Letter from... the US

Shareholders are now urging companies to become more socially responsible, reports Abigail Rayner

Outside Exxon Mobil's annual general meeting in Dallas, Texas this May, a clutch of rowdy protestors held up banners that read 'People before profits' and 'Oil: the new Black Death'. Such protests are nothing new to Exxon's top brass, but in the old days, they were at least able to keep these unruly business-spoilers outside in the car park.

In recent years, Exxon's shareholders have become increasingly vocal on the company's approach to global warming. This year, a shareholder revolt, backed by descendants of the great oil man John D Rockefeller was widely covered in the press. (Rockefeller founded Standard Oil Trust, the company from which Exxon Mobil is descended). Shareholders filed a resolution asking the company to split the chairman and chief executive roles in an effort to open up the debate on green issues, and three further resolutions concerning the environment.

Not surprisingly for a company that reported nearly $40bn in profits, the proposals were defeated, but the impact of the activism is not to be underestimated. The proposals attracted a respectable number of votes - 39.5% of shareholders voted in favour of a move to split the CEO and chairman roles, 30.9% wanted Exxon to set goals to reduce greenhouse gases, and 27.4% agreed Exxon should increase support for renewable energy research. Enough, in other words, to ruffle feathers at the top and guarantee future dialogue.

Exxon is not the only company being pressured by its shareholders about more than just profits. The activist baby-boom generation, who grew up talking about Earth Day and protesting about the Vietnam War, have become the custodians of much of the wealth invested in the US, and as a result, American companies are being challenged on myriad issues. The New York-based non-profit the Interfaith Center on Corporate Responsibility lists many of them on its website: resolutions were filed at Ford, GM, Johnson & Johnson and many others, regarding political contributions and health care reform; investors asked Hershey to report on its progress in implementing the 2001 Cocoa Protocol against forced child labour in West African cocoa farms; resolutions concerning human rights were filed at JP Morgan Chase, and Citigroup among others, concerning business links to Sudan; investors asked Pepsi-Co and Coca-Cola to report on water usage in developing countries; and resolutions filed with Wal-Mart range from questions about nanotechnology safety, to non-discrimination on gender identity, and product safety.

The number of resolutions filed at US companies concerning social issues numbered 393 in the 2008 proxy season, according to RiskMetrics Group, the research and proxy advisory company. Socially responsible investing now encompasses an estimated $2.71 trillion - 11% of the total in the US investment marketplace, according to the Social Investment Forum.

Average vote results are also climbing. 'We used to celebrate a five percent vote in the 80s and the 90s,' says Laura Berry, executive director of the Iccr, which promotes social corporate responsibility. Many results remain outstanding for 2008, but in 2007, the average vote reached 15.3%.

Meanwhile, proxy advisory companies like RiskMetrics and Glass Lewis have formed departments exclusively focused on the needs of socially responsible investors, adding a level of credibility to an area previously regarded as naive or anti-business.

Indeed, corporations who ignore social and environmental issues can expect to suffer a material cost. Those focused only on short-term profits suffer from a lack of vision says Berry. Iccr members filed a resolution concerning sub-prime lending with Associates First Capital in 2000. The proposal, which questioned the risks associated with lending to borrowers with poor credit histories, and the potential legal costs associated with predatory lending, drew just nine per cent of the vote, but the investors' fears proved to be very real. Citigroup, which acquired the lender the same year, later paid $215m to settle Federal Trade Commission charges of abusive lending practices. Eight years later, the US finds itself at the centre of a global credit crisis that has put 100 mortgage lenders out of business, and which started with sub-prime lending.

'That was one of those, "I told you so moments",' says Berry.

There is a model in the global wealth creation mechanism that says companies must be doing something right if they are making money, but increasingly, investors are asking, at what cost? The answer says Berry will, 'ultimately add to the bottom line - not next quarter, but certainly in the next generation.'

Abigail Rayner is a freelance writer based in New Jersey.