Nigeria and earthquake victims from Groningen. Virtually every year there are organizations who buy stocks to try and change the course of the ‘oil tanker’. The ‘traditional’ shareholders have become used to it.
This started in the seventies of the last century. From 1973 to 1990 anti-apartheid activists visited the Shell stockholder meeting annually (see text). By buying stocks they got a voting right during the meeting. The first activist was Cor Groenendijk. Groenendijk was coordinator of the christian anti-apartheid movement Kairos: “I had bought a stock with fifty gilders and wrote a letter asking to speak at the shareholders meeting. Where the room reacted shocked at my points.” Initially the talks were mostly aimed at starting a dialogue with Shell about their presence in South Africa. In 1978 the first resolution was filed in which the company was urged to pull back from South Africa. Shell’s involvement in apartheid in South Africa was an explosive subject during the eighties. Shell wouldn’t budge, although this lead to a hit to their reputation.
Since several years the environmental policy has been at the top of the agenda for the shareholder meetings of Shell. This is something the activists have accomplished already. But there have also been concrete results. Under pressure of Follow-this and others, Shell has made major strides in the right direction. Stimulated by this success, Follow-this has now targeted other oil companies. Mark Van Baal and Follow-this recently made their debut with both BP as the Norwegian Equinor.
How successful are stockholder actions for social entrepreneurship? At the time of the anti-apartheid campaigns Shell didn’t budge. The company kept doing business with the whites in power till the end. And nowadays there are still few examples of shareholder campaigns which really show they lead to more sustainability in the company. During an ‘expert-panel’ organised by ‘Duurzaam Bedrijfsleven’ (sustainable entrepreneurship) financial journalist Mathijs Bouwman says the following: “I don’t see pension funds rallying to get companies to become more sustainable.” When weighing short and long term benefits those focused on the short term will generally prevail, says Bouwman. “I also don’t believe that stock holders with a sustainable agenda have a direct influence on the course these companies have. I for one haven’t encountered an actual example where they have succeeded. That kind of influence is still reserved for CEO’s and CFO’s of this world. Where stockholders can make a difference is the environmental factors which create an air of change within a company. Its trendy to have a broad outlook on the world and the environment. That sentiment is what stockholders can stimulate within a company.” Vicky van Heck, senior projectmanager sustainable entrepreneurship at the VBDO (foundation for investors for sustainable development) is somewhat more optimistic. According to her sustainability is easily combined with shareholder interests. That has to do with the increasing attention to long term interests. During the same expert panel van Heck states: “Various studies show that when sustainable investments are profitable in the long term and creates value for shareholders.” Especially the large pension funds, and those are often the larger institutional investors, prefer the long term. As opposed to hedge-funds, who aim at short term profits.
Research at MIT, for the Boston Consulting Group, shows that on average, investors care more about sustainability than CEO’s of companies think they do. According to a survey among 3000 leaders of investment funds in over 100 countries, 75% says that sustainability plays a crucial role in where they invest. Sustainability has a strong impact on long term financial success, so says 3 quarters of the those questioned.
Survival and profitability on the long term are not the major arguments with which Mark van Baal from Follow-this tries to convince the shareholders from Shell to vote for his resolutions. His biggest argument is that climate change brings risks with it to the billions investors have. “more and more investors see that climate change needs to be stopped for financial reasons, and that oil companies can make or break the Paris climate accords. They support the course change of oil companies by supporting out climate resolutions.” As a frightening example Van Baal uses the company Kodak: once a world leader in analog photography. Because Kodak was too focused on its profits from film rolls rather than paying attention to the threats (and opportunities) of the digital era, it was forced to ask for extension of payments in 2012.
Invest or divest?
It might be a little bit cynical: buying stock in an oil company to prevent global warming. While Follow-this asks activists to invest into Shell, Fossielvrij (fossilfree) asks you to take the opposite route, de-investing, or divesting, as they call it. ‘Under the motto ‘Make your pension Paris-proof’ Fossielvrij calls upon the large pension funds to get rid of their stocks in
Shell (among others)On their website Fossielvrij puts it as follows: we’re building a citizens movement which can break the power of the fossil fuel industry. Together we ensure that our municipalities, universities, schools, and pension funds turn away from the fossil fuel industry. That way those companies lose their societal base. And that gives our society the space to make the right choices for a safe and healthy planet.
“Our approach does clash with that of Follow-this”, says Fossielvrij director List Meddens. “We can see however that any attempt to change things from within has resulted in very little. We simply do not have the time to wait for that to happen.” According to Meddens, the recent pledges from Shell are nothing more than ‘window dressing’. The companies aren’t prepared to make actual changes to their business-models. “the large fossil fuel companies are only as powerful as we’ve made them, partly by investing our pensions in these companies. Because we have the power we can grab it back as well.”
Rights for shareholders
Everyone with a share has a right to speak during the general shareholders meeting of a company. The right to file a resolution however, depends on how many shares someone has. Because Shell’s statuaries are based in the UK, the British rules apply. To file a resolution Follow-this needed to have at least 1500 euros of nominal value stocks (thats the value noted on the stock, which isn’t necessarily its market value), which comes down to about 5 million worth of shares.
In the Netherlands the hurdle to file a resolution relatively high: at least 3% of outstanding shares. This high threshold is meant to protect companies against activist shareholders. The high threshold has therefore led to shareholder activism campaigns to struggle more in the Netherlands than the US or UK.
Investors against Apartheid (1973-1990)
From the 70’s onwards, activists against Shell’s involvement in South Africa often showed up at shareholder meetings. Shell director De Bruyne in 1979: “The activists aren’t shy to paint a picture of Shell in their leaflets as either an accomplice or responsible for terror and murder.” Despite the disapproving stance of Shell, the shareholder actions were an effective way to get the apartheid theme on the agenda. Shell wasn’t lawfully allowed to bar the activists entry to the meetings.For the activists it was mostly about media-attention. Internally Shell didn’t budge. The meetings became less and less controllable. Where first this was about a handful of teens who were handing out pamphlets and some minor interruptions, by 1982 the meeting was disorderly to say the least. The regular shareholders had to endure cries calling them ‘murderers’ and ‘liars’. In 1986 the commotion in the meeting was so big that the president-commissioner Wagner had to ask the police for help to remove the activist shareholders. “I no longer want to hear the word South-Africa,” Wagner said during the meeting.