Stewardship in Action

What is the role of a shareholder?

As a part-owner of the company, a shareholder has the right to express their opinion on how the company should conduct itself. This is primarily done through voting at the business's Annual General Meeting. Engaging in this process is a form of stewardship. 

Why do some proposals don't make it to the AGM?

• The company may have challenged the proposal
• The country's regulatory body may decide to reject it
• The proponent may withdraw the proposal due to coming to an arrangement with the company outside of the shareholder meeting

How can proxy-voting pressure encourage firms to change without an actual vote?

Once a proposal has been submitted, other investors can either disagree or agree with it publically. If enough investors agree with the proposal and pile enough pressure on the company, the company may be forced to act before the issue comes to a vote. This is what happened in the Microsoft vs As You Sow case, where As You Sow submitted a proposal asking Microsoft to produce a report evaluating the ESG benefits of making its devices more easily repairable by consumers and independent shops. The public proxy-voting pressure prompted Microsoft to act, who commissioned a third-party study investigating the issue, expanded the availability of parts, and enabled and facilitated local repair options for consumers. 

Why is divestment becoming increasingly important?

Divestment is becoming an increasingly popular way for people to signal their disapproval of companies’ business practices and operations. The logic behind this action is that if everyone divests from companies that are "behaving badly" in the eyes of the investor, their value will decrease as they struggle to raise equity. Eventually, the company will no longer be able to operate, thus ending the bad behaviour in a very definitive manner. Divestment, therefore, relies on significant collective action.

What are some challenges with divestment?

Engagement becomes more challenging when you are no longer invested in a business or asset. You no longer hold the position of authority you once did as a firm co-owner, so you are left to try and fail to exert influence from the outside. The biggest risk comes from the buyer of the asset, do they care about the issues which caused you to divest in the first place?

When is divestment best?

• Refusal to engage in stewardship efforts
• Rejection of shareholder-supported votes
• Unresponsive to other forms of shareholder action