Focus List 2011: The year in review
As we come to the end of 2011, we take a moment to reflect back on this year’s corporate engagement work. Key areas of successful dialogue include linking executive compensation to performance and minimizing risk in the supply chain.
In the 2011 proxy voting season, Ethical Funds focused on executive compensation at financial services companies. We spoke to all the big five banks in Canada and filed shareholder proposals with TD Bank, Scotia Bank and Laurentian Bank. The proposal with TD Bank was withdrawn prior to the annual general meeting as TD Bank agreed to our suggestions to more clearly link corporate performance with compensation awards. The other proposals garnered 35% support from Scotiabank investors and 27% support from Laurentian Bank investors indicating broad investors' support for changes to compensation design and disclosure.
Ethical Funds’ focus in the consumer discretionary and information technology sectors continues to be on minimizing risk in the supply chain through the establishment of supplier codes of conduct as well as rigorous auditing and public reporting of results. We have been in dialogue with both Canadian Tire and Le Chateau who have strong supplier codes in place and are encouraging them to disclose more on audit results. Throughout this year, we have also been actively addressing the supply chain issues faced by IT companies on the sourcing of conflict minerals contained in their products. Illegal trade in conflict minerals from the Democratic Republic of Congo has fuelled human rights violations in that country and has become a hot topic issue among stakeholders. We have raised the issue of conflict minerals with Canon, Microsoft and Research in Motion.
Our Focus List results are updated quarterly on our website showing our specific goals and objectives for each company and the status of our engagement work. See our Focus List.
Getting the Framework Right on Oil Sands Policy
In a recent report, we discuss the need for investment institutions to incorporate both company dialogues and public policy outreach within an effective oil sands engagement strategy.
The environmental and social risks facing the oil sands industry are widely acknowledged, but not every issue can be dealt with at the individual company level. In September we published a short report, Getting The Framework Right, discussing the need for both company dialogues and public policy outreach within an effective oil sands engagement strategy.
The report highlights key policy issues that need to be addressed to create a positive environment for improved corporate performance in the oil sands. Although some progress has been made, important gaps remain in several areas including:
- strategic land use planning that sets limits on environmental impacts
- a strong tailings management and reclamation framework
- enhanced environmental monitoring
- more attention for Aboriginal rights issues
- effective climate policy that delivers emissions reductions
Read the report Getting The Framework Right: Policy Engagement For Responsible Oil Sands Development.
Having a say on executive pay
Ethical Funds has actively encouraged companies to improve the structure and disclosure of their executive compensation plans in order to ensure that good practices are adopted. Currently, we are initiating dialogues by writing to all companies that offered an advisory vote on executive compensation in 2011.
During the 2008-2009 financial crisis, as businesses and economies faltered, headlines were filled with news of generous executive payouts — signaling a disconnect between pay and performance; prompting us to take action to address this disconnect.
Our first step was to assess each advisory vote on executive compensation. Advisory votes on executive compensation (or say-on-pay) are mandatory in the U.K. and the U.S. but are voluntary in Canada. We actively voted on each compensation package and rejected the majority of them; often because of the lack of a bonus clawback provision. Such a provision allows companies to get back monies paid to executives who have committed fraud or overseen financial misstatements. This retroactive provision is seen as good practice, but Canada has lagged behind the U.S. in adopting it.
Our next step is to initiate dialogue. Ethical Funds has sent a letter to the Board of Directors of every company that offers investors a say-on-pay vote, explaining why we voted for or against their compensation policies. Our goal is to see compensation linked to long-term sustainable corporate performance and our letter is an effort to begin a dialogue on this topic. We have now entered into the dialogue phase and have spoken to the Corporate Secretary of a large health services company in the United States as well as executives at several Canadian banks to share our concerns.
Ethical Funds pushes for cellphone safety
Ethical Funds has actively encouraged telecommunications companies to take a precautionary approach to cell phone use due to health risks. Health Canada now agrees and has revised its position on the issue — supporting consumer action to limit excessive exposure.
Over the past year, we have engaged telecommunications companies such as Telus, Bell Canada and Rogers on the issue of cell phone safety. While there is still uncertainty about direct links to cell phone use and cancer rates, we have encouraged companies to take a precautionary approach and to educate consumers on how to minimize their risk.
According to a new Health Canada report, consumers are now being encouraged to limit the length of cell phone calls, use hands-free devices or text messages and limit usage by children under the age of 18. We will be watching for companies to act consistently with this advice while supporting more research into the issue.
Follow Ethical Funds progress with telecommunications companies on our quarterly updated Focus List.
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