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Principles Newsletter Q1 2010
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I. Active Ownership in 2010 In 2010, CBIS plans to engage 34 companies by participating in 29 dialogues and filing five shareholder resolutions. Our issue emphasis remains substantially unchanged from that of 2009, with the majority of effort focused on dialogues relating to human rights and environmental concerns. New initiatives on distribution of pornography and corporate contributions to Planned Parenthood are also planned for later in 2010. Details of these initiatives will be announced later in the year. CBIS has established productive discussions with a number of companies in recent years, reducing our need to file shareholder resolutions.
New Resolution at Goldman Sachs We have filed a resolution at BP with an international shareholder group led by FairPensions, a U.K. non-profit that coordinates civil society groups, pension funds, faith-based organizations and individual investors seeking to improve corporate environmental and social performance. The resolution asks BP to provide shareholders with the business case for oil extraction in the Canadian tar sands region given the attendant environmental, social and financial risks. Filing resolutions is rare in the U.K. due to the high hurdles imposed by U.K. law, which requires 100 separate shareholders as co-filers.
Refiled Resolutions
Nucor Shifts to Dialogue
Dialogues on Water Use CBIS has joined a dialogue with Kraft Foods, the world’s second-largest foodmaker, about the impact of its activities on water supplies. Kraft employs 140,000 people worldwide and owns many well-known brands such as Maxwell House, Oscar Mayer and Oreo. The company has committed to a 15 percent reduction in water use by 2011 and has signed on to an industry group’s water efficiency commitment, which seeks to cut water use among signator companies by 20 percent or more.
Other Dialogues
Concluded Dialogues
Summaries of all 2010’s 34 active ownership engagements can be found in the Shareholder Advocacy Directory at the CBIS website. Engagement by Issue in 2010
2010 Resolutions and Dialogues RESOLUTIONS
(M) = Dialogue is in the monitoring phase. Blue type indicates that CBIS is the engagement leader and strategy coordinator. Shareholder Resolution — A proposal placed on the proxy ballot by a group of shareholders, and voted on by all shareholders at a company’s annual meeting. Resolutions are non-binding, but high vote totals get management’s attention and often spur them to action. Corporate Dialogue — An ongoing communication between a group of shareholders and company management. The shareholders hope to convince management to take action on an issue of concern. A failed dialogue may result in the filing of a shareholder resolution.
II. SRI Issue Update: Confronting Human Trafficking Participants named human trafficking as a top concern in the most recent Socially Responsible Investing Survey (conducted in 2008). In 2009, CBIS expanded our work in the area of human rights to emphasize this issue in engagements with hotel operator Wyndham Worldwide, retail giant Macy’s and global steelmaker Nucor Corporation. Following are updates on all three engagements.
Wyndham Worldwide Wyndham has also established a partnership with the anti-trafficking, non-profit Polaris Project that makes free hotel rooms available for trafficking victims in emergency situations. Shareholders are encouraging Wyndham to create educational materials for hotel guests that inform them about laws against trafficking. Several European hotel chains provide such materials, which Wyndham can use as models. Creating an anti-CST policy is the first element of the travel and tourism industry’s “Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism” (www.thecode.org). The Code is supported by the United Nations Children’s Fund (UNICEF), the U.N. World Tourism Organization, the European Union, and a number of governments. Shareholders are encouraging Wyndham to become a signator, which requires that companies:
The Code is supported by almost 950 companies worldwide, although only three U.S. companies are signators. Wyndham is also working with the highly regarded non-profit, ECPAT, a network of organizations that promote the right of all children to live free of child prostitution, child pornography and child trafficking for sexual purposes. We commend Wyndham for these positive steps and look forward to continued progress with this dialogue.
Nucor Nucor came under scrutiny in 2006 after a Bloomberg Markets Magazine cover story, “The Secret World of Modern Slavery,” reported that pig iron bought by Nucor was made with charcoal produced in Brazil by slaves. Charcoal is made by burning scraps of hardwood, which are then blasted in a furnace to make pig iron, a basic ingredient of steel. The pig iron is purchased by brokers, sold to steelmakers and foundries, and then bought by some of the world’s largest companies for use in the manufacturing of cars, tractors, sinks and refrigerators. Although Brazil banned slavery more than a century ago, forced labor continues there today. Nearly one million men and women work for little or no wages as forced laborers in Latin America, according to the United Nations’ International Labor Organization (ILO). Most victims are poorly skilled, illiterate, landless workers. In some cases, workers are forced into debt to pay for food, travel, and accommodations, and are physically and psychologically coerced to compel their labor.
Nucor agreed to investigate after a shareholder resolution filed two years ago received 27% shareholder support. Our shareholder group filed again in 2010, since the company had not reported on the results of its investigation. In February, we withdrew the resolution after management committed to a number of specific steps that address our concerns.
