The 2004 Shareholder Advocacy Campaign

What a difference a year makes! In the face of continuing corporate scandals, the third consecutive year of stock market declines, and CEO pay that rose 6% on average last year, investors rose up in protest of excessive CEO pay in 2003. More than 300 shareholder resolutions on executive pay were presented at 2003 annual meetings, making executive pay the most hotly debated shareholder topic. More than 100 shareholder resolutions received majority votes, especially those dealing with the expensing of stock options and those requiring companies to put executive severance pay up for a vote.

The work on CEO pay begun by Responsible Wealth, the AFL-CIO and a few other organizations five years ago, has become a mainstream issue, engaged by the nation’s largest institutional investors. Even the conservative Forbes magazine recently suggested freezing pay during periods of downsizing, an idea first floated by Responsible Wealth in 1999, as one of its seven solutions for controlling CEO pay.

Responsible Wealth and our parent organization, United for a Fair Economy, have always seen our work as shining a spotlight on issues of economic inequality that are otherwise invisible. In our earlier years, we focused on the growing American wage gap. Exposing excessive CEO pay was a part of that work. More recently, we have focused increased attention on the growing wealth gap in the US. Our work centers on exposing the rules and economic structures that have led to the greatest concentration of wealth in a century.

We believe it is time to celebrate our success and the success of our allies in changing public awareness about the harmful effects of excessive CEO pay. It is also time to reconsider our strategy for the next leg of the journey, looking more deeply at the structural forces behind the explosion of executive pay.

One of the great strengths of Responsible Wealth is that our wealthy members work in partnership with people from different class backgrounds. Our shareholder work has afforded us this opportunity in unique and important ways.

Two years ago, we began working closely with the Association of Community Organizations for Reform Now (ACORN), the nation’s largest membership organization of low-income people, to use shareholder resolutions as another tool in the fight to eradicate predatory lending. This partnership has yielded rich mutual benefits. Responsible Wealth has profited from the wisdom and incredible passion of ACORN members, while ACORN has benefited from the opportunity to raise their concerns directly with shareholders.

Our work with ACORN centered on exposing the ways that Household International generated millions of dollars of profits from business practices that exploited low-income and elderly individuals, and communities of color. Responsible Wealth’s shareholder proposal called into question the appropriateness of Household’s CEO receiving lavish compensation for delivering unjust profits. Nearly a third of Household’s shareholders supported our 2002 resolution, delivering a strong message of discontent to Household’s management.

As we move into the future, we believe it is important that our shareholder advocacy work support the efforts of grassroots groups working for economic justice and that it expose the structural injustices that lead to the growing wealth chasm in the United States. In addition, UFE is starting work that specifically spotlights the issue of the racial wealth gap, and we would like our shareholder work to also address that unacceptable divide.

2004 Resolutions

In the year ahead, we intend to submit three types of shareholder proposals:

• Proposals that call for executive pay to be linked to the eradication of predatory lending abuses.

• Proposals that ask for a report examining the race and gender composition of those receiving stock options.

• Proposals asking financial institutions to stop supporting the growth of the private prison industry.

Predatory Lending

The subprime lending industry is the fastest-growing segment of the financial services industry. Subprime lending is directed toward individuals and families with less-than-perfect credit. All too often, however, the rates, fees and marketing practices associated with subprime loans are abusive, resulting in the transfer of billions of dollars of home equity from low-income communities to the coffers of powerful financial institutions. We do not believe that corporate executives should be financially rewarded for generating profits that exploit people.

In recent years, Responsible Wealth and its community partners have focused on Citigroup and Household International, two of the nation’s most aggressive predatory lenders. In the coming shareholder season, we expect to extend our focus to include Wells Fargo and other financial institutions that are rapidly expanding their investments in subprime lending markets.

The Stock Option Glass Ceiling

Stock options have often been pointed to as the single leading cause of CEO pay abuse. We agree with this assessment, but believe the problem lies not with options themselves, but with the concentration of large amounts of stock options in the hands of relatively few employees. Options have been a powerful vehicle for creating wealth. That wealth should be shared equitably with all who help create that wealth. Unfortunately, 75% of options are distributed to the top five officers of companies, a cohort that is overwhelmingly made up of white men.

We believe that having companies report on the race and gender of option recipients will provide an important view on the glass ceiling of corporate wealth creation. In the coming shareholder season, we expect to file this resolution with some of the companies whose executive pay policies we have challenged in the past: Walt Disney, Coca-Cola, Exxon Mobil, Raytheon, General Electric, and Honeywell.

Profiting from Prison Labor

With our prison population at record levels and an incarceration rate that leads the industrialized world, US prison policies play a crucial role in the widening wealth gap, particularly in communities of color. Prison spending in many states continues to rise, crowding out other essential services – schools, health care, and housing – that are being cut.

More young African-American men are now in prison than in college, a dramatic reversal of fortune over the last two decades, one that deprives families and communities of their kin, and keeps potential wage-earners and consumers behind bars. These trends are made worse by the growing privatization of the prison industry. Executives of private prison companies are handsomely compensated in part based on corporate earnings generated from poorly-paid prison laborers.

In the coming shareholder season, we hope to file a resolution with Lehman Brothers, the leading fundraiser of investment capital for the private prison industry (and also a leading source of capital for firms engaged in predatory lending). The resolution will ask Lehman Brothers to develop business standards for industries for whom they will raise money.

Responsible Wealth, 29 Winter Street, 2nd Floor, Boston, MA 02108.
Voice: 617/423-2148 Fax: 617/423-0191.
© 2004 Responsible Wealth. All rights reserved.