Macy’s Members of the Interfaith Center on Corporate Responsibility, including CBIS, are also asking the world’s largest apparel brands and retailers to stop buying cotton harvested in Uzbekistan, the world’s third largest cotton exporter. Macy’s has encouraged its retail and apparel trade association to write to the government of Uzbekistan and the U.S. Department of State, encouraging decisive and immediate action to end the use of forced child labor in Uzbekistan. Our next steps with Macy’s include encouraging the company to evaluate vendor compliance with its request to avoid Uzbek cotton and to develop a traceability program so that vendor factories know the origin of materials used to make the clothing sold through Macy’s retail stores.
In addition to our work with Macy’s on Uzbek cotton, we are also encouraging the company to issue a report that includes a description of the ways it assesses human rights at the factories that make its clothing, an evaluation of compliance by these factories, and a general description of any concerns found and how they were resolved. Many major apparel companies produce reports of this kind. Other Initiatives
III. Join the Campaign against Human Trafficking The SRI Action Center is a new feature on the CBIS website’s front page that gives participants ideas for actions they can take as individuals to help improve the environmental and social performance of companies. The SRI Action Center currently profiles the issue of human trafficking and suggests a simple but effective way to support our efforts to combat the form of trafficking known as Child Sex Tourism (CST). When you stay at a hotel, you can provide the service desk with a letter that voices your concern about CST. The letter is available for download at the SRI Action Center. Where appropriate and if your organization agrees, you may wish to put the letter on your organization’s letterhead. This simple action informs hotels about human trafficking and encourages them to formulate a response, while sharing information about the anti-CST policies used by many members of the tourism industry. Please let CBIS know when you use this letter and if you receive a response. We’ll track the number of letters distributed as well as responses received. Email us at: sriaction@cbisonline.com. Text of Letter Greetings: I am very concerned about the issue of human trafficking, a phenomenon that affects virtually every country, including the United States. As a guest at your hotel, I wanted to share information and learn what you and your parent company are doing to protect human rights and educate your staff. According to the United Nations, an estimated 2.5 million people are victims of human trafficking, including forced labor and sexual exploitation. Some of the most vulnerable who fall prey to trafficking are children, through prostitution and sex tourism. Many major hotels now have or are working to create an ethical policy against commercial sexual exploitation of children, to train hotel staff to help identify human trafficking, and to partner with government and social service agencies. Reporting on your website the actions your company is taking would help keep guests like me informed of your commitment, is evidence of proactive and attentive management, and is an important aspect of corporate social responsibility. Developing a corporate policy, training staff, and reporting publicly are components of an industry-wide Code of Conduct called The Code (www.thecode.org), a practical tool facilitating the protection of children’s rights by the travel and tourism sector. It is a multi-stakeholder initiative in collaboration with ECPAT (End Child Prostitution, Child Pornography and Trafficking — www.ecpat.net) with over 800 members in 32 countries and is recognized among tourism industry associations, governments, and child rights and protection organizations, such as the United Nations World Tourism Organization (UNWTO) and the United Nations Children’s Fund (UNICEF). Signatories include Carlson Companies, Accor, and the American Society of Travel Agents. Please give this letter to the Hotel Manager and to the company CEO so that senior management can learn of my interest in this issue and can respond. I have provided my name and address below. As the marketplace increasingly demonstrates, companies must be aware of and sensitive to social and ethical issues. As a customer, the moral and ethical standards a hotel embraces as evidenced by its policies and practices are very important to me. By taking action to eradicate human trafficking, including the sexual exploitation of children, your hotel can signal your commitment to human rights. At the same time, I can feel comfortable that I am giving my business to a responsible member of our local and global community.
IV. Security Brief: Are You a Victim of Identity Theft? How do you know if you’ve become a victim of identity theft? While many of the signs are obvious, all too often they are recognized only long after the fact. Vigilance can help spot ID theft soon after it occurs, reducing the potential damage.
If you become a victim: alert the credit bureaus immediately, notify merchants of fraudulent charges, change all passwords and PINs, report the crime to the police and follow their advice. Keep a log of every conversation, including names, dates, times and phone numbers.
V. Beware of Greeks Bearing Debts By Frank Haines, Chief Investment Officer Tourists marvel at the architecture of ancient Greece, whose magnificent buildings, such as the Parthenon, remain standing after two millennia of war, earthquakes and exposure to the elements. But Greece’s fiscal condition is far more delicate, and increasingly tenuous. Since year-end 2009, Greece has emerged as ground zero for sovereign debt risk, as its leadership struggles to confront a fiscal budget deficit exceeding 12% of GDP and gross debt at 113% of GDP — numbers that far exceed the maximum authorized under European Union (EU) guidelines. This precarious financial condition was partly enabled by fraudulent statistical reporting by previous Greek governments and the recently disclosed use of complex currency derivatives in 2001 to mask the true extent of its debt load. When these revelations surfaced late last year, credit rating agencies downgraded the country’s sovereign debt rating and bond investors swiftly drove interest rates higher for Greek debt. The ability of the nation to issue new debt became doubtful, forcing anxious planning by the Greek government to cut spending and raise taxes, while it explored options behind the scenes for emergency support from the EU or the International Monetary Fund (IMF) if debt markets proved to be unaccommodating. By early March, commitments to increase the country’s value-added tax (VAT) and fuel tax, coupled with cuts in public sector payroll and wages, stabilized the situation — although assurances of solidarity by EU members Germany and France remained vague. The situation remains fragile. Greece must raise EUR 50 billion in 2010 to refinance maturing debt, while its economic growth projections seem aggressive in the face of planned austerity measures and the vociferous and at-times violent opposition by public sector unions at every step of the process.
Canary in the Coal Mine
When the public sector becomes too large for the private sector to support, when bookkeeping becomes too arcane for reasonable analysis, and when lenders refuse to roll over outstanding debt, the problem can no longer be ignored. Greece has now reached that stage. Other EU nations — such as Spain, Portugal and Italy — are not far behind. Nor are northern European nations, as the financial industry represents a major segment of their economies. The U.K., Ireland, Switzerland, Belgium, the Netherlands and the Scandinavian nations will face severe financing problems if their banking sectors relapse into insolvency due to further credit deterioration. The recent depreciation of the U.K. pound and the euro against the U.S. dollar is an early indicator of the bond markets’ concern about this possibility, suggesting that the sovereign debt problem may not end with the near-term resolution of Greece’s woes.
Borrowing Our Way to Prosperity
Europe may be a few steps ahead on the road to sovereign debt crisis, but the U.S. may not be far behind. The International Monetary Fund (IMF) estimates that the U.S. debt-to-GDP ratio will reach 108% by 2014, not far from Greece’s current 113%. Far more optimistically, the U.S. government projects nominal GDP growth in excess of 5% in 2012 and beyond, and a decline in the unemployment rate to nearly 5% from its current 10%. Under this scenario, federal debt will remain near 65% of GDP. But such forecasts, similar to Greece’s sanguine predictions, are hard to take at face value. The problem confronting all developed nations is that economic growth and financial market gains during the so-called “Great Moderation” of the past 25 years were well above historical norms, and were powered by a wave of cheap, excessive debt accumulation. Low yields were accompanied by financial innovation that ended up failing badly. The now-inevitable deleveraging will curtail future growth, despite the government liquidity programs and fiscal stimuli employed to offset near-term pain. Both capital spending and consumption will be reduced as debt levels are reduced in the private sector. Sovereign governments have somewhat more flexibility (unless, like Greece, they can’t issue their own currency), yet they must ultimately deleverage too. And without confidence in strong economic growth and resultant tax revenues, buyers of government debt will force interest rates higher. Whether the ultimate resolution of the debt burden comes through default or inflation, it seems inevitable that promises made to pensioners and public employees may be broken.
The Next Stage of the Crisis?
VI. Kathy Almaney Elected Chairperson of CBIS Board of Directors CBIS board member Kathy Almaney was elected board chairperson at the February 19 meeting of CBIS’ board of directors. She succeeds Br. Damien Steger, FSC of St. Mary’s Press, who had acted as interim Board chair in 2009. Kathy Almaney has served as a member of the CBIS board of directors since February 2004. She is the founder and president of Almaney Consulting, a provider of human resources and general management consulting services to corporate and institutional clients. Prior to founding Almaney Consulting in 2002, Ms. Almaney worked at Northern Trust Company in Chicago for almost 23 years, most recently as a Senior Vice President of Human Resources. She was a manager for over 20 of her 23 years with Northern Trust in the areas of recruiting, employee relations, training, EEO, diversity, compensation and management consulting. Before joining Northern Trust, she was a teacher and a Director of Religious Education at several Catholic schools and parishes. Ms. Almaney holds a bachelor's degree from Siena Heights College (now University) in Adrian, Michigan, and a Masters in Religious Education from Loyola University, Chicago. Ms. Almaney also serves as a director for the Women Employed Institute and the Advisory Board of Catholic Charities of Chicago.
VII. Frequently Asked Questions Q: I recently read about an IRS requirement that U.S. institutions file a special form for foreign accounts. I invest in the CUIT International Fund. Does that mean my organization needs to file this form? A: No, the IRS Report of Foreign Bank and Financial Account (or FBAR) requirements does not cover the CUIT International Fund. While the Fund invests in stocks of foreign companies, the Fund itself is domiciled in the U.S., so it is not considered an international or foreign holding by the IRS. The IRS recently raised the profile of the FBAR requirements when it issued updated guidance for filing requirements in February of this year, alleviating some confusion among investors and tax professionals alike. For other international holdings, including any investments in CBIS Global Funds, please consult a tax professional to determine if the FBAR requirements apply.
CBIS Office Closings |
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Copyright ©2008 Christian Brothers Investment Services, Inc. |